Zakat Transactions in the Construction&RET Sectors

Non-deductible Expenses The following expenses may not be deducted to determine the result of the business for the purposes of Zakat: 1. Expenses and costs not associated with the Zakat payer business, including the following: ● Expenses of a capital nature. ● Salaries, wages and equivalents paid to the owner, partner other than what is registered with the social insurance. ● Personal expenses related to partners. 2. Expenses not supported by documents or evidence acceptable to the Authority. 3. Zakat or tax, payable or paid, except for VAT incurred by the Zakat payer. 4. Contribution of workers to pension and savings funds. 5. Provisions and reserves formed during the year. Import differences and how to address them During the inspection stage, the Authority verifies the value of the import based on the customs declaration and compares it with the value declared by the Zakat payer. This will be done after deducting any imports added to the fixed assets during the Zakat year and any other imports identified by the Authority based on available information. The Zakat payer will then be asked to explain any differences that arise. Some of these differences could be attributed to various factors, including timing and registration differences, currency valuation, and imports through other companies or related parties. To resolve these discrepancies, supporting documents will be required for study and verification purposes. In the event of import differences not supported by documentation, the difference is handled as follows: ● If the value of the Zakat payer’s import stated in the declaration is greater than its value stated in the customs declaration, the difference shall be added to the net result of the activity. ● If the value of the Zakat payer’s import stated in the declaration is less than its value stated in the customs declaration, a profit is calculated for this difference according to the procedures specified in the regulations, at a rate of 15% of the total profit of the declaration to the activity revenues. The activity result is then adjusted accordingly. Example A: The import value of one of the companies as at 31 December 2019 amounted to SAR 80,000,000 according to the company’s books, whereas the import, as per the customs declaration, was SAR 100,000,000, assuming that the percentage established by the Authority not less than the ratio of the total profit of the declaration to the revenues of the activity is 15%. How to address the difference? Status of import differences resulting from added fixed assets: A. In the previous example, the taxpayer provided a statement of the added fixed assets during the Zakat year, along with invoices for the asset purchases. The additions of the assets are verified in the financial statements, and the purchase invoices are matched with the customs declaration. Therefore, no import differences are calculated. B. In the case of unsupported differences amounting to SAR 20,000,000 , a profit for this difference is calculated at the rate determined by the Authority, which is not less than the gross profit percentage of the declaration to the activity’s revenues. The activity result is adjusted as follows: Import difference × 15% (not less than the gross profit percentage of the declaration to the activity’s revenues): 20,000,000 × 15% = 3,000,000 Riyals