Do expats pay zakat in Saudi Arabia?

Saudi Arabia is a country with deep Islamic roots, where, along with financial obligations, religious duties also play a pivotal role. One of the religious obligations that impacts the legal structures of the country is Zakat. For millions of expatriates residing and working in KSA, understanding the demanding financial and legal frameworks, specifically Zakat structures, is necessary to operate hassle-free in KSA. Although expats are not generally obliged to pay Zakat, there are certain areas where Zakat impacts the overall taxes, mainly for businesses and investors. This article explores the key legislation of Zakat, its obligations on Expats, and a practical checklist for expats to stay compliant in KSA.

Understanding Zakat in Saudi Arabia

Zakat is one of the 5 foundational pillars of Islam; Muslims need to contribute to it. Generally, zakat is 2.5% of the eligible wealth that is above the Zakat Base (Nisab) for a complete lunar year. The computation rules change as per the asset, for individuals and businesses. The latest taxation system in most of the Muslim countries covers zakat along with other mandated taxes, and Saudi Arabia is one of them. Saudi Arabia has formally built a regulatory body to look after the national taxes, customs, and Zakat under one umbrella, which is the Zakat, tax, and customs authority (ZATCA). ZATCA enforces guidelines and rules to emphasize the collection of zakat collectively for corporate sectors. However, the personal zakat is a private duty on Muslim persons that is not collected by the authorities from expatriates.

The Saudi Dual Taxation System

The businesses that are supervised by the Saudi and GCC nationals normally fall under the category of the Zakat applicable list. On the other hand, the businesses that are owned by international owners without any local ownership are subject to corporate tax. This dual system of taxation for businesses is based on the ownership structures.

• Zakat: Applied to Saudi citizens or GCC nationals on the part of their share in a business
• Corporate Income Tax (CIT): CIT is applied to non-Saudi, non-GCC businesses or mixed ownership structures with a fixed rate of 20% on adjusted profits.

It is mandatory to understand that businesses with both Saudi and foreign ownership are mandated to contribute to Zakat for the Saudi and GCC portion and corporate income tax for the non-Saudi portion.

Do Expatriates Need to Pay Zakat?

A general answer to this question is no, they don’t need to pay Zakat as it is a religious duty obliged on Muslims only, and it is only compulsory for Saudi and GCC nationals. However, there are certain areas where expats are required to pay Zakat, and it is important for them to carefully watch these scenarios, such as,

1.     Saudi Business Partner or Shareholder

If any company operating in Saudi Arabia has a business partner or shareholders who are Saudi or GCC local persons, then the entity will be urged to pay zakat for the Saudi part, and this zakat responsibility will impact the distribution of profits and earnings.

2.     Sole Proprietorship or Self-Employed Businesses

A business’s residency and legal form are important to know if they fall under the category of corporate income tax, zakat, or both. Many businesses take ZATCA guidance and hire legal experts to know the right classification.

3.     Muslim Expat anxious about religious concerns

Any personal form of zakat on savings, investments, and business inventory, which is a religious duty, is paid voluntarily by many Muslims. This doesn’t depend on whether they are non-Saudi or GCC nationals; they can pay it to trusted zakat distribution centers.

4.     Assets or investments that are exposed to Zakat

Many businesses that have ownership of certain assets, like shares in Saudi companies, business inventories, and trade receivables, can gain zakat liabilities at the entity level as per the structure of their ownership.

Practical Calculation Pointers for Individual & Corporate Level

Muslim Individual Expat

For Muslim individuals, they can find the Nisab on their metals like gold or silver as per their current market value. They need to list down all the eligible assets on the Zakat date (cash, bank balances, investments, receivables as applicable) and subtract the immediate liabilities. If they get the qualifying wealth greater than or equal to nisab for one lunar year, they must pay 2.5% of that wealth as zakat.

