Insights

Salient features of the draft Zakat regulations released for public comments

The draft zakat regulations have been released on the General Authority of Zakat and Tax (GAZT) website for public comments to be submitted by 28 January 2019.  The final zakat regulations should replace the existing zakat regulations that were issued in early 2017.

Summary of salient features of the proposed changes to the regulations are as follows:

  • Permanent Establishment (PE) of non-resident Saudi nationals is subject to zakat if the predefined criteria of “head quarter” in Saudi Arabia is met.
  • Loans/payables will be subject to zakat if the amounts are unpaid for 354 days during any interconnected period (i.e. between two years) instead of the financial year followed by the zakat payer. Zakat on such items is prorated based on the number of days between the two financial periods.
  • Non-current receivables from investee companies are not eligible for deduction from zakat base.
  • Property under development held for resale reported as non-current assets will be eligible for deduction from zakat base until the project is ready for sale or until the zakat payer receives an advance in excess of 25% from customers during the development period.
  • Statutory deposit for insurance companies are now allowed to be deducted from the zakat base.
  • The Governor of the GAZT has now been granted powers to give suggestion to the Minister of Finance for computing the zakat base for specific activities.
  • Unreconciled differences between the import purchases and customs records will be disallowed or deemed profit rate will be applied as appropriate.
  • Zakat on ‘zakat base’ be computed at 2.57763% for zakat payers, who follow the Gregorian year. However, if the zakat is computed on ‘net adjusted profit’, the zakat rate will remain at 2.5%.
  • Zakat payers are required to settle zakat in the current year for any unfavorable zakat treatment that was accepted in prior years.
  • GAZT is required to respond within 90 days of filing an objection by zakat payer or the zakat payer may request the case to be transferred to the appeal committee.
  • Separate zakat return should be filed and certified by a licensed accountant in order to claim the deduction of investment in companies outside Saudi Arabia from the zakat base.

How does this impact your business?

The draft zakat regulations are more or less in line with the existing regulations and the practices adopted by the GAZT.  Whilst the draft regulations provide more clarity on certain areas, they also contain some new provisions, which may result in material zakat implications. 

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