What is Zakat Accounting in KSA?
Zakat accounting is the process of calculating, recording, and reporting zakat liability for Saudi and GCC-owned shares of a business. Under Saudi rules, companies provision for zakat in their financial statements based on the zakat base and the 2.5% rate, then settle the amount with ZATCA within 120 days of year-end.
How It Works
- Calculate the zakat base each year-end (equity-based formula adjusted by ZATCA rules).
- Apply 2.5% to the base; the result is the annual zakat liability.
- Debit zakat expense and credit zakat payable as a current liability in the financial statements.
- Pay the zakat through the ZATCA portal and obtain the zakat certificate for commercial use.
Saudi Context
Zakat is unique to Saudi Arabia and the GCC; ZATCA administers it for companies in the Kingdom. A zakat certificate is required for renewing commercial registrations, participating in tenders, and accessing government services. The Saudi Companies Law also requires statutory reserves before any zakat-eligible distribution.
Example
A 100% Saudi-owned company has a SAR 20 million zakat base. Zakat expense is SAR 500,000 (2.5%), recorded as a charge to profit or loss and a liability. The amount is paid to ZATCA within 120 days of year-end with the zakat return.