Andersen

2021/06/15

To be eligible to file a Consolidated Zakat declaration, the required related terms and conditions must be met. it is clear from the concept of consolidating the financial statements and submitting a consolidated Zakat declaration, that the taxpayers must submit a unified Zakat declaration for the holding companies and their subsidiaries.

Who is eligible of filing a consolidated Zakat declaration?

The Zakat, Tax and Customs Authority (ZATCA) received many inquiries regarding the eligibility of filing a consolidated declaration for the holding company and its subsidiaries, provided that all the accounting operations of the subsidiaries are reflected in the financial statements of the holding company. Accordingly, the Authority studied the above inquiries and concluded that the consolidation of the financial statements makes it is easy for the taxpayers to submit a consolidated Zakat declaration for the holding company and its subsidiaries, however, regulations and laws had to be set to ensure a smooth process.

As a result, the Authority issued Ministerial Resolution 1005 that allows the holding company and its fully owned (directly or indirectly) subsidiaries to file 100 % consolidated financial statements. Based on the Authority’s study of this matter, a circular No. 795/16/1432 was issued, which explains how to implement the provisions of Ministerial Resolution 1005.

The Authority stated through the above circular that the holding company and its subsidiaries must file consolidated financial statements and a Zakat declaration in accordance with the provisions of the first section of the Ministerial Resolution No. 1005 dated 04/28/1428 AH. Direct ownership means that the subsidiary company is 100% owned by the holding company, whereas indirect ownership means that the subsidiaries are owned by a certain percentage of the holding company and the remaining percentages are owned by any of the other affiliated companies and not by any of the founding partners of the holding company in their personal capacities, because the financial liability of the holding company differs from that of the its partners. Except for the holding company and its subsidiaries owned by the father and his sons, where it is permissible in this case to submit a consolidated Zakat declaration based on the provisions of the Fatwa No. (19758) dated 7/19/1418 AH, confirmed by the letter of the Grand Mufti of the Kingdom to the Minister of Finance No. 1/229, dated 10/1/1419 AH.

Ministerial Resolution 1005 dated 04/28/1428 AH was superseded by the executive regulations for levying Zakat issued by Ministerial Resolution No. (2216) dated 7/7/1440 AH, Article 15, which requires that a company owned by the same partners, the holding company, and its subsidiaries (fully owned) inside or outside the Kingdom, whether this property is direct or indirect, to file consolidated financial statements and zakat declaration.

How to determine whether the holding company owns 100% of the subsidiaries directly or indirectly?

The Zakat / tax advisor prepares a chart with the shareholders and the possibility of reaching the percentages of the partners and of reaching 100% of the ownership of the subsidiaries. This needs more investigation of the incorporation of the holding company and its subsidiaries.

The benefit of filing a consolidated financial statements and Zakat declaration:

When preparing the consolidated financial statements, the accounts of the subsidiaries liquidate some of the accounts of the holding company, for example, the losses of a subsidiary company reduce the total profit of the holding company and its other subsidiaries, and the debit related parties item liquidates the credit related parties and thus the zakat base decreases.

As Zakat and tax advisors, we are specialized in accurately applying Zakat and taxes in Saudi Arabia. We also have sufficient knowledge, experience, and a specialized professional team with focused professional practical certificates in this field for a period of more than twenty years. With our adequate knowledge of the laws and regulations, we aim to assist our clients correctly according to the terms of the executive laws and regulations issued by the Authority. In addition, our company has worked with major companies in its various activities and always provides sufficient knowledge and experience for various advisory services in taxation, Zakat, and financial consultancy in Saudi Arabia.