Zakat Filing in Saudi Arabia | Everything You Need to Know

Zakat filing in Saudi Arabia is a legal and religious obligation for businesses. Late filings may incur some penalties, so businesses must file their Zakat on time and correctly. Arnifi eases the whole process from calculation to compliance, so you submit your Zakat filings under ZATCA’s requirement with comfort and ease.

1. Introduction

Zakat filing in Saudi Arabia is not only a religious duty but also a legal obligation for doing business. In the Islamic tradition, Zakat is one of the five basic tenets of Islam, representing the obligation to purify the wealth held by the individual by giving some portion of it to those in need. However, in Saudi Arabia, Zakat is more than just a personal faith; it has become part of the regulations governing business conduct.

The Zakat, Tax, and Customs Authority (ZATCA), formerly known as GAZT, administers Zakat for certain businesses and individuals working within the national taxation framework. The compliance with Zakat laws is important, among other things, to safeguard the legal standing, reputation, and financial integrity of the establishment within the Kingdom.

2. What is Zakat Filing in Saudi Arabia?

Zakat is, in general terms, the obligatory charitable contribution that eligible Muslims must make every year. However, Zakat filing in Saudi Arabia applies not only for individuals but also for business entities, depending on their financial performance and composition of ownership structure.

Key Distinctions:

• Personal Zakat is paid by individuals, mostly in cash, gold, or savings
• Business Zakat applies to corporate assets, profits, and inventory, and is regulated by ZATCA

ZATCA is in charge of assessment, collection, and enforcement of Zakat in the Kingdom and makes sure businesses file Zakat correctly and within the time limit to attain compliance with both Islamic and regulatory standards.

3. Who Needs to File Zakat in Saudi Arabia?

Filing for Zakat is obligatory for:

1. Saudi-Owned Companies

For companies wholly owned by Saudi nationals or GCC citizens, Zakat needs to be filed and paid on an annual basis.

2. GCC Nationals

GCC nationals will have the Zakat on their entities unlimited from the above activités like Saudi nationals.

3. Certain Resident Businesses

Mixed-ownership companies (Saudi + foreign) may have to file for Zakat and corporate income tax, depending on ownership percentage.

4. Exemptions

• Fully foreign-owned companies will be liable to corporate income tax, not Zakat.
• Government entities, non-profits, and small individual traders below threshold limits may be exempt, but should clarify their status with ZATCA.

For correct filing, it is important to clarify how early Zakat or corporate tax will engage your business.

4. Zakat Calculation: How It Works

Zakat is calculated at 2.5% on the Zakatable base, which represents the net working capital and profit-making assets of a company. The Zakatable base is derived from the balance sheet and includes specific assets and liabilities.

Assets Included:

• Cash and bank balances
• Accounts receivable
• Inventory and goods for sale
• Investments (excluding fixed and long-term holdings)

Assets Excluded:

• Fixed assets (land, buildings, machinery)
• Long-term investments
• Debts and loans are not expected to be collected
• Prepaid expenses

Basic Zakat Formula:

Zakat = 2.5% × (Zakatable Assets – Zakatable Liabilities)

Example:

A trading company has current assets amounting to SAR 5 million and current liabilities amounting to SAR 2 million, which translates to Zakatable base of SAR 3 million.

Zakat = 2.5% × SAR 3,000,000 = SAR 75,000

Proper Zakat calculations necessitate proper accounting and up-to-date financial records, which in turn compel most businesses to seek external assistance from professionals.

5. Zakat Filing Process in Saudi Arabia (Step-by-Step)

Filing Zakat in the Kingdom of Saudi Arabia stands against several official steps. As a roadmap, here are the steps to consider:

Step 1: Register with ZATCA

All businesses must register on the ZATCA portal and obtain a Zakat file number.

Step 2: Prepare Financial Statements

Audited or reviewed financial statements over the fiscal year are required for the correct calculation of the Zakatable base.

