What is Estimated Zakat for Companies?

What is Estimated Zakat for Companies?

Zakat, the third pillar of Islam and one of the most essential forms of financial worship, is an obligation entrusted to the state. In Saudi Arabia, the General Authority of Zakat, Tax and Customs (ZATCA) is responsible for collecting zakat and ensuring its proper allocation. This includes calculating zakat owed by businesses, and in certain cases, imposing estimated zakat.

What is Estimated Zakat?

By default, the zakat base for companies is calculated using audited financial statements prepared by a licensed accountant, reflecting the company’s net zakatable assets held for a full fiscal year (hawl).
However, when a company:

• Does not maintain organized commercial records, or
• Does not have audited financial statements, or
• Fails to submit accurate data to ZATCA,

it becomes subject to estimated zakat.

According to the 2021 Zakat Assessment Rules, estimated zakat applies to any taxpayer who does not have financial statements that truly reflect their business activity, and who is not legally required to produce such statements under current laws and regulations.

Which Companies Fall Under Estimated Zakat?

Estimated zakat is typically applied to what are known as “small taxpayers”, meaning those who do not maintain proper commercial records.
Per Article 13, Clause 2 of the Zakat Collection Regulations, a taxpayer falls into this category if:

• The company has no imports or contracts.
• The workforce does not exceed 10 employees (for commercial activities) or 30 employees (for other sectors like construction, services, or crafts).
• The company holds five or fewer commercial registrations (CRs).

However, with the latest 1446H update to the Commercial Registry Law, companies are now issued one unified commercial registration, regardless of the number of branches or business activities. This major reform renders the old criterion of “number of CRs” ineffective.

Salamah Law Firm interprets this new legal development to mean that the old metric (≤ 5 CRs) should now be understood as referring to the number of active branches or business activities under the unified CR—based on data from the Ministry of Commerce and ZATCA. This interpretation stands until the Zakat regulations are formally updated to reflect the legislative changes.

Other Cases Where Estimated Zakat Applies:

A taxpayer may also be subject to estimated zakat if:

• ZATCA cannot access reliable data reflecting the actual business activity.
• The taxpayer fails to submit a zakat return within the period specified in Article 17.
• The taxpayer submits financial documents or accounting records not in Arabic.
• The records submitted do not align with the real activity.
• The taxpayer’s records do not follow the approved formats under current laws.
• ZATCA finds the information provided to be incorrect or unverifiable.

When Does the Zakat Year Begin?

The zakat year (fiscal year for zakat purposes) starts from the earliest of the following:

• The date of issuing the commercial registration,
• The date the company receives its operational licenses,
• The date of capital deposit.

Example:
If a company deposits its capital on April 20, 2024, is incorporated on May 15, 2024, and its CR is issued on November 15, 2024, the zakat year begins on April 20, 2024, as it is the earliest event.

If no date is explicitly defined by the taxpayer, the zakat year usually begins on the date of CR issuance. The company’s founding documents will serve as official proof in case of disputes.

How Is Estimated Zakat Calculated?

The zakat rate is 2.5% of the zakat base for a Hijri year (354 days).
If the company uses a Gregorian fiscal year or a period longer/shorter than 354 days, the rate is prorated:

Zakat Rate = (2.5% ÷ 354) × actual number of days

The 2.5% rate applies to all components of the zakat base except for adjusted net profit, which is always subject to 2.5% flat.

Example:

A company’s fiscal year runs from July 1, 2023 to December 31, 2024 (550 days).

• Adjusted net profit: SAR 5,000,000
• Zakat base (excluding profit): SAR 10,000,000

Zakat on base = (2.5% ÷ 354) × 550 = 3.883%
Zakat = 10,000,000 × 3.883% = SAR 388,000
Zakat on profit = 5,000,000 × 2.5% = SAR 125,000
Total zakat payable = SAR 513,000

Note: If a company’s closing fiscal period is less than 354 days, no zakat is due for that short final period.

Estimated zakat is ZATCA’s mechanism to assess companies that fail to maintain proper records or submit reliable financial data. However, many businesses argue these estimations are excessive or unfair.

At Salamah Law Firm, we provide tailored legal guidance for all zakat-related matters. Our experienced team represents clients before relevant committees and ensures their rights are protected. Whether you’re a startup or an established company, compliance begins with proper documentation—and solid legal representation.

 READ MORE : How Can Companies Challenge Decisions Issued by the Zakat, Tax, and Customs Authority?