Corporate Expat Entity

Businesses can determine their base as per ZATCA guidelines; these guidelines are according to sharia law, with the mentioned zakatable items percentage like cash, receivable, etc., and which items are excluded or adjusted. Businesses need to apply the allowed adjustments as per the guidelines of ZATCA, and professional rulings should be followed. Calculate the right amounts of Zakat returns and submit them to the ZATCA e-portal. These calculations can be complex with all the latest regulations and third-party transactions. Hence, a business may require hiring a professional tax advisor.

Best Zakat Practices for Expatriates

It is important that businesses or individuals stay compliant with the Zakat practices to mitigate risk and operate soundly in KSA.

For Muslim expatriate individuals

• It is essential to keep the record well-maintained, including bank balances, investments, and liabilities on the zakat date, to make nisab calculations a simple task.
• Select gold or silver and apply it consistently to maintain a standard nisab measure
• Utilize the right registered channels or zakat organization to protect from any fraud and to ensure that zakat is paid to the eligible persons
• Although there is no personal income tax yet, under double implications, you might have to pay other taxes, for which it is essential to hire a tax consultant

For expat business owners, partners, or shareholders

• For international businesses, it is important to know their right legal structures and in which category they fall, be it corporate tax, zakat, or both; they need to determine the ownership percentages for the exact calculations
• Hire a local Zakat advisor before the process to understand your Zakat obligations, filing requirements, and documentation requirements under the ZATCA guidelines.
• File the returns on time if you are liable to pay zakat, and make sure that your zakat returns are in the right format and in the Arabic language. Submit these returns ahead of ZATCA deadlines.
• Keep an organized and well-maintained audited financial statements of zakat filing, audit plans, and reconciliations of bank accounts to present to ZATCA in case of any legal queries
• Ensure that you are following all the transfer pricing regulations and any third-party guidelines for zakat-based transactions to protect your company from forced adjustments.

How Advisory Firms Simplify Zakat Structures and Compliance for Expatriates?

For many international businesses, understanding the local zakat obligations along with other tax laws can be complex when they specifically hold investments while operating businesses side by side with Saudi or GCC partners. Expert accounting firms that have previous expertise in handling these cases, like SSCOKSA, not just offer clarity but also compliance support to expats by easing these complex procedures with confidence.

1.      Clarifying Obligations

Advisors thoroughly review the client’s legal business structures and their ownership composition to find out whether the laws fall under zakat, corporate tax, or a hybrid category. Then they help the expats understand their liabilities clearly before filing these returns to ZATCA.

2.      Compliance-Driven Support

The firms help the businesses in complete compliance by proactively preparing for zakat and tax in line with the ZATCA legal guidelines. They make sure all the financial statements are audited, and additional documents also meet the legal requirements. They respond to any queries or represent them in front of them in case of any external audits by ZATCA

3.      Personal Zakat Guidance for Muslim Expats

Expatriates are not required to pay the zakat to ZATKA; however, Muslim expats might often voluntarily want to take part in this religious obligation. Accountants assist them by offering support in computing the zakat on their savings, investments, and personal assets. They also recommend the best charities available in KSA for donations, so they can be securely distributed by the right hands.

4.      Risk Mitigation and Strategic Planning

Compliance is not just bound to filing on time; SS&CO facilitates businesses in minimizing risks and guarding from legal obstacles by routinely reviewing all the related party transactions and applying the transfer pricing rules. They make documentation transparent to compute deductions and exemptions accurately. They also offer their intelligent advice on how companies can structure their investments in Saudi Arabia as per the laws.

5.      Staying Ahead with Vision 2030

To back the Vision 2030, Saudi Arabia is evolving its financial guidelines on a regular basis, which can be intricate for expatriates to understand. Professional advisors make sure that all expats remain legally sound by monitoring the legislative updates and adopting and applying them promptly. They also provide ongoing advisory support to future-proof their business from any trouble.

Get in touch with SS&CO KSA Today!

SS&CO is one of the top-notch accounting firms in Riyadh. We not just facilitate the compliance process for expats but also break it down into simple, practical steps. Our tax advisors make sure that expat businesses understand the Saudi Zakat Laws, applicable obligations, and keep their finances in line with these requirements. With us, you can carefreely prioritize your business-critical matters, and we will take care of your legal and tax matters.