Zakat Transactions in the Construction&RET Sectors

Definition of the Sector The real estate activities sector includes the activities of property lessors, real estate agents, and/or real estate brokers in any of the following: ● Buying and selling real estate. ● Property leasing. ● Providing other services related to real estate, such as assessing the value of the property or acting as agents in real estate transactions. Zakat issues pertaining to the sector ● Properties under development for sale These are properties constructed and developed by the Zakat payer for sale. Properties under development, which are constructed and developed for the purpose of sale, shall be deducted from the Zakat base in accordance with paragraph (9) of Article Five of the Implementing Regulations, which stipulates the rules for deducting properties under development for sale. The conditions for deduction are as follows: ● They should be classified as non-current assets in the financial statements. ● They should be prepared for sale after completion of development. ● They should not be offered for sale in their current state. ● The total of sales and advance payments received from customers may not exceed 25% of their value reflected in the financial statements for the relevant Zakat year. The percentage should be calculated as follows: A. Calculate 25% of the values shown in the financial statements. B. Calculate Zakat for each project declaration separately. C. Sales and advance payments are determined through the value of disposals at cost (sales) from the project account shown in the financial statements. D. To determine the total value of the real estate project under development available for sale, sum the balance at the beginning of the year and the value of additions during the year. Therefore, the percentage of sales and advance payments is calculated using the following formula: Additionally, real estate that becomes ready for sale after its completion and development is not deducted from the Zakat base. Value of disposals (sales) at cost Opening balance + Additions during the year Percentage of sales and advance payments Example (27): Al-Amar Real Estate Company operates in the real estate investment sector. The balance of properties under development for sale, classified as non-current assets for one of the projects, amounted to SAR 1,000,000. The total sales shown in the income statement amounted to SAR 260,000, and the value of sales excluded at cost from the balance of properties under development amounted to SAR 200,000. The value of advance payments received from customers for the project, shown in the financial statements, amounted to SAR Since the total value of advance payments and sales excluded at cost amounts to SAR 220,000, which is less than 25% of the balance of properties under development as of the date of the balance sheet, the total balance of SAR 1,000,000 is deducted from the Zakat base. Since the sales percentage for Project (A) did not exceed 25%, the balance of SAR 300,000 for Project (A) is deducted from the Zakat base. For Project (B), the sales percentage reached 44%, which exceeds 25%. Therefore, the balance of SAR 700,000 for Project (B) is not deductible from the Zakat base. Example (28): A company working in the field of real estate has the following balance of real estate under development for one of its projects for the years 2019 and 2020: ● Year 2019: SAR 200,000 ● Year 2020: SAR 350,000 The details for each year are as follows: Year 2019: ● Balance at the end of the period: SAR 200,000 ● Balance at the beginning of the period: SAR 250,000 ● Additions: SAR 100,000 ● Disposal: SAR 150,000 Year 2020: ● Balance at the end of the period: SAR 350,000 ● Balance at the beginning of the period: SAR 200,000 ● Additions: SAR 200,000 ● Disposal: SAR 50,000