Zakat Transactions in the Construction&RET Sectors

Definition of the Sector The construction sector is defined as the sector related to general construction activities and specialized construction activities for buildings and civil engineering works. It includes new works, repairs, renovations, additions, changes, the erection of prefabricated buildings or structures on-site, as well as construction work of a temporary nature. General construction refers to the construction of entire buildings for housing, offices, shops, public or government buildings, farm buildings, etc., or the construction of civil engineering works such as highways, streets, bridges, tunnels, railways, airports, seaports and other water projects, irrigation systems, drainage systems, industrial facilities, pipelines, power lines, and sports facilities. This sector includes the following activities: ● Complete construction works relating to civil engineering projects. ● Specialized construction activities if undertaken as part of the construction process. ● Specialized construction activities if carried out only as part of the construction operation. ● Developing construction projects for buildings or civil engineering works, which are exe- cuted by mobilizing financial, technical, and material resources to complete the construction project intended for sale later. Zakat issues pertaining to the sector ● Advance payments Advance payments received against contracts as part of the project and used for expenses related to the project are considered obligations of the Zakat payer and are added to the Zakat base in accordance with the Implementing Regulations based on the following guidelines: 1. Advance payments received, which are known to finance deductible assets, shall be added to the base. 2. Advance payments received for a period of 354 days or more, and which overlap more than one Zakat year, shall be added to the base prorated by the number of days in the Zakat year. It is important to note that the total amount of obligations (including advances received) added to the Zakat base may not exceed the total value of the assets deducted from the base. Additionally, obligations of the Zakat payer classified as short-term may not be added to the Zakat base unless they are used to finance assets deducted from the base. Example (21): A company operating in contracting receives an advance payment from one of its clients against a project contract in the amount of SAR 6,000,000 on 22/10/2019, with the balance of the advance payment remaining the same at the end of the year, 31/12/2019. The company does not expect to issue invoices or payment requests specifically for this payment before 31 December 2020. What is the amount to be added to the Zakat base from the payments balance for the year Advance payments received against contracts as part of the project and used for expenses related to the project are considered obligations of the Zakat payer. The amount of SAR 1,150,685, as calculated below, is included in the other obligations of the Zakat payer and shall be added to the Zakat base, within the limits of the total value of the deductions, and in accordance with the other guidelines prescribed in the Implementing Regulations. Number of days until the end of the year Number of the Year days (365) X Debt value X