Zakat is one of the most important obligations for companies owned by Saudi and GCC nationals. It is administered by the Zakat, Tax and Customs Authority (ZATCA) and, for many businesses, the Zakat certificate is needed to deal with government entities and to bid for contracts.
This guide gives an overview of who pays Zakat, how it is calculated and what the filing process involves.
Who pays Zakat
Zakat applies to the share of a company owned by Saudi nationals and by GCC nationals who are treated as Saudi for Zakat purposes. Where a company also has foreign shareholders, the foreign-owned share is generally subject to corporate income tax instead. Our article on mixed ownership companies explains how the two interact.
The Zakat rate
Zakat is levied at 2.5% of the Zakat base for a full Hijri year. Where a company's financial year follows the Gregorian calendar, the rate is adjusted to reflect the longer year, which results in a rate of approximately 2.5778%.
How the Zakat base is calculated
The Zakat base is not the same as profit. In broad terms, it is built from the company's sources of funds, such as share capital, reserves, retained earnings and certain long-term liabilities, adjusted for the year's results. Specific long-term assets, such as fixed assets and certain long-term investments, are then deducted.
Updated Zakat regulations apply to financial years beginning on or after 1 January 2024. They changed several aspects of how the base is calculated, so companies should check that their computations follow the current rules rather than prior-year working papers.
Because the rules on what can be added and deducted are detailed, the computation should always be prepared from the audited financial statements and reviewed carefully.
Filing and payment
The Zakat return is filed through the ZATCA portal.
The return and payment are due within 120 days of the end of the financial year.
The return is supported by the company's audited financial statements.
ZATCA may review returns and issue assessments, so supporting documents should be kept organised.
The Zakat certificate
Once the return is filed and the Zakat due is paid, ZATCA issues a Zakat certificate. The certificate is commonly required for government transactions, tenders, renewals of licences and payments from government entities. Filing late can delay the certificate and disrupt day-to-day business.
Practical tips
Start the Zakat computation alongside the year-end audit, not after it.
Keep clear records of long-term assets and investments, since these drive the deductions.
Review the treatment of related party balances and long-term financing.
Plan cash flow for the Zakat payment well before the 120-day deadline.
How Zento can help
Zento Solutions prepares and reviews Zakat computations, supports filing and helps companies respond to ZATCA reviews. Learn more about our Zakat services or speak to our team.
This article is general guidance and not tax or Zakat advice. Zakat rules are detailed and change over time, so confirm the treatment for your company with a qualified adviser.
