An e-service offered by the General Authority of Zakat and Tax (GAZT) of the Kingdom of Saudi Arabia (KSA), Zakat is also a building bone in the skeletal financial structure of organizations in the GCC (Gulf Cooperation Council) region. It finds its origin in the religious beginnings of Islam and is considered one of the Five Pillars of Islam. In the modern world and simpler terms, it can be described as a wealth tax that applies to entities owned by Saudi and GCC nationals.
In this blog, we will delve deeper into the subtleties of Zakat, the rules governing it, and its significance in a digitally-driven world.
A brief introduction to Zakat
This Islamic assessment serves as a wealth tax when it comes to business entities and a form of worship when it comes to individuals who follow Islam as their religion.
For an individual, the definition and features of this Islamic assessment are as follows:
- It refers to a religious obligation that every Islam-following individual must abide by.
- All Muslims, who meet the necessary criteria, are required to donate a portion of their wealth or income to charities every year.
- The amount ideally paid as Zakat amounts to 2.5% of an individual’s yearly earnings. However, if the personal wealth of an individual is less than the minimum criteria (nisab), then the individual does not have to abide by it.
For a business entity, the features of this assessment are as follows:
- If a company is owned by a Saudi investor or citizens of GCC (Gulf Cooperation Council) countries, they have to pay Zakat, which is an Islamic assessment.
- If a company is co-owned by Saudi (or GCC) investors and non-Saudi investors, then the share of taxable income attributed to the non-Saudi investors is liable for income tax. The Saudi counterpart, who owns the company, will be liable for Zakat.
Zakat Calculation KSA
In simple terms, the Zakat is calculated based on the business entity’s net worth. The technical denomination for the net worth of an organization is called “Zakat base.” As per the government norms, it equals 2.5% of the Zakat base of an organization.
Here’s a detailed account of the intricacies of this Islamic tax assessment.
Assets that come under the tax bracket
- Cash: Cash, in the form of bank savings, net income from rent, cash for personal use, or your savings outside the bank – all forms of cash are accountable under this tax assessment.
- Loaned money: The cash you have lent to someone or the money you are owed from any business activity also comes under the radar of this tax.
- Gold/Silver: Gold and silver items are also taxable assets, as per the regulations laid down by the government of KSA. As per Hanafi School, one of the four pillars of Islamic law, all gold and silver jewelry, whether worn or stored, is accounted for in the tax calculation. The other three Sunni schools of Islamic law, on the other hand, allow worn gold/silver jewelry to be exempted from taxable calculations.
- Investments: As per tax laws, an investment in shares that is made with the intention of resale is Zakatable. On the other hand, if an investment is long-term and made with the eventual intention of generating dividends, then the tax is only applicable to the company’s assets under the radar of this Islamic assessment.
- Business assets: Any stock purchased with the eventual intention of reselling comes under the tax bracket and must be valued at its reselling price for tax calculations.
What you owe is an important pawn in the Zakat calculation. Your personal liabilities include outstanding debts on the recurring annual date you have to pay the tax on. However, future debts (e.g., rent, utilities, etc.) is not included under this category. Furthermore, expenses such as mortgages and student loans are considered personal liabilities only for the next lunar year.
The formula (process) of calculating Zakat is quite simple:
Zakat as an e-service
A range of sub-services is laid out under this e-service offered on GAZT’s online portal. These include:
- Zakat registration: To complete this registration on the GAZT portal, businesses must first register with the Ministry of Commerce and acquire an establishment contract. Any activity that will eventually result in generating revenue must undergo the registration process.
- Immediate certificate: Under this service, you can acquire the tax certificate immediately after you have made declarations related to your assets and liabilities. Soon after submitting the details, users will receive an intimation via SMS as well as on their email, confirming the submission.
- Request for certificate: If you have not received your tax certificate, this service allows you to apply for one through the GAZT e-portal. All registered taxpayers can avail of this service and request their tax certificate.
- Zakat Payment: Through this service, users can get an online-generated invoice called SADAD, which contains details such as the invoice number, due amount, last day of payment, etc. You can get this invoice only after you complete your tax declaration. Once the invoice is generated, you can make the payment online or through an ATM using the SADAD number.
- Zakat Declaration: Users can avail of this service to submit Zakat returns for a specific financial period. Once the tax declaration is submitted, users can find the declaration on the GAZT portal at the time of submission.
- Registering Holding Company: This service is only available to a holding company and its subsidiaries. It allows business owners to register one or more holding companies as well as their subsidiaries.
- Deregistering Holding Company: As the name suggests, this service allows you to deregister one or more holding companies as well as its subsidiaries.
- Amend registration details: Even if financial and other Zakat-related details are submitted on the GAZT portal for the current financial year, you can use this service to make amendments to the data such as financial statements, investment details, etc. The only prerequisite is that you submit a request for an amendment of registration details along with valid reasons.
- Contract Release Application: This service allows you to access a specific contract, even if you cannot acquire the tax certificate due to an ongoing appeal or other similar issues. There are certain prerequisites to avail of this service; the user must have a copy of the purchase order, submit all declarations and related documents, paid other due amounts, and the tax on the released contract.
- Zakat Return Amendment: Users can opt for this service if they wish to make modifications to Zakat returns after the submission is complete. However, before you raise a request for these modifications, ensure that proof of the tax declaration is submitted in advance. The service can be availed of by all the taxpayers who are registered on the GAZT portal.
- Installment Plan: If an individual/company is unable to pay the entire due amount in one go, they can opt for the installment plan offered by GAZT. To be eligible for this service, the user must produce proof of bank statement for the last three months, the reason behind opting for the installment plan, and ensure that all other dues are paid. `
- Filing an objection on reassessment: If an individual disagrees with the tax return re-evaluation, they can contest it by filing an appeal through GAZT’s e-portal. However, before filing the objection, the user must make payment of the undisputed amount and explain in detail their reasons for filing the objection.
Recent updates about Zakat and Tax
- In April 2020, an app called “Zakaty” was launched by Qatar Charity (QC), offering a wide range of Zakat-related services such as payment, tax calculator, etc., on the website as well as applications.
- During Ramadan of 2020, a whopping amount of SAR 24 million was collected through the Zakaty app.
- In August 2020, GAZT was awarded a certificate of excellence by the European Organization for Quality Management (EFQM) called the “Committed to Excellence 2 Star” certificate.
- In November 2020, the payments made as a result of the implementation of Zakat through GAZT crossed the 200,000 mark.
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