What is the Zakat Base?

The zakat base is the amount or portion of money and assets that have reached the nisab and meet the conditions for zakat obligation, and zakat is calculated on them at a specified rate. This concept applies to individuals and commercial companies, where zakatable assets include cash, goods, and collectible receivables. The purpose of determining the zakat base is to ensure accurate payment of zakat, which contributes to supporting needy groups and achieving economic balance in society.

Importance of the Zakat Base

The zakat base is not just an accounting tool, but is part of a religious and social commitment that enhances social solidarity. Its benefits include:

• Sharia Compliance: Ensures zakat payment according to Islamic rulings.
• Financial Transparency: Helps organize accounts and comply with ZATCA regulations.
• Community Support: Directs funds to the poor and needy, enhancing social development.
• Avoiding Penalties: Failure to submit the zakat declaration on time may result in fines of up to 50,000 Saudi Riyals.

Components of the Zakat Base

The zakat base consists of a set of assets subject to zakat, minus the allowable deductible liabilities. The basic components include:

• Cash: Includes balances in bank accounts or cash available to the entity or individual.
• Commercial Goods: The value of inventory designated for sale, calculated at market price at the end of the fiscal year.
• Receivables: Amounts that the entity or individual can recover from customers, provided they are confirmed collectible.
• Investments: Include stocks and bonds designated for trading, but do not include long-term investments if their zakat is paid separately.

Deductible Liabilities

Liabilities that can be deducted from the zakat base include:

• Short-term debts due within the fiscal year.
• Accrued operating expenses.

Note: Long-term debts such as long-term notes receivable are not allowed to be deducted because they are considered zakatable assets.

Methods of Calculating the Zakat Base

The zakat base is calculated using a basic equation, with different methods depending on the nature of the entity or individuals:

1. Standard Method

Used for entities that have accurate commercial records:

• Equation: Zakat Base = Total Zakatable Assets - Total Zakatable Liabilities.
• Zakat Rate:
  • 2.5% for the Hijri year (355 days).
  • 2.575% for the Gregorian year (365 days).

Example: If zakatable assets (cash, goods, receivables) equal 1,000,000 Saudi Riyals, and deductible liabilities are 200,000 Riyals, then the zakat base = 800,000 Riyals, and the due zakat = 800,000 × 2.5% = 20,000 Riyals.

2. Estimation Method

Used for taxpayers who do not have accurate commercial records, such as individuals or small companies:

• Equation: Zakat Base = (Sales ÷ 8) + (Sales × 15%).
• Conditions:
  • Books must be certified by the Chamber of Commerce.
  • Paid-up capital is ignored in the first year.
  • Current account balance is not considered a substitute for capital.

Conditions for Zakat Obligation

For the zakat base to be applied, the following conditions must be met:

• Nisab: The zakat base must reach the specified nisab (such as the value of 85 grams of 21-carat gold for individuals).
• Hawl: A full Hijri year must pass on the zakatable money.
• Full Ownership: Assets must be fully owned by the taxpayer.
• Commercial Intent: For goods, they must be designated for trade and not for personal use.
• Regulatory Compliance: Submit a zakat declaration to ZATCA within 120 days of the end of the fiscal year.

Challenges in Calculating the Zakat Base

Companies and individuals face some challenges when calculating the zakat base:

• Inaccurate Records: Absence of accounting books may lead to using the estimation method, which may raise the zakat base.
• Long-term Debts: The inability to deduct long-term debts raises controversy between taxpayers and the Authority.
• Economic Changes: Market price fluctuations affect the valuation of goods and investments.
• Late Declarations: Delay in submitting the declaration may result in financial penalties.

Tips for Facilitating Zakat Base Calculation

To ensure accurate calculation of the zakat base and avoid potential problems, here are the most important practical tips that can be applied:

• Maintain Accurate Records: Use accounting software to accurately record assets and liabilities.
• Consult a Legal Accountant: To ensure compliance with Authority regulations and reduce errors.
• Use Zakat Calculator: Electronic platforms such as those provided by ZATCA facilitate calculations.
• Submit Declaration on Time: To avoid fines and ensure compliance.
• System Awareness: Review ZATCA regulations to understand updates.

Frequently Asked Questions

1. Do foreign companies operating in Saudi Arabia have to pay zakat?

Foreign companies are subject to income tax and not zakat, except for Saudi or Gulf partners in mixed companies who pay zakat on their share.

2. How are foreign currencies handled in calculating the zakat base?

Foreign currencies are converted to Saudi Riyals at the prevailing exchange rate at the end of the fiscal year, and are included in zakatable cash assets.

3. Are distributed stock dividends subject to zakat separately?

Stock dividends are added to the zakat base for the year they were distributed, and are not subject to separate zakat if the stocks themselves are subject to zakat.

4. What is the ruling on zakat for rented investment properties?

Rented properties are not subject to zakat on their value, but collected rents are added to the zakat base as cash.

5. Can zakat payment be deferred or paid in installments?

Requests for deferring or paying zakat in installments can be submitted under exceptional circumstances, but require prior approval from ZATCA.

6. How is zakat calculated for subsidiary companies or branches?

Each subsidiary company with a separate registration number submits a separate zakat declaration, while branches are included in the parent company's unified declaration.

Conclusion

Understanding the zakat base and mastering its calculation is not merely a legal obligation, but a religious and social responsibility that contributes to building a cohesive and prosperous society. With continuous development in systems and technologies, everyone can now fulfill this obligation with greater ease and accuracy than ever before.

We encourage you to take advantage of available resources and ensure continuous updating of your knowledge of the latest regulations and practices from the Authority.