Step 3: Submit Zakat Return Online

Log onto the ZATCA e-portal and enter all details regarding Zakat returns, including financial matters, classification of assets, and information on the ownership structure.

Step 4: Pay the Zakat

Once the return has been checked and confirmed, an assessment would be issued; Zakat would then be paid electronically through banks authorized for such a purpose.

Step 5: Keep Track of Deadlines

The filing will be completed within 120 days after the end of the company’s fiscal year. Late filing can attract penalties.

6. Key Benefits of Timely Zakat Filing

Timely Zakat filing not only saves one from penalties but also has many advantages:

1. Avoiding Penalties

Late filing or incorrect filing will attract penalties enforced by ZATCA, including payment of fines and interest on unpaid amounts.

2. Enhancing Business Credibility

Timely payment of Zakat makes a good impression about the financial discipline of your company, thus enhancing trust among your partners, banks, and government agencies.

3. Regulatory Compliance

Filing Zakat demonstrates that your company is fulfilling the legal requirements necessary for the renewal of commercial licenses and permits.

4. Corporate Social Responsibility (CSR)

The funds from Zakat are combined with other funds that support welfare programs, social development, and infrastructure projects; this also aligns your business with national development.

7. Common Challenges in Zakat Filing

Despite the transformation to digitalization in Saudi Arabia, many corporations are still facing challenges:

1. Complex Calculations

Zakat calculations require high knowledge in accounting and Islamic finance principles, especially for large corporations or diversified companies.

2. Inadequate Documentation

Missing financial info or poorly maintained accounting records can result in misfilings and penalties.

3. Misinterpretation of Exemptions

Most firms wrongly believe they are exempt or misclassify their assets, causing excess penalties or a penalty-free status.

4. Changing Regulations

With frequent updates justifying non-compliance, ZATCA guidelines are equally difficult to maintain.

This is where professional consultants like Arnifi come in to simplify the process.

8. How Arnifi Can Help?

Arnifi provides specialized consultancy for companies going through Zakat filing in Saudi Arabia. Here is how we help ensure the process runs smoothly:

1. Accurate Zakat Assessment

Our consultants make sure your Zakatable base is correctly calculated in accordance with the most recent ZATCA regulations and accounting standards.

2. End-to-End Compliance

We manage Zakat filing from end to end, including preparing financial statements, submission through the portal, and payment.

3. Regulation Monitoring

We ensure you remain aware of ZATCA changes and deadlines, so that you never miss an update and incur any penalties.

4. Trusted Partner

Being multi-industry experienced, Arnifi is your trusted advisor, whether you are a startup, SME, or large corporation in Saudi Arabia.

Don’t leave Zakat compliance, let Arnifi ensure your filing with confidence.

9. FAQs

1.  What is the Zakat filing deadline?

Zakat must be filed within 120 days after the end of the financial year of the business.

2. Can foreigners be subject to Zakat?

Foreign-owned companies are not liable for Zakat but must pay corporate income tax. Joint-venture entities may pay both Zakat and corporate income tax.

3. What happens if a business doesn’t file Zakat?

Not complying opens up fines, interests, and restrictions for the impairment of business activities.

4. Is Zakat different from corporate tax in Saudi Arabia?

Yes, Zakat applies to companies with Saudi or GCC owners, while corporate tax is for wholly foreign-owned firms.

10. Conclusion

The practice of Zakat filing in the Kingdom of Saudi Arabia is an essential part of operating lawfully and ethically. For local and international companies alike, ensuring compliance with ZATCA requirements is a must.

When properly managed, what appears to be a cumbersome obligation can easily turn into a well-managed process.

Need Help with Zakat Filing?

Arnifi is with you every step of the way in Zakat filing, ensuring compliance with the Saudi regulations. Contact Arnifi now to make your Zakat filing in Saudi Arabia smooth, accurate, and tension-free.