Definition
Zakat for companies is an annual Islamic levy that Saudi-owned and GCC-owned businesses in Saudi Arabia calculate and pay to ZATCA, the Zakat, Tax and Customs Authority. It is charged at 2.5% of a zakat base built mainly from equity, long-term financing and provisions, less long-term assets, for a Hijri year.
How it works
Zakat is not an income tax. The base starts from sources of funds (share capital, reserves, retained earnings, adjusted profit for the year, long-term loans and provisions) and deducts uses of funds that are not zakatable, mainly fixed assets, long-term investments and intangible assets, within limits set by the Zakat Implementing Regulations issued in 2024. Mixed-ownership companies pay zakat on the Saudi and GCC share and corporate income tax on the foreign share.
The 2.5% rate applies to a Hijri year of about 354 days. Companies with a Gregorian financial year adjust the rate for the number of days, which gives about 2.5775% for a 365-day year (2.5% × 365 ÷ 354). Some taxpayers are assessed on a deemed basis instead, with different rules.
Zakat is recognised as an expense and a liability, and companies usually present it near income tax. Because the base depends on balance sheet classification, a chart of accounts that separates long-term from short-term items helps, as in the GCC chart of accounts template. The rules are detailed and change: confirm with ZATCA guidance or a qualified adviser before filing.
Formula
Zakat base = Zakatable sources of funds - Deductible long-term assets
Zakat (Hijri year) = Zakat base × 2.5%
Zakat (Gregorian year) = Zakat base × 2.5% × Days in year ÷ 354
Example: a simplified zakat base
A Saudi company with a Gregorian year has equity of SAR 8,000,000, adjusted net profit of SAR 1,500,000 and long-term loans of SAR 2,000,000. Its net fixed assets are SAR 6,500,000.
A simplified base is 8,000,000 + 1,500,000 + 2,000,000 - 6,500,000 = SAR 5,000,000. Zakat at about 2.5775% is roughly SAR 128,875. Real filings apply many more adjustments and limits, so treat this only as an illustration.