1Second Edition | April 2020

Conditions and Conditions for Applying the Exemption of Charitable Associations, Non- Government Organizations, and Training Units from Zakat Collection Paragraph (1) of Article Seven of the Implementing Regulations for Zakat Collection provides for the exemption of charitable associations, non-government organizations, training units, and entities wholly owned by them: “Zakat payers referred to in this Article who engage in public benefit activities shall be exempt from Zakat collection, subject to an annual request submitted to ZATCA within 120 days from the end of the Zakat year, provided the following conditions and requirements are met:” Charitable associations, non-government organizations, training units, and entities wholly owned by them are exempt if the following conditions are satisfied: A.  Their revenues must be dedicated to public charitable purposes or community benefit, and not to specific individuals. However, organizations may be exempted if no more than ten percent (10%) of their net profit is directed at a designated beneficiary, provided that the following conditions are met: 1. The designated beneficiary must be specified among the objectives of the organization as stated in its regulations, Articles of Association, or incorporation document. 2. All expenditures made outside the scope of public charitable or community purposes must be counted toward the designated beneficiary allocation. 3. All returns and gains from assets, as well as income and profits from investments, donations, and grants, must be included in the revenues of the organization. 4. Where more than one institution shares ownership in the Zakat payer, the percentage allocated to a designated beneficiary shall be calculated proportionally among such institutions. 5. The allocation to a designated beneficiary must be substantiated through the institution’s audited financial statements, or by a report issued by a certified public accountant licensed in the Kingdom, in accordance with the form approved by ZATCA(3). B.  The institution must be duly licensed by the competent authorities in the Kingdom and formally documented in accordance with statutory procedures. C.  The institution must maintain audited financial statements prepared by a certified public accountant licensed in the Kingdom, or such other documents as may be accepted by ZATCA. D.  A training unit must hold a final license (as a non-profit training establishment). Example: Organization (X) allocates its expenditure exclusively for charitable public purposes and has no designated beneficiaries. It is duly licensed by the competent authorities in the Kingdom of Saudi Arabia, formally documented in accordance with statutory procedures, and maintains audited financial statements prepared by a certified public accountant licensed in the Kingdom. Solution: Organization (X) is exempt from Zakat collection, as it allocates its expenditures exclusively for charitable public purposes, does not have designated beneficiaries, is duly licensed by the competent authorities in the Kingdom of Saudi Arabia, is formally documented in accordance with statutory procedures, and maintains audited financial statements prepared by a certified public accountant licensed in the Kingdom. Example: Establishment (X), wholly owned Organization (Y), allocates its expenditure exclusively for charitable public purposes and does not have any designated beneficiaries. It is duly licensed by the competent authorities in the Kingdom of Saudi Arabia, formally documented (3)  Annex: Model Certificates of the Certified Public Accountant