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  Zakat
Base Items, Allowed and Disallowed Deductions : Zakat
Base ItemsItems Added to Zakat Base a. Capital : Capital amount that has been held to account for one year is added to zakat base, but Increments to capital during the year are not added unless it is a capitalized equity item that has passed one year. b. Balances of all provisions and reserves : Balances of all provisions and reserves that have been held to account for one year are added to zakat base with exception to the balance of depreciation provision. c. Carried over profits : Carried over profits are profits realized in prior years and retained (not distributed among partners). These profits are considered additions to the entity’s capital. d. Retained profits for distribution : “Retained profits for distribution” means the amount of profits the company decided to distribute to shareholders but has not yet distributed. However, such profits are not added to zakat base if they are no longer in possession of the company but are deposited at a bank for the benefits of shareholders and the company can not withdraw or draw interest on them. e. The year’s net profit as adjusted : The year’s net profit as adjusted for zakat purposes is added to zakat base. f. Loans : Loans used to finance acquisition of capital assets or investments for the entity are added to zakat base. Loans used for finance inventories are also added to zakat base but after the completion of one year. g. The owner’s/partners’ credit current account : The owner’s/partners’ credit current account, the beginning or ending balance whichever is less, is included in zakat base as it is considered an investment in the entity’s business. However, the higher balance is included in zakat base when the increment is resulted from closing carried profits and similar items in the account. h. Subsidies : Subsidies are considered income (compensation) to recipient companies. The subsides are added to zakat base of recipient companies in the year of actual receipt and notwithstanding the one year term. Items Charged to Zakat Base a. Fixed assets net value : The net value of fixed assets is an allowed deduction provided the following conditions are met: 1- The assets are fully paid. 2- Assets’ value does not exceed the total of paid-up capital, prior years profits carried over, provisions, reserves and the credit current account. b. Carried over losses as adjusted c. pre-incorporation or pre-setting up expenses : The balance of pre-incorporation or pre-setting up expenses is a deduction from zakat base. d. Entity’s construction in progress (capital expansion) : The value of the entity’s construction in progress is an allowed deduction for zakat purpose because it is considered fixed assets. e. Investment : 1- Long-term investments are not included in zakat base. 2- Short-term investments that are kept to be resold are included in zakat base because they are in this case considered goods for trade. 3- Investments in capital of local companies are not included to avoid double subjection to zakat as they have already been subject to zakat in companies where they are invested. 4- Long-term Investments by banks in Saudi governmental bonds are deducted from zakat base. f. Lands : The value of lands and buildings is a deduction from zakat base if owned by the entity; either of the following is considered ownership by the entity: 1- Lands owned by a partner and contributed to the entity as the partner’s in-kind share in capital and is used in the entity’s activity. 2- The partner owning the land has a credit current account that fully covers the value of the land.     |
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Brief Information on DZIT
