Saudi Arabia releases new draft Zakat Bylaws for public consultation

Executive summary

On 17 September 2023, the Saudi Arabian Zakat, Tax and Customs Authority (ZATCA) published new draft Zakat Bylaws (Draft Bylaws) for public consultation. The Draft Bylaws aim to clarify current zakat regulations and compliance. They would also consolidate all other zakat regulations issued separately for certain sectors, such as the financial sector.

Detailed discussion

Background

Since the current Zakat Bylaws were issued in March 2019, the ZATCA has issued several guidelines clarifying and addressing certain questions on their interpretation and practical application.

To promote clarity, transparency and fairness, the ZATCA released the Draft Bylaws for public consultation, which would consolidate all other zakat regulations issued for certain sectors.

The ZATCA has invited comments on the Draft Bylaws to be submitted by 17 October 2023.

Highlights of the Draft Bylaws

The Draft Bylaws would:

• Clarify certain zakat concepts/definitions such as zakat residency, trading investments and development properties

Introduce certain changes in zakat base computation, including:

• Aligning the computation with the closing balances in a company's audited financial statements in terms of additions to and deductions from the zakat base
  • Computing net adjustments to the profit/loss and adding/deducting them separately to/from the zakat base
  • Treating non-current payables and equivalents as used to finance non-current assets, irrespective of which ones come first
  • Adding payables and equivalents, equity elements and provisions to the zakat base based on their ending balances
  • Capping addition of payables and equivalents at total deductions to align with current regulations
  • Tightening the rules for treating shareholders' loans as debt vs. equity for zakat purposes
  • Treating provisions differently for zakat purposes (e.g., employee terminal benefits are long-term debts for zakat purposes)
  • Treating provision charges as allowable business expenses
  • Treating tax paid to the Government as an allowable expense
  • Considering zakat paid as an allowable expense
  • Introducing, with certain conditions, new zakat-deductible items, including raw materials, statutory deposits and treasury bills in employees' saving plans
  • Allowing Government receivables to be deducted from the zakat base under certain conditions
  • Introducing updated minimum and maximum limits for the zakat base
• Introduce alternative ways to compute the share of zakat on investments in foreign companies in the absence of audited financial statements or certification requirements

• Propose stricter conditions on loan rollovers/replacements (e.g., a loan settled and replaced with a new loan from the same lender within 10 days would not disrupt the duration of the loan for zakat purposes)

• Extend the deadline for filing the zakat return from the current 120 days to 180 days (6 months from year-end) from the end of the fiscal year

• Shorten the statute of limitation so the ZATCA has three years (rather than five) to correct/amend the zakat return following the filing deadline

Implications

Zakat payers should monitor the proposed amendments in the Draft Bylaws. They should also be prepared for any potential changes and assess their process to comply with the relevant changes.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Professional Services (Professional LLC), Riyadh

• Asim Sheikh, Saudi Arabia Tax Market Segment Leader

• Ahmed H Akeel, Business Tax Services

• Amr Farouk, Global Compliance & Reporting

• Atif Khan, Global Compliance & Reporting

• Esraa Albuti, Business Tax Services

• Hosam Abdulkareem, Business Tax Services

• Imran Iqbal, Global Compliance & Reporting

• Mirza Ashraf, Global Compliance & Reporting

• Babar Ali, Business Tax Services

• Wissam Merhej, Business Tax Services

• Carl Suchtelen, Global Compliance & Reporting

• Roula Dajani, Business Tax Services

• Suleiman Mohammed, Global Compliance & Reporting

Ernst & Young Professional Services (Professional LLC), Jeddah

• Ayman Abu El lzz, Global Compliance & Reporting

• Hussain Asiri, Business Tax Services

• Amro El Fadly, Business Tax Advisory

• Ahmed Mubarak, Business Tax Services

• Dana D Dandashi, Global Compliance & Reporting

• Khalid Feroze, Business Tax Services

• Asem Habis, Business Tax Services

Ernst & Young Professional Services (Professional LLC), Al Khobar

• Syed Farhan Zubair, Global Compliance & Reporting

• Ali K Khamis, Business Tax Services

• Bilal Mian, Global Compliance & Reporting

• Javed Aziz, Global Compliance & Reporting

• Haytham Hassan, Global Compliance & Reporting

• Waqas Khan, Business Tax Services

Ernst & Young LLP (United States), Middle East Tax Desk, New York

• Asmaa Ali

Published by NTD’s Tax Technical Knowledge Services group; Maureen Sanelli, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.