General Manual of Zakat

Purpose of the Guideline This GUIDELINE includes the most prominent zakat items in dispute and objection between taxpayers and the Zakat, Tax and Customs Authority, such as zakat treatments for investments, non-deductible expenses, additions to and deductions from the zakat pot, retained profits, loans between sister companies, and deferred losses, The Authority has studied and analyzed the most prominent of these items and has collected them in this manual to inform those responsible and reduce disputes and differences between taxpayers and the Zakat, Tax and Customs Authority. In an effort to raise awareness of accounting Zakat. 2. Glossary of Zakat Accounting Terms 1. Zakat year: The taxpayer‘s financial year, whether Hijri or Gregorian, is short or long, at the beginning or end of the activity. 2. Zakat Base: Taxpayer‘s assets subject to zakat. 3. Internal sources of funding: Components of equity and provisions that are used to finance assets and activity. 4. External sources of funding: Debts on the taxpayer (loans, long and short-term liabilities) used to finance assets and activities. 5. Non-deductible Assets (Zakat Assets): They are the assets that the Regulations do not provide for deduction. 6. Deductible Assets (Non-Zakatable Assets): They are deductible assets under the Regulations, including: Assets that are not subject to zakat by their nature such as fixed assets (durable goods) and zakatable assets such as investments in companies. 7. Double Deduction: Getting together of the deduction of the deducted items value without adding their source of funding. Consequently, the zakat base decreases by the value of the double-deductible item. 8. Retained Earnings from Previous Years: Balance of accumulated made and retained earnings from previous years. 9. Dividends: Dividends approved for distribution and deposited in the shareholders‘ accounts. 10. Profits in Distribution (Profits declared for distribution): Profits that have been approved for distribution but not deposited in the shareholders‘ accounts. 11. Adjusted Net Profit: Net profit after being adjusted for zakat purposes, in accordance with Chapter III of the Executive Regulations for Levying Zakat. 12. Adjusted Net Loss: Net loss after being adjusted for zakat purposes, in accordance with Chapter III of the Executive Regulations for Levying Zakat. 13. Holding Company: A joint stock or limited liability company that aims to control other joint stock or limited liability companies called subsidiaries, by owning more than half of the capital of such companies or by controlling the formation of their Board of Directors. 14. Subsidiaries It is a joint stock or limited liability company, which is controlled by a joint stock or limited liability holding company. 15. Carried Forward Losses: Balance of retained losses from previous years. 16. Used Provision: The amount spent during the year from the provision for the purpose for which the provision is made. 17. Holding Investments for Non-Trading Purposes Investments in shares, acquired for the purpose of benefiting from the proceeds to be a source of income not for the purpose of trading. 18. Deferred Tax Assets: The amount of refundable taxes in future periods in respect of the following: • Deducted temporary differences (i.e., deductible from tax profit in future periods). • Unused and carried forward tax losses to the following periods. Unused and carried forward tax deduction to subsequent periods. 19. Fair Value. The price will be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (knowledgeable and willing parties) at the measurement date. 20. Capital Expenses: Expenses of a capital nature that are capitalized to be amortized over several years, according to the life span of the asset represented by them. 21. Final Zakat Due: The final zakat value calculated and payable.