Zakat Applications Kingdom of Saudi Arabia

Zakat Applications
in the
Kingdom of Saudi
Arabia
Presenter:
Mr. Saleh Al Awaji- DZIT’s Deputy
Director General
1
Index
•
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•
•
•
•
•
•
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Zakat Legal Base
Department of Zakat and Income Tax
Zakat Main Features
Filing
Zakat Base Items, Deductible and non-Deductible
Expenses
Determination of Zakat Base
Books and Records
Example
Presumptive Assessment
Objections and Appeals
2
Zakat Legal Base
• Royal Decree no. 17/2/28/8634, dated 29/6/1370H as amended
by the royal Decree no. 17/2/28/577, dated 14/2/1367 has
stipulated collection of zakat based on Islamic Jurisprudence
from Saudi individuals and companies at a rate of 2.5%. The
Royal Decree no. 5/506, dated 19/3/1405 H has stipulated
zakat treatment of individuals and companies from member
states of the Cooperation Council for the Arab States of the
Gulf (GCC) like Saudis.
3
Department of Zakat and
Income Tax (DZIT)
4
Establishment
• The Department of Zakat and Income Tax (DZIT) was first
established in 1355 H. (1936) as an office within the Ministry
of Finance to collect the prescribed revenues.
• Based on power delegated to him, the Minister of Finance
resolved in resolution no. 394, dated 7/8/1370 to establish
DZIT as a department reporting directly to the Minister of
Finance.
5
DZIT Mission
• Administer the taxation and zakat system through
the correct assessment and collection of zakat and
tax as efficiently and effectively as possible, to
improve the voluntary compliance of taxpayers by
providing equitable treatment, outstanding
performance and the continued improvement of
services to them.
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DZIT Responsibilities
1. Examine, assess and collect zakat from Saudis and resident
citizens from member states of GCC.
2. Examine, assess and collect tax from persons subject to taxation:
3. Follow-up on delinquent taxpayers to ensure collection of due
zakat, taxes and fines.
4. Develop work procedures by undertaking research and studies to
find solutions to problems that may arise in application.
5. Issue statistical reports on DZIT operations: taxpayer's numbers,
categories, locations, and activities. Submit annual report on
DZIT's
accomplishments,
revenues
and
expenditures
to
concerned authorities.
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DZIT Organization Features
• The structure is based principally on ‘functional’ criterion.
• There is a dedicated organisational unit for managing tax
affairs of large taxpayers.
• There are dedicated organizational units responsible for audit,
taxpayers services, collection and taxpayers' appeals/disputes.
• There is a separate substantial in-house IT functions.
8
DZIT Staff and office
network
• DZIT staff is over 1600.
• DZIT has one headquarters and 16 local
offices.
9
DZIT Revenue collections
• revenues collected by DZIT have in the late years increased at an
approximate annual rate of 20%.
• DZIT automatically remits its zakat revenue to a zakat account at the
Saudi Arabian Monetary Agency earmarked to social insurance
entitlements being met by the Social Insurance Agency of the
Ministry of Social Affairs.
• Tax revenues are deposited at a special tax account as part of the
state's resources.
• DZIT Total amount of net collection for the fiscal year 2013 is over
SR 25 billion: SR 12 billion tax revenue and SR 13 billion zakat
revenue.
10
Registered taxpayers
Total number of taxpayers and zakat payers
is (280,455) broken down as follows:
 The number of registered taxpayers (Individuals): (4,342 )
 The number of registered taxpayers (Companies): (6,864 )
 The number of registered zakat payers (Individuals): (248,679)
 The number of registered zakat payers (Companies): (19,990 )
11
Use of electronic services in
DZIT
• DZIT is currently implementing a plan for improving over the
coming years the range and quality of electronic services provided
to taxpayers.
• DZIT has already enhanced online electronic tax return filing
services: 77% of return filing done electronically as well as has
enhanced online electronic payment services: all payments are done
through banks by accessing an electronic payment system available
at all banks; the payment system is called SADDAD.
• DZIT has also increased information provision on DZIT’s website
and enhanced data capture from third parties.
12
Automating Services
DZIT Portal
General
e-Services
Zakat/Taxpayer
e-Services
Zakat/Taxpayer
Registration
Zakat/Taxpayer
Returns
13
DZIT Portal
DZIT Portal (www.dzit.gov.sa) caters to a wide
range of audiences, including, but not limited
to:
• Zakat/Taxpayers
• Auditors
• Government Agencies
• Citizens … through multiple services.
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DZIT Portal
Transparency
DZIT Mission,
Goals, &
objectives
definition
Efficient and
on-time
services.
