Zakat
الزكاة
Definition
Zakat is the Islamic obligatory charitable tax of 2.5% levied on the net assets of Saudi and GCC-owned businesses in Saudi Arabia. Collected by ZATCA, it applies to companies' adjusted net worth and is calculated on the Zakat base (shareholders' equity + long-term liabilities – fixed assets).
Why Zakat Matters in Saudi Arabia
Zakat is a critical component of Saudi Arabia's fiscal framework managed by ZATCA. With the introduction of 15% VAT in 2020, enhanced e-invoicing requirements (Fatoorah), and ongoing Zakat compliance, businesses must understand these financial concepts to remain compliant. Proper knowledge of this term helps optimize tax planning and avoid penalties that can significantly impact your bottom line.
Zakat vs Corporate Tax
- Saudi/GCC-owned: Pay Zakat (2.5% of Zakat base)
- Foreign-owned: Pay Corporate Income Tax (20%)
- Mixed ownership: Saudi share pays Zakat, foreign share pays CIT
Zakat is filed annually with ZATCA within 120 days of the fiscal year end.
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