Zakat Rules for Saudi and Mixed-Ownership Companies

Companies operating in Saudi Arabia continue to work under updated zakat rules that clarify who pays zakat, how the rate is applied, and how mixed-ownership businesses split their obligations between zakat and corporate income tax. The updated implementing regulation, issued under Ministerial Resolution No. 1007 dated 8/19/1445H (29 February 2024), applies to fiscal years beginning on or after 1 January 2024.

Zakat applies to resident companies owned by Saudi and GCC nationals, as well as to the Saudi and GCC shares in mixed-ownership resident companies. The zakat rate is 2.5% of the zakat base for the Hijri year. For companies that report on a Gregorian year, the effective rate is sometimes expressed as roughly 2.577% to align with the shorter Hijri calendar.

For mixed-ownership resident companies, the obligation is divided by ownership. The Saudi and GCC portion is subject to zakat at 2.5% on the zakat base allocated to that share, while the foreign portion is subject to corporate income tax at 20% on the taxable income attributable to it. Both apply at the same time, and neither can be credited against the other. For example, a company owned 60% by Saudis and 40% by foreign investors pays zakat on the 60% share and corporate income tax on the 40% share.

The obligation is determined at year-end based on the Saudi and GCC ownership percentage, without adjusting for intra-year changes in ownership or in the company's legal form. Shares held by non-Saudis who are partners in resident capital companies are treated as non-Saudi shares and fall under corporate income tax rather than zakat.

For entities that maintain accounting records, the zakat base is commonly calculated using the indirect method, while the direct method (net zakatable assets) is also available. Understanding the correct method and ownership split matters for the many local and expat-owned businesses in Riyadh, Jeddah and beyond, as accurate calculation supports smooth compliance and avoids disputes.

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