Deductibility of Charitable Contributions to Licensed Saudi Organisations: A Corporate Taxpayer’s Guide

📌 Introduction

Corporate social responsibility (CSR) is increasingly important for businesses in Saudi Arabia. Donations to licensed charitable organisations not only enhance a company’s public image but may also be deductible for corporate income tax purposes, provided they comply with the Zakat, Tax and Customs Authority (ZATCA) rules. However, the deductibility is subject to specific conditions and supported by detailed documentation.

🏛️ Eligible Charitable Organisations

For a charitable contribution to qualify as a deductible expense, it must be made to an entity that is:

• Officially licensed by the Saudi Ministry of Human Resources and Social Development.
• Registered as a non-profit or charitable organisation operating within the Kingdom.
• Engaged in activities that align with Saudi public interest objectives, such as education, healthcare, poverty alleviation, or community development.

Contributions to foreign charities or unlicensed entities are not deductible under Saudi tax laws.

✅ Conditions for Deductibility

ZATCA allows deductions for charitable contributions if the following conditions are met:

• The donation must be made in cash or kind, with verifiable value.
• The contribution must be directly related to the company’s CSR or business policy.
• The total deductible amount may be subject to a percentage cap of taxable income (as per prevailing ZATCA guidelines).
• Payments must be made through traceable channels such as bank transfers or official receipts.
• The charity must provide an official acknowledgment of receipt, specifying the amount and purpose.

📑 Documentation Requirements

Corporate taxpayers should maintain:

• Official receipts from the licensed charitable organisation.
• Copy of the organisation’s license and registration details.
• Board approval or internal authorisation for the donation.
• Proof of bank transfer or equivalent payment method.
• CSR or annual reports referencing the contribution.

Proper documentation ensures that deductions are not disallowed during a ZATCA audit.

💼 Accounting Treatment

Charitable contributions should be recorded as expenses in the company’s accounts for the period in which they are made. In the tax computation, they are deducted from taxable income up to the allowable limit set by ZATCA.

📊 Example Scenario

A Saudi-based manufacturing company donates SAR 200,000 to a licensed healthcare charity supporting rural clinics. The payment is made via bank transfer, and the charity issues an official receipt. The company includes the donation in its CSR activities, maintains full documentation, and claims it as a deductible expense in its annual corporate income tax return, within the ZATCA-allowed limits.

⚠️ Common Mistakes Leading to Disallowance

• Donations to unlicensed or foreign charities.
• Failure to provide official receipts or proof of payment.
• Exceeding the allowable deduction limit without justification.
• Providing non-cash contributions without proper valuation documentation.

💡 Best Practices for Corporate Taxpayers

• Verify the licensing status of the recipient organisation before donating.
• Maintain a clear CSR strategy linking donations to business values.
• Use secure and traceable payment methods.
• Ensure board-level approval for large donations.
• Periodically review ZATCA’s guidelines for updated deduction limits and conditions.

✅ Conclusion

Charitable contributions to licensed Saudi organisations can offer both social impact and tax benefits for corporate taxpayers. By following ZATCA’s conditions, maintaining robust documentation, and aligning contributions with CSR objectives, businesses can ensure compliance while contributing meaningfully to society.