Zakat in government-owned companies
Zakat is one of the pillars of Islam; it is a religious wealth tax based on the taxpayer’s net worth — not income — and is applied to individuals as well as to companies according to specific regulations.
This article will discuss the most important zakat regulations, especially as they concern companies wholly owned by the government.
State-owned companies are subject to a levy of zakat upon the fulfillment of several regulations. Where the company must have a commercial register, its scope of work or objectives can be attributed to the private sector, based on the company’s articles of association, articles of incorporation, or any other legal document.
As for exclusion, companies wholly owned by the state can be excluded from being subject to the levy of zakat for the fiscal year if all of the company’s investments are outside the Kingdom or if the state treasury finances the company’s budget.
If the state treasury finances the company, the regulations stipulate several factors and conditions that must apply to such a budget. In that case, the nature of the company’s activity must be a service to support government agencies in the performance of their own work, most of its clients must be from government agencies, and the company sales to the private sector must not exceed 10 percent of its total sales.
The company to which the regulations mentioned above apply can submit an annual request not to be subject to a levy of zakat. Such a request shall include an application to the Zakat, Tax and Customs Authority in accordance with the form prepared for this purpose, accompanied by the documents requested by this authority. The application must include the declaration of the information and the company’s data, proving the regulations’ fulfillment.
Moreover, the application must be submitted within the statutory period indicated in the executive regulations for levying zakat, which must not exceed 120 days from the end of the financial zakat year. If the company delays submitting the application until after the end of the statutory period, the authority may accept the application if the company submits justifications acceptable to the authority.
If a company owned by the government fully owns more than one other company, then each subsidiary company must submit an independent request for exemption to the authority. This decision applies to the fiscal years beginning on or after 1/1/2023.