First Edition | August 2023

2. The Company's budget be funded from the state treasury This refers to:That this state-owned company be funded by the general budget of the Kingdom of Saudi Arabia that reports the annual revenues and expenditures of the Kingdom, aggregated for all government entities and agencies across itsvarious operational sectors and overseeing them.. In the event that the above conditions are met, the rest of the conditions shall be collectively met as follows: ● The nature of the Company`s business is service-oriented The principle stipulates that the licensed activity of the Company should not includes any activity other than service-oriented activities, such as importing or buying and selling goods, and other similar other activities that are not inherently considered as services according to the list of economic activities approved by the Ministry of Commerce in the Kingdom. However, this condition does not violate the cases in which the company may perform a nonservice activity, provided that this activity shall not dominate company’s main nature of work as it performs the service activity licensed by official entities in the Kingdom. ● Company’s purpose is to support government entities in performing their businesses I. e.: The main purpose of establishing the company by the state is designate it exclusively for providing any type of support to other state’s bodies of ministries, authorities, and other government entities. ● Most of its clients are government entities It is meant that the beneficiaries or the intended recipients of the service are mostly government entities in the country.. Thus, the purpose of establishing this company should be to support the government sector. This is without having its main objectives to serve customers from private sector or individuals within the context of its economic activity, which in this case, aims to generate commercial profit. Classification as per sector Saudi Riyal Sales to the public sector 95 million Sales to the private sector 5 million ● Its purpose is not generating commercial profit i. e.: The commercial nature of this company's activity should not predominantly aim at competing in the market and achieving profit., Rather, its focus should be on providing support to government entities and other state institutions to assist them in performing their tasks and achieving their goals.. This is even if the surplus is achieved as a result of engaging in these activities. ● Company’s sales to private sector shall not be more than 10% of total sales As an exception of the aforesaid, in the event the company provides services to the private sector, sales to the private sector shall not be more than 10% of its total sales. Total sales is total revenues generated from sales as a result of implementing contracts or purchase orders before the deduction of disallowance of any costs or expenses related to these services excluding value added tax. Example: Company (X) is wholly owned by the state; It has a Commercial Registration also its budget is financed by state’s treasury. Company (X) engaged in the field of information security (a service activity) it provides all its services to ministries, government departments, and other state’s bodies in the Kingdom. It can also provide its services to private sector in certain exceptional cases. At the end of the financial year, company’s total sales are amounting to SR 100 million, classified as below: Required: Determine whether the company (X) meets the conditions of exception stated in the decision for the purpose of subjecting to Zakat collection or not. Answer: considering the above inputs, meeting exception conditions stated in the Ministerial Resolution shall be analyzed as follows: