A comprehensive guide for corporate taxpayers in Saudi Arabia on filing combined tax and zakat returns under the Zakat, Tax and Customs Authority (ZATCA) rules, specifically for mixed ownership companies where both Saudi/GCC and foreign shareholders are involved. Learn about calculation methods, compliance requirements, deadlines, and documentation for maximizing efficiency and avoiding penalties.
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1) Understanding mixed ownership companies
Mixed ownership companies in Saudi Arabia are entities where shareholding is divided between Saudi/GCC nationals (subject to zakat) and foreign investors (subject to income tax). Under ZATCA regulations, these entities must file a combined return that reports both zakat and income tax obligations in a single filing.
2) Why combined returns are required
- To ensure accurate allocation of profits between zakat and tax payers based on ownership structure.
- To simplify compliance by submitting a single return instead of separate filings.
- To facilitate unified assessments and audits by ZATCA.
- To prevent discrepancies in financial reporting between zakat and tax components.
3) Structure of a combined return
| Section | Purpose | Key Data Points |
|---|---|---|
| Zakat Calculation | Determines zakat due on Saudi/GCC ownership portion. | Zakat base, zakat rate (2.5%), exempt assets/liabilities. |
| Income Tax Calculation | Determines tax due on foreign ownership portion. | Taxable profit, allowable deductions, 20% standard rate. |
| Financial Statements | Provides audited figures as per Saudi GAAP/IFRS. | Balance sheet, income statement, notes to accounts. |
4) Key compliance requirements
- File within 120 days from the end of the financial year.
- Attach audited financial statements in Arabic.
- Disclose ownership breakdown between zakat and tax payers.
- Ensure allocation of expenses and revenues aligns with ownership ratio.
- Pay zakat and tax liabilities separately but as per combined assessment.
5) Common mistakes to avoid
- Incorrectly allocating profits between Saudi/GCC and foreign shareholders.
- Omitting adjustments for non-deductible expenses for tax purposes.
- Late filing leading to ZATCA penalties.
- Submitting unaudited financials, which may trigger rejections.
6) Benefits of proper combined return filing
By correctly filing your combined tax and zakat return, you ensure:
- Compliance with Saudi regulations and reduced audit risk.
- Accurate tax and zakat payments avoiding double taxation.
- Better financial transparency for shareholders.
7) Conclusion
Filing combined returns for mixed ownership companies is a strategic compliance requirement in Saudi Arabia. With the right allocation, proper documentation, and timely submission, companies can meet both tax and zakat obligations seamlessly while minimizing risks.
