Zakat Requirements for Various Industries in Saudi Arabia

Written By Akshaya Ashok, Reviewed By Nouphal P C

Published on 27/11/2024

Zakat is truly one of the powerful pillars of Islam, and it holds significance for businesses in Saudi Arabia. It's a religious obligation, by far exceeds personal charity since it permeates social welfare, economic balance, and community support. In Saudi Arabia, zakat applies uniquely to each industry, with variations in calculation and payment based on the type of assets held and the nature of business operations. This blog outlines the specific zakat requirements for different sectors, including corporations, real estate organizations, financial institutions, SMEs, e-commerce businesses, manufacturing companies, and multinational companies. For businesses understanding these tailored zakat obligations is essential to staying compliant with both Islamic values and Saudi regulatory standards.

Zakat for Corporates

• Zakat Base:

Zakat should be determined from the net worth of a company after deducting liability from the total assets of a firm. This reflects the financial condition of the firm and some directions about its ability to settle its zakat obligation.

• Zakat rate:

The standard zakat rate for corporate entities is set at 2.5%. Once the net worth has been established, this rate is applied to determine the amount due. 

• Zakat calculation:

To calculate, businesses first find their net worth by deducting liabilities from assets. This figure is then multiplied by the 2.5% rate. For example, if a company has assets totaling 10 million SAR and liabilities of 4 million SAR, the net worth is 6 million SAR. The zakat due would be 150,000 SAR (6,000,000 x 0.025).

• Zakat Due Date:

Zakat is due in the Islamic lunar year (Hijri calendar) which differs from the Gregorian calendar. Organizations must keep an eye on the lunar calendar to fulfill their zakat commitments on schedule.

Zakat for Organizations in Real Estate

• Zakat Base:

To the real estate companies, the zakat base would comprise of lands, buildings as well as other real estate. Zakat is a net worth-based asset by the market value. 

• Zakat calculation:

The zakat amount is calculated by applying the 2.5% rate to the total value of real estate holdings. If a real estate company owns properties valued at 5 million SAR the zakat payable would be 125,000 SAR (5,000,000 x 0.025).

• Valuation of assets:

 Valuation of real estate assets has to be based on fair market value and present market Conditions with demand. Zakat is payable purely on the actual value of assets owned.

Zakat for Financial Institutions

• Zakat Base:

For financial institutions such as banks, insurance and investment houses this zakat base is sourced from the financial assets. These will include cash, investments, loans and any other financial holding.

• Zakat calculation:

The zakat amount for financial institutions is calculated by multiplying their net worth (assets minus liabilities) by a 2.5% zakat rate. For example, if a financial institution holds assets totaling 50 million SAR the zakat payable would be 1.25 million SAR (50,000,000 x 0.025).

• Zakat on customer deposits:

While financial institutions are not directly liable for zakat on customer deposits, they are obligated to guide customers on their zakat obligations regarding deposits.

Zakat for SEMs (Small and Medium Enterprises)

• Zakat Base:

Zakat must be paid by small and medium-sized businesses (SMEs) based on their net worth, which includes assets such as equipment, inventory and other commercial assets. The value of the company's assets is reflected in the zakat base.

• Zakat calculation:

 For SEMs, the zakat amount is calculated by multiplying the net worth by the 2.5% rate. For instance, if an  SME has assets worth 1 million SAR the zakat liability would be 25,000 SAR (1,000,000 x 0.025).

• Zakat for SMEs:

SMEs are encouraged to consult with local zakat authorities to ensure they comply with the specific regulations and guidelines set for their business size and sector.

Zakat for E-commerce Enterprises

• Zakat Base: 

E-commerce businesses calculate zakat on their net worth which includes inventory cash and any other assets such as online sales revenue, digital assets or investments.

• Zakat calculation:

The zakat amount for e-commerce enterprises is calculated by applying the standard 2.5% rate to their net worth. For example, if an e-commerce business has a total worth of 2 million SAR the zakat would be 50,000 SAR (2,000,000 x 0.025).

• Zakat on sales revenue:

E-commerce businesses are required to pay zakat on their net sales revenue which is calculated after deduction of all expenses incurred during the business operation.

Zakat for Manufacturing Companies

• Zakat Base:

For manufacturing companies, the zakat base includes their net worth which includes inventory, machinery and other business assets. The company’s production assets and goods in stock are all considered in the zakat calculation.

• Zakat calculation:

Manufacturing companies calculate their zakat by multiplying the value of their business assets (inventory, machinery and other assets) by the 2.5% rate. If a manufacturing company has assets worth 10 million SAR the zakat liability would be 250,000 SAR (10,000,000 x 0.025).

• Inventory consideration:

Zakat may also apply to the value of raw materials, work-in-progress goods, and finished goods inventory.

Zakat for Multinational Companies

• Zakat Base:

Multinational companies operating in Saudi Arabia must calculate zakat on the net worth of their local operation within the country. Zakat is paid on the assets and profits generated from operations in Saudi Arabia only excluding international operations.

• Zakat Calculation:

The Zakat amount for multinational companies is calculated by multiplying the local assets (net worth) by the 2.5% rate. For example, if a multinational company has local assets worth 30 million SAR in Saudi Arabia, the Zakat owed would be 750,000 SAR (30,000,000 x 0.025).

• Transfer Pricing and ZATCA:

ZATCA (Saudi Zakat, Tax, and Customs Authority) may conduct a thorough examination of transfer pricing arrangements between multinational companies to guarantee that the Zakat calculations are precise and per local tax and Zakat laws.

Important Considerations for Zakat Calculation

• Zakat Exemptions:
  Certain assets may be exempt from Zakat, including personal belongings, primary residences, and debts. Businesses need to understand these exemptions and deduct them from the Zakat base accordingly.
• Zakat Distribution:
  Zakat funds are distributed to the poor, needy, orphans, travelers, and other target recipients under Islamic law. In simpler terms, companies can pay Zakat directly to the recipients or use agencies mandated to collect Zakat.
• Zakat Payment:
  Zakat can be distributed through an authorized charitable organization or to the individual who needs it. This should be disbursed by a registered Zakat agency of the payee to ensure it is done according to Islamic principles.
• Consultation with ZATCA:
  Zakat laws in Saudi Arabia are often highly complex, advisable to discuss with ZATCA or other qualified Islamic scholars, doing the Zakat calculations to ensure the highest accuracy in correspondence with all regulation requirements.

Conclusion

Zakat is a core obligation for businesses in Saudi Arabia, deeply rooted in Islamic principles that promote social welfare and economic equity. For businesses, from large corporations to SMEs, financial institutions, e-commerce platforms, manufacturing firms, and multinationals, fulfilling Zakat obligations is both a religious duty and a societal responsibility. Adhering to Zakat regulations helps each business contribute to societal well-being and strengthens compliance with local laws.

Given the diversity in industry-specific requirements, ensuring accurate Zakat calculation can be complex. Working with experts like Reyson Badger can simplify this process. Reyson Badger offers in-depth Zakat advisory services that help businesses meet their obligations accurately and confidently. Their experienced team guides ZATCA regulations, assists with accurate calculations, and ensures your business is aligned with both compliance standards and charitable principles. This support enables you to fulfill your Zakat responsibilities with ease, contributing to a balanced and just society.

Written By

Akshaya Ashok

Akshaya Ashok is a content writer specializing in creating content focused on accounting and auditing. With over two years of experience, she has developed expertise in crafting professional content for the financial sector.