1Second Edition | April 2020

Conditions Governing Exemption of Non-Profit Companies from Zakat Collection Paragraph (3) of Article 7 of the Implementing Regulations provides for the exemption of non- profit companies, as well as companies wholly owned by them, established in accordance with the provisions of the Companies Law, its Implementing Regulations, and any subsequent amendments thereto, subject to the following conditions: a. The purposes and fields of the non-profit company, as set out in its Articles of Association or bylaws, shall be limited to the purposes and fields prescribed for public non-profit companies. b. Expenditures directed to a designated beneficiary must not exceed ten percent (10%) of the company’s revenues. Such limitation extends to any benefits granted to the company’s owners or board members, including their allowances or salaries in consideration of the services and work they provide to the company. c. All company expenditures, including those mentioned in (b) of this paragraph, must be substantiated through the company’s audited financial statements, or a report by a certified public accountant licensed in the Kingdom(5), or any other documentation accepted by ZATCA. This treatment constitutes an exemption from Zakat collection for non-profit companies, pursuant to the Companies Law issued under Royal Decree No. (M/132) dated 1 Dhul-Hijjah 1443 AH (corresponding to 30 June 2022), and its Implementing Regulations, which in Article 196 state: “By way of exception to the relevant laws, ZATCA, in coordination with the Ministry, shall establish the necessary conditions to exempt non-profit companies from the provisions of Zakat collection and from taxation.” (5)  Annex: Model Certificates of the Certified Public Accountant Example: A private non-profit company has been established under the provisions of the Companies Law. Its Articles of Association either fail to specify the purposes and fields of the company or specify purposes and fields other than those prescribed for public non-profit companies. May such a company request exemption from zakat? Question: Do the exemption rules from Zakat collection apply to the non-profit company? Solution: Based on the foregoing, the non-profit company is subject to Zakat collection because it does not meet the exemption conditions stipulated in the Regulations, namely that the purposes and fields of the non-profit company, as specified in its Articles of Association or bylaws, shall be limited to those prescribed for public non-profit companies. Accordingly, the non-profit company is deemed a Zakat payer under the provisions of the Regulations. Example: A private non-profit company established under the provisions of the Companies Law submitted a request for exemption from Zakat. The company’s total expenditures on a designated beneficiary amounted to 7% of its revenues, and it did not provide audited financial statements or a report from a certified public accountant licensed in the Kingdom to verify its expenditures. Does the company have the right to request an exemption from zakat? Question: Do the exemption rules from Zakat collection apply to this non-profit company? Solution: Based on the above facts, the non-profit company is subject to Zakat collection because it does not meet the exemption conditions stipulated in the regulations, namely: that all company expenditures, including those mentioned in (b) of this paragraph, must be verified through the company’s audited financial statements, or a report from a certified public accountant licensed in the Kingdom, or other documents accepted by ZATCA. Accordingly, the non-profit company is deemed a Zakat payer in accordance with the provisions of the regulations. Example: A private non-profit company spent 20% of its revenues on members of the board of directors. Does the company have the right to request an exemption from zakat? Question: State the extent to which the exemption rules from Zakat collection apply to this non- profit company. Solution: This company is subject to Zakat collection because it does not meet the exemption conditions stipulated in the regulations, as the amount spent on board members exceeded 10% of its revenues. Accordingly, this non-profit company is deemed a Zakat payer in accordance with the provisions of the regulations. Example: A public non-profit company allocated its expenditures to one or more of the categories designated for spending on public purposes and provided evidence of all its expenditures through the company’s audited financial statements or other documents accepted by ZATCA, with no spending on designated beneficiaries. Does the company have the right to request an exemption from zakat? Question: State the extent to which the exemption rules from Zakat collection apply to this non- profit company. Solution: This company is exempted from Zakat collection due to the applicability of the exemption conditions stipulated in the Regulations. Accordingly, the non-profit company must submit a request for exemption from Zakat collection after submitting the Zakat return in accordance with the provisions of the Regulations.