Key
Objectives
Reduce Time
consuming
Processes
Improved
Collection
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General e-Services
General e-Services
Correspondence
Tracking System
An online service to
verify the search for
correspondence details
Zakat Certificate
An online service to
verify the Zakat
Certificate
Salary Certification
An online service to
verify the employee
salary certification
www.dzit.gov.sa
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Zakat/Taxpayer Returns
• Zakat/Taxpayer Returns is an interactive service, that
enables all Zakat/Taxpayers to submit/view their
Returns and be notified of their Zakat/Tax overdue
through the following process.
Filing
Obligation
Notification
•Email
•SMS
Returns
Submission
Returns Follow
up
•Simulation
•Attachments
•Pending Returns
•Successful
Submission
Zakat/Tax
Amount
overdue
•Invoice Number
Zakat/Taxpayer
Notification
•Email
•SMS
www.dzit.gov.sa
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SADAD Services
• SADAD services are summarized as an integration
between the Invoice number generated from the
returns submission and Payment Services using
SADAD Services.
Zakat/Tax Invoice
Number
Payment through
SADAD Services
• Amount overdue
• Using Invoice No.
Amount Paid
www.dzit.gov.sa
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DZIT Organizational
Structures
19
20
Zakat Main Features
• Zakat is applied at a flat rate of 2.5 percent on the net worth (not net income) of
Saudi natural persons, wholly Saudi owned companies, and Saudi partners in joint
ventures (except for rain-fed agricultural products and irrigated agricultural
products for which the rate is 10 percent and 5 percent respectively).
• The Zakat base, i.e. the assessable amount is not income or profit of zakat payer. It
is much larger: it includes capital, retained earnings, reserves and net profits, but
excluding fixed assets, investments in other companies, losses carried over from
previous years, and losses for the fiscal year. There is no exemption from Zakat.
• zakat is payable even for no-profit periods.
• zakat is payable even if the company ceases activities.
• Company liquidation only stops Zakat liability.
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Filing Returns
TWO RETURNS ARE
USED:
Return no. 2 is for zaka tpayers with books and records
Zakatpayers must file it and pay accordingly within one
month after the end of the financial year.
Return no. 5 is for zakat payers with no books and
records. Zakat payers must file it and pay accordingly
within one month after the end of the year they adopted.
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Form number 2
Return for zakatpayers of individuals and
companies with books and records
Financial Number
Basic Information
Branch:
Company
Name:
Legal Status:
Main
Activity:
Main
Activity
Description
Address:
Financial Year
From:
To:
P.O. Box
Tel.
Zip Code
Fax
Electronic Mail
What is the basis used?
Accrual
Cash
Does the company use the weighted average method for inventory?
Yes
No
Is the cost or fair market value method, whichever is less, is used in
valuation of ending inventory?
For DZIT use only
Code:
Document Location
No.:
If no, specify the used
method.
If no, specify the used
method.
Yes
No
Does the company keep statutory books in Arabic?
Yes
No
Declaration by the taxpayer:
I declare that this return and its attachments have been prepared according
to books and records kept for the period this return represents, I bear full
liability for any information proven to be incorrect.
Name:
Signature:
Stamp
Position:
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Continue …
Instructions
1. This return is to be used by resident Saudi individuals, 100 percent Saudi companies and those from
GCC who are treated as such who keep books and records.
2. This return and its attachments should be filed and payable amount be paid within 120 days of the end
the taxpayer’s tax year the return represents.
3. Documents proving payments and audited final accounts should be attached with this return.
4. To be complete, this return should have all fields completed, required schedules and attachments
attached.
5. The taxpayer is fully responsible for the correctness of the data derived from its legal books and records.
6. Agriculture companies of multiple activities, one being subject to zakat provisions on grains and others
subject to zakat provisions on business are required to file separate accounts for the activity(s) subject
to zakat provisions on business.
7. This return should be filled out in clear Arabic. No erasure, deletion or alteration to data of the return is
allowed.
8. …
9. The owner of the entity or an authorized person should approve the return. Additional clarifications
should be attached with the return.
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Schedule no. (1):
Income
25
Serial
No.
Income
20100
Expenses
20200
20300
Adjustments to net result
20400
20500
Additions
20600
Description
Riyal
Riyal
20101 Income from main activity..( attach schedule 1 ), plus
20102 Other Income (attach schedule )
20103 Ending Inventory
Total Income ( Addition up of 20101 thru 20103 ), minus
20201 Beginning Inventory
20202 Purchases from abroad
20203 Purchases from inside the Kingdom
20204 Direct Expenses (attach schedule )
20205 Wages and salaries
20206 Sub-contractors (attach schedule 3 )
20207 Depreciation ( attach schedule 4)
20208 Consulting and Professional Fees ( attach schedule 6)
20209 Reserves and provisions ( attach schedule 8)
20299 Others ( attach schedule )
Total expenses (Addition up of 20201 thru 20299 )
20300 Net book profit (loss) (20100 – 20200 ), plus or minus
20401 Depreciation differences ( to be added back to net fixed
assets)
20402 Provisions charged to the period accounts
20499 Others ( attach schedule )
Total adjustments to net result ( Addition up of 20401 thru
20499 )
20500 Net result as adjusted ( 20300 + 20400) profit (loss)
20601 Capital, plus
20602 Carried forward profits
20603 Provisions
20604 Reserves
20605 Loans and other finances
20606 Partners’ credit current account
20699 Others ( attach schedule )
Gross base ( Addition up of 20601 thru 20699 ) + 20500
20701 Fixed assets and items treated as such (attach schedule )
Deductions
20700
20800
20900
Payments
21000
21100
20702 Investments (attach schedule )
20703 Carried over losses as adjusted
20704 Setting-up expenses and items treated as such ( attach
schedule )
20799 Others (attach schedule )
Total deductions ( Addition up of 20701 thru 20799)
20800 Net Zakat base ( 20600 – 20700)
20900 Zakat payable ( 208000 * 2.5%), minus:
21001 Overpayments from previous years, payments on account
( attach schedule )
21002 Per receipt number
, dated /
/
Total payments (21001 + 21002)
Payable differences or overpayments ( 20900 – 21000)
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Presumptive Return for zakatpayers
Financial Number
Basic Information
Branch:
Financial Year
From:
To:
Company Name:
Legal Status:
Main Activity:
Main Activity Description
Full Name of the Owner
Address:
Zip Code
P.O. Box
Tel.
Building
Electronic Mail
Fax
Street
District
City
For DZIT use only
Code:
Document Location No.:
Location
Declaration by the
zakatpayer
Number of Branches:
Number of staff and labors:
Annual Rent Amount:
Total annual amount for wages:
I declare that this return includes all income from main activity and other income derived during
the period this return represents, I bear full liability for any information proven to be incorrect.
Name:
Signature:
Position:
Stamp:
Form number 5
Instructions
1. This return is to be used by Saudi resident zakatpayers and by those from GCC who are treated as such with no books and records.
2. This return and its attachments should be filed and payable amount be paid within 120 days of the end the taxpayer’s tax year the return
represents.
3. Documents proving payments should be attached with this return.
4. To be complete, this return should have all fields completed.
5. The taxpayer is fully responsible for the correctness of the return data.
6. This return should be filled out in clear Arabic. No erasure, deletion or alteration to data of the return is allowed.
7. The owner of the entity or an authorized person should approve the return. Additional clarifications should be attached with the return
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Continue …
Serial
No.
Description
Total
Profit
Rate
Profit
amount
For
Official
Use
50101 Value of Imports from outside and
purchases from inside( attach schedule ),
50102 Income from contracts (attach
schedule 1 )
50103 Annual receipts ( sales) from main
activity
50199 Other income ( attach schedule )
Total Income ( Addition up of 50101 thru 50199 ), minus
Share in profit (loss) of a partnership ( TIN:
), plus:
Capital 
Zakat base (50100 + 50200 + 50300 )
Zakat payable ( 50400 * 2.5%)
50601 Per receipt number
, dated /
/
50602 Per receipt number
, dated /
/
50603 Per receipt number
, dated /
/
Total payments (addition up of 50601 thru 50603)
Balance payable ( 50500 – 50600), plus:
Zakat payable on previous years
Total payable ( 50700 + 50800)
Income
50100
50200
50300
50400
50500
Payments
50600
50700
50800
50900
For Official Use
---- Agree with the taxpayer’s return.
--- Agree with adjustments made on the taxpayer’s return for the following
reasons:
Examiner
Manager, Examination and
Assessment Admin.
Audit Admin.
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Determination of Zakat
Base
For zakatpayers with books and records,
Zakat Base is determined as follows:
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a. Adjustments to book result:
Net profit (loss) per books
Additions to book result:
Reserves formed during the year of audit
Social Insurance paid abroad
Fixed assets depreciation differences
Expenses not related to the activity
Zakat or tax paid and charged to accounts
Net profit as adjusted for zakat purposes
00000
000
000
000
000
000
0000
000000
b. The following items are added to net profit (loss) as adjusted for
zakat purposes:
Paid-up capital
Additions to paid-up capital:
Balances of all provisions and reserves that
completed one year, with exception to
depreciation provision (not added).
Prior years’ profits carried forward (if any)
Loans used to acquire/finance fixed assets or
investments
The owner’s/partner’s credit current account
Retained profits for distribution (If any)
The year’s adjusted net profit
Total items included in zakat base
Deductions:
Fixed assets net value
Carried over loss as adjusted by DZIT
The year’s loss as adjusted
Pre-setting up expenses balance
Entity’s construction in progress
Investments in other entities that were subject
to zakat at these entities
Investments in the Kingdom’s government bills
(average of 12 months)
Zakat base
Payable zakat is 2.5 percent of zakat base
0000
0000
0000
0000
0000
0000
0000
0000
00000
0000
0000
0000
0000
0000
0000
0000
0000
0000
0000
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Example : Corporate Income Tax and Zakat Calculation
Profit/loss-sharing ratio: Non-Saudi shareholder’s (partner’s) share : 50 %
Saudi shareholder’s (partner’s) share :
Corporate Capital : SR 15.000.000
Result of financial year = (SR 20.797.567)
50%
Corporate Tax & Zakat Calculation for both Non-Saudi & Saudi Shareholders
SR
SR
Corporate Loss
20.797.567
50% share of profit/loss
10.398.784
Payable tax by non-Saudi Partner
Nothing
Zakat on the Saudi share
50% share of capital
7.500.000
Legal reserves
3.750.000
Retained profits
8.485.211
Total
19.735.211
Less
Net fixed assets
Year Loss
Zakat Base
Payable Zakat at 2.5
1.813.597
10.398.783
12.212.380
7.522.831
188.071
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Presumptive Cases
Zakat base of some zakatpayers may be determined under a presumptive method in any of
the following:
1. The zakatpayer has no reliable accounts to determine the zakat base.
2. The Department has not accepted the zakatpayer’s books due to essential shortfalls in
them.
3. The zakatpayer has not filed return and accounts during the legally prescribed dates.
• Zakat base is determined as follows:
1. Operating Capital
• The operating capital may be determined using any method possible: DZIT may refer
to relevant documents to determine the operating capital, such as the entity’s commercial
register, the articles of association, or any other documents, or it may resort to any means
possible. If it becomes evident that the operating capital is different from the
declared/determined capital, DZIT may change it to agree with the volume of activity,
number of capital cycles per year based on common practice of each type of activity.
2. Net profits
• Net profit will be determined to be not less than 15 percent of the zakatpayer’s annual
gross receipts. Annual gross receipts will be based on documents submitted by the
zakatpayer, on the basis of number of annual capital cycles, or based on other indicators or
information available at DZIT and derived from different activities.
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Objections and Appeals by zakatpayers
• Zakat payers may object according to the following rules:
•
1. The zakatpayer must submit an objection letter to DZIT showing reasons for
objection within 60 days of date of notice of assessment to the zakatpayer by
DZIT.
•
2. DZIT records the objection in a special register and reviews it. It will submit
it to the 1st Instance Committee along with statement of its position.
•
3. The 1st Instance Committee will consider cases and issue its resolution based
on available documents and after hearing the two parties.
•
4. Either party, DZIT or the taxpayer, may appeal the 1st Instance Committee’s
resolution within 30 days of receipt of resolution.
•
5. To accept the appeal, the zakatpayer should first pay or submit a bank
guarantee based on the 1st Instance Committee’s resolution.
•
6. The Higher Appeal Committee issues its resolution based on available
documents and after hearing the two parties and it becomes final once the
Minister of Finance and National Economy signs it.
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ZAKAT
APPLICATIONS IN
THE REGION
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Legal Binding to Pay Zakat to the
State and Vice Versa
• Organizations Collecting Zakat by Force of Law
Libya, Saudi Arabia, Pakistan, Malaysia, the Sudan
and Yemen Arab Republic
• Organizations Collecting Zakat voluntarily
Iran, Bangladesh, Kuwait, Bahrain, Egypt and Iraq
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Combining Zakat Collection and Disbursement
Under One Organization
• Organizations Collecting Zakat by Force of Law
• The Sudan, Pakistan, Yemen and Malaysia unify the
collection and disbursement under the same
organization
• In Saudi Arabia, all Zakat receipts are forwarded to the
Saudi Monetary Agency and credited to the account of
the Social Insurance Department
• In Libya the Zakat Organization disburses zakat proceeds
to the officials of zakat management only. The rest of
zakat receipts are disbursed by the General
Organization for Social Insurance and the Islamic Dawa
Society, in accordance with zakat nisabs.
• Organizations Collecting Zakat Voluntarily
• In all these organizations, collection and disbursement of
zakat are undertaken by the same organization.
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Questions & Answers
Thank You for Your Time!
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