In recent years, economic and regulatory transformations have accelerated significantly, making corporate Zakat calculation a financial and ethical cornerstone that reflects Islamic values of integrity and compliance.
Since companies represent a fundamental pillar of the Saudi economy, Zakat compliance has become an integral part of their financial and regulatory framework.
With the Zakat, Tax and Customs Authority (ZATCA) supervising the implementation of regulations and standardizing procedures, the need for a precise understanding of Zakat calculation—both from an accounting and Sharia perspective—has grown to ensure compliance and transparency in managing financial resources.
This guide provides a comprehensive and practical overview designed to help business owners and accountants apply Zakat accurately in accordance with the latest regulations enforced in the Kingdom.
What Is Corporate Zakat?
Zakat, in Islamic Sharia, is a financial pillar of Islam. It is imposed on specific types of wealth under defined conditions and aims to promote economic balance and social justice.
In the corporate context, Zakat is imposed on the company’s Zakatable or growth-generating assets, not on all assets or funds.
In Saudi Arabia, Zakat applies to companies fully owned by Saudi or GCC nationals.
For mixed-ownership companies (Saudi/GCC and foreign shareholders), Zakat is applied only to the share owned by Saudi or GCC partners who are treated as Saudis, while income tax is imposed on the share owned by foreign partners.
The Zakat rate for companies subject to Zakat is 2.5% of the Zakat base, except for specific rules established by the Authority.
Types of Zakat-Liable Entities
Companies subject to Zakat in the Kingdom are classified into two categories based on whether they follow an accounting or estimated system, in accordance with ZATCA’s Zakat Guide:
1. Estimated Taxpayers
These include small establishments or businesses that do not maintain proper accounting records.
The Authority determines their Zakat base using an estimated approach based on factors such as sales volume, registered capital, number of employees, and other indicators.
2. Accounting (Regular) Taxpayers
These are companies that maintain proper accounting books and audited financial statements.
Their Zakat base is calculated using an accounting method based on actual financial data.
ZATCA encourages establishments assessed under the estimated method to transition to the accounting system to avoid approximate calculations and achieve greater accuracy in Zakat compliance.
What Is the Zakat Base?
The Zakat base is the amount on which Zakat is calculated.
It represents the net Zakatable funds after adjusting equity and net profit, in line with the Executive Regulations and Zakat Guide.
Many companies use the “Equity and Adjusted Net Profit Method” as the primary basis for Zakat calculation.
The traditional approach—(Zakatable assets – short-term liabilities)—is still used in some cases or for explanatory purposes, but is not the only recognized method.
Types of Zakat Bases
Zakat Base for Accounting-Compliant Companies
This applies to companies that maintain proper accounting books.
The Zakat base is calculated using audited financial statements approved by a certified public accountant, based on the financial figures and classifications included in those statements.
Some micro and small enterprises may be exempted from submitting audited financial statements and may rely on internally prepared financial statements instead.
This exception applies only to fully Saudi-owned entities, while foreign or mixed companies are required by law to submit audited financial statements.
Estimated Zakat Base
This applies to companies that do not maintain proper accounting records.
The Authority estimates the Zakat base using formulas that rely on registered capital, number of employees, sales volume, and comparisons with similar establishments operating in the same sector.
Practical Steps for Calculating Zakat for Companies
1. Identify Zakatable Assets
This includes determining the value of cash, accounts receivable, inventory, and short-term investments.
2. Determine Deductible Liabilities
Such as payables to suppliers and accrued expenses due within the Zakat year.
3. Calculate the Net Zakat Base
The general formula is:
Zakat Base = Total Zakatable Assets – Short-term Liabilities
Additional adjustments or exclusions may be applied in accordance with the ZATCA Zakat Guidelines.
The “Sources of Funds” Method
This is the official method adopted by the Zakat, Tax and Customs Authority (ZATCA) to determine the Zakat base by aggregating “sources of funds” and then eliminating items that are not subject to Zakat.
Steps of the Sources of Funds Method
1. Aggregate the company’s sources of funds (positive Zakat base items), typically including:
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Capital (equity) and additional contributions
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Retained earnings
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Statutory and other reserves
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Balances of related-party payables classified as non-current in the financial statements
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Any sources that financed deductible items
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Long-term loans and financing (based on regulatory rules), considered as financing sources
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Closing balances of provisions remaining at year-end after deducting what was used during the year
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Adjusted net income for the year, including adding back non-deductible expenses as per ZATCA regulations
2. Deduct items not subject to Zakat, such as:
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Fixed assets (buildings, machinery, equipment, spare parts)
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Intangible assets
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Certain non-trading investments held for returns
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Accumulated losses from previous years
3. The result represents the “Zakat Base,” to which the Zakat rate of 2.5% is applied.
4. Apply the Zakat Rate
Zakat = Zakat Base × 2.5%
5. File the Zakat Return and Pay the Due Amount
After the end of the financial year, companies must submit their Zakat return within 120 days and may settle payment electronically via the SADAD system.
General Rule for the Zakat Period
The Zakat period is 12 Hijri months, starting from the company’s establishment date or commencement of activity and continuing until the end of the financial year set in its Articles of Association.
Companies may adopt the Gregorian year—with ZATCA approval—with proportional adjustment of the Zakat rate to reflect the solar calendar.
Special Cases Affecting the Zakat Period
Short Financial Period (less than 12 months)
Occurs in cases such as:
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Newly established companies that have not completed 12 months by year-end
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Changing or aligning the financial year to Hijri or Gregorian
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Liquidation before completing 12 months from the last Zakat filing
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Mergers, demergers, or acquisitions within the financial year
Calculation method:
Zakat is calculated only for the short period (from activity start date to the new period end).
The 2.5% rate remains fixed but is applied proportionally based on the number of days in the short period.
Long Financial Period (more than 12 months)
Occurs in situations such as:
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Extending the financial year to align with a group of companies or a calendar year
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Combining two financial periods for restructuring purposes
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Delaying the preparation of the first financial statements (e.g., first set of accounts covering up to 18 months)
Calculation method:
Zakat is not calculated as one lump sum for the entire extended period.
Instead, the Zakat base is apportioned over 12 months, then adjusted proportionally based on the actual number of months in the long period.
Frequently Asked Questions About Corporate Zakat
What does corporate zakat calculation mean in Saudi Arabia?
Corporate zakat calculation refers to determining the amount of zakat due on the company’s zakatable assets at a rate of 2.5% of the net zakat base, in accordance with the regulations set by the Zakat, Tax and Customs Authority (ZATCA) in Saudi Arabia.
What is the zakat base and how is it determined?
The zakat base is the net amount of zakatable funds after deducting short-term liabilities from the total zakatable assets, such as cash, inventory, and receivables.
The zakat base is calculated as follows:
Zakat Base = Zakatable Assets – Financial Liabilities,
and the zakat due is 2.5% of the final zakat base.
What assets are subject to zakat in companies?
Zakatable assets include cash, accounts receivable, commercial inventory, and short-term investments.
Fixed assets — such as buildings, equipment, and vehicles — are excluded.
How is zakat calculated for commercial companies?
Zakat for commercial companies is calculated through the following steps:
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Identify zakatable assets.
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Deduct short-term liabilities such as payables to suppliers and accrued expenses during the zakat year.
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Calculate the zakat base using the formula:
Zakat Base = Total Zakatable Assets – Short-Term Liabilities -
Apply the Sharia rate of 2.5% to the net zakat base.
How is zakat calculated on shares within companies?
If the shares are held for trading, zakat is due on their market value along with any undistributed profits.
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If they are held for long-term investment, only the cash dividends are subject to zakat, not the share’s principal value.
What is the role of accounting firms such as Ethraa Al Sharq in zakat calculation?
Ethraa Al Sharq for Accounting and Legal Auditing provides a comprehensive range of zakat and financial services that ensure full Sharia and regulatory compliance, including:
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Accurately determining the zakat base based on the nature of the company’s activities.
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Calculating the zakat due in accordance with applicable regulations and guidelines.
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Preparing and electronically filing zakat returns within the prescribed deadlines.
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Reviewing financial statements to ensure inclusion of all zakatable assets and liabilities.
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Providing Sharia and accounting advisory to ensure complete compliance with ZATCA regulations.
