Saudi corporate taxpayers are now operating under the new Zakat Implementing Regulation issued by the Minister of Finance as MR No. 1007 (1445H). This consolidated framework modernizes Zakat calculation and compliance across sectors and aligns processes for financing, insurance, investment funds, mixed groups, and holding structures. Below is a hands-on, CFO-friendly guide to scope, bases, adjustments, disclosures, and month-end controls so you can file Zakat with confidence in 2025 and beyond.
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What Changed Under MR No. 1007 — Executive Summary
Consolidation & clarity
- Unifies prior Zakat by-laws and sector circulars into a single, updated regulation.
- Codifies sector-specific bases for financing, insurance and funds, limiting interpretive gaps.
- Introduces more explicit documentation and disclosure expectations in annual filings.
Application window & transition
- Applies to fiscal years beginning on/after 1 Jan 2024 (with transitional/early-adoption mechanics set by the authorities).
- Replaces the previous regulation issued in 2019, aligning methodology and terminology.
Reminder: Zakat is a separate regime from corporate income tax. Mixed-ownership groups may face Zakat for Saudi/GCC-owned entities and income tax for non-GCC-owned entities—get the classification right up-front.
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Who Is in Scope?
Zakat payers (typical)
- Saudi-resident companies and establishments owned by Saudi/GCC nationals.
- Entities electing into the Zakat regime under specific provisions (per sector rules).
- Consolidated groups where certain members are Zakat-liable; others remain income-tax-liable.
Watch-outs
- Hybrid/mixed groups (Saudi + non-GCC ownership) need careful allocation between Zakat and tax bases.
- Substance and beneficial ownership remain central for treaty/tax interactions alongside Zakat.
- Non-profit entities may have specific relief/conditions; confirm eligibility and caps before applying.
How the Zakat Base Is Determined (High-Level)
Standard commercial model
- Start with equity-based or working-capital-based approach as permitted.
- Adjust for Zakat-relevant assets (e.g., receivables, inventories, cash, investments).
- Deduct allowable liabilities (e.g., certain payables and accrued expenses).
Sector variations
- Financing/Banking: asset/liability definitions tailored to lending portfolios and provisioning.
- Insurance: treatment of technical reserves and policyholder balances clarified.
- Funds/RE/PE: look-through concepts and NAV-based mechanics may apply.
Adjustments & eliminations
- Related-party balances, intercompany eliminations, and foreign branches addressed explicitly.
- Unrealised gains/losses and fair-value movements may have specific treatment—document your policy.
- Capital changes around year-end should be substantiated to avoid base distortions.
Tip: Build a Zakat mapping from trial balance lines to the Regulation’s categories with sign-off from Tax, Finance, and Internal Audit.
Common Deductions & Non-Deductibles (Anchor Your Policy)
| Area | Generally Allowable / Treatment | Red Flags & Notes |
|---|---|---|
| Trade payables & accruals | Included as allowable liabilities where linked to Zakat-relevant activities | Long-outstanding/related-party items require substance and reconciliation |
| Provisions | Specific provisions may be recognized under sector rules | General provisions/estimates may be restricted—keep working papers |
| Investments | Treatment depends on classification (trading vs. strategic) | Look-through and consolidation rules can alter base—align with audited notes |
| Foreign operations | Branch assets/liabilities considered per Regulation | Currency translation and timing differences must be trued-up |
Documentation is king: MR 1007 expects audit-ready support for classifications, eliminations, and year-end movements.
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Groups, Consolidation & Related-Party Rules
- Group consolidation: Where permitted/required, intercompany balances and investments are eliminated to prevent double counting in the Zakat base.
- Mixed regimes: For groups with both Zakat-liable and income-tax-liable entities, maintain a ledger split and an evidence pack for allocations/eliminations.
- Transfers & restructurings: Share swaps, spin-offs, or asset transfers near year-end must be supported with commercial rationale.
Disclosure, Filing & Payment — Your 2025 Calendar
Before year-end
- Confirm policy papers for sector-specific items (reserves, provisioning, fair-value).
- Lock a group chart with ownership %, classification (Zakat vs. tax), and consolidation status.
At close / month-end
- Reconcile trial balance to Zakat mapping; prepare base bridge and working papers.
- Use Day-6 / Day-8 / Day-9 internal milestones for any WHT/treaty interactions affecting Zakat disclosures.
Late/incorrect filing risk: Mis-classification (e.g., services vs. royalties in related WHT context), unsupported eliminations, or missing group evidence can trigger assessments and surcharges.
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Internal Controls & Audit-Ready Pack (What ZATCA Expects to See)
- Zakat mapping workbook from TB to MR 1007 categories with sign-offs.
- Sector memos (financing/insurance/funds) including reserve calculations and policy elections.
- Group consolidation file (ownership, eliminations, investment treatment, foreign branches).
- Movement schedules for equity, provisions, related-party balances, and fair-value items.
- Disclosure pack matching audited financial statements to the Zakat return.
Pro tip: Save one PDF per entity per year with bookmarks—speeds reviews and reduces follow-up queries.
Year-End Checklist Under MR 1007
- ✅ Validate entity classification (Zakat vs. income tax) and group perimeter.
- ✅ Confirm sector-specific rules, especially for financing, insurance, funds.
- ✅ Review deductions/non-deductibles and support with underlying ledgers.
- ✅ Prepare base bridge and tie-out to audited notes.
- ✅ Archive management approvals and policy elections.
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Action Plan for Saudi CFOs & Tax Managers
- Build a MR 1007 compliance matrix (entity scope, sector rules, disclosures, deadlines).
- Adopt a two-book approach: TB-to-Zakat mapping + policy papers updated each quarter.
- Automate ledger tags for Zakat-relevant assets/liabilities (ERP custom fields).
- Run a pre-close Zakat review with tax advisors for high-impact items (investments, reserves, eliminations).
Need a MR 1007-ready Zakat workbook and disclosure pack? Talk to us.
Work With Us
We help Saudi corporates operationalize MR 1007—sector memos, Zakat base mapping, consolidation files, and audit-ready disclosure packs—so you file accurately and avoid assessments. For collaborations, sponsored placements, or guest posting on Saudi corporate tax topics, email [email protected].
