Many entities conflate zakat with income tax, even though the two rest on fundamentally different legal bases.
The basis of application
Zakat applies to entities owned by Saudi and GCC nationals and is computed on the zakat base under the zakat collection rules. Income tax applies to the share of non-GCC investors in the capital and is computed on adjusted net profit.
Mixed-ownership companies
In mixed-ownership companies the base is split according to ownership percentages: the GCC partner's share is subject to zakat, and the foreign partner's share is subject to income tax. This results in a single return that addresses both bases.
Disclosure implications
- Provisions must be separated in the financial statements to reflect the nature of each obligation.
- Expense deduction rules differ between the two bases, most notably the treatment of expenses without supporting documentation.
- Payment deadlines and instalment mechanisms differ.
Practical recommendation: review the ownership structure registered with the Ministry of Commerce before the financial year end, since any change in percentages directly affects how the base is computed.
- الزكاة
- الضريبة
- zakat
- tax