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ZATCA Announces the Decision of the Minister of Finance about the Extension of the Cancellation of Fines and Exemption of Financial Penalties Initiative Until 31 December 2025

The Zakat, Tax and Customs Authority (ZATCA) has announced the Minister of Finance’s decision of the extension of the Cancellation of Fines and Exemption of Financial Penalties Initiative for taxpayers subject to all tax laws for 6 months starting from 1 July 2025.

The initiative provides exemptions from penalties related to late registration in all tax laws, late payment, and late filing of returns. It also includes waivers for VAT return correction fines, penalties for field violations regarding e-invoicing regulations, and general VAT provisions.

To benefit from the Initiative, the taxpayer must be registered under the tax law and submit all outstanding tax returns to ZATCA. The taxpayer must also pay all the principal tax debt associated with the returns that will be submitted or modified to accurately disclose the outstanding tax liabilities. Taxpayers can request an installment payment plan from ZATCA if the application is submitted while the initiative is still in effect and all due installments are paid by the due dates specified in ZATCA-approved installment plan. ZATCA emphasized that the initiative does not cover penalties related to tax evasion violations, penalties that were paid before the initiative’s effective date, or penalties related to returns that must be submitted to ZATCA after 30 June 2025.

ZATCA has invited taxpayers to view the Initiative details in the simplified guideline that is available on its website. The Guideline includes a detailed explanation of the most important aspects of the decision, such as the types of penalties that are included in the decision, clarifying the conditions for benefiting from the exempt fines and the steps for installment financial dues, as well as introducing the field control violations.

ZATCA urges all taxpayers to benefit from the Initiative during the allotted time and encourages individuals to contact it if they have any inquiries, via the 24/7 unified call center number (19993), or through X Account (@Zatca_Care), e-mail (info@zatca.gov.sa), or instant messaging through ZATCA’s website (zatca.gov.sa).

Regulatory Alert: Audited Financial Statements in Saudi Arabia

Every company in Saudi Arabia is obligated to keep accounting records that accurately reflect its financial position and shall prepare annual financial statements in accordance with accounting standards approved in the Kingdom (i.e., IFRS as adopted by SOCPA, refer Article 17 of the Company Laws & its Regulations).

As part of ongoing efforts to enhance financial transparency and compliance, the Ministry of Commerce (MOC) and Zakat, Tax and Customs Authority (ZATCA) have reinforced and expanded requirements for businesses to submit audited financial statements annually via the Qawaem platform. Following are the key points for your further consideration:

Key Points	Details
Who Must Comply?	– All Limited Liability Corporations (LLCs), Joint Stock Companies (JSCs) and foreign – owned entities operating in Saudi Arabia (Including MISA licensed entities. – Companied registered for VAT and subject to ZAKAT or CIT – Small and medium enterprises (SMEs), subject to conditions (refer to Article 17 of the Companies Law)
Fiscal Year	– A company fiscal year shall be 12 months specified in its articles of association – Exception, the first fiscal year may cover a period not less than six months and not more than 18 months from the date of the company registration
Due Date and Platform	– Within 6 months of the financial year end (refer to Article 17.2 of the Companies Law) – Filling through Qawaem electronic platform (IXBRL) format – Supporting documents: Auditors report, Board of directors’ report and notes of financial statement
Shareholders who are in need	– Ministry of Commerce in Saudi Arabia – ZAKAT, Tax and Customs Authority (Tax Authority) – Ministry of Investment in Saudi Arabia – Financial Institutions in Saudi Arabia
Exemptions or Discretion	Generally, SMEs may not be pursued aggressively for audited statement submission. However: – Tax Authority, Financial Institutions and MISA Authority, or Sector – specific regulation, may still require audited financial for SMEs – Companies applying for governmental contracts, financing, or government licenses often must present audited statements regardless of their sizes
Penalties for Noncompliance	– Financial penalties – can exceed S.R 100,000 depending on company size and history – at the discretion of respective authorities – Commercial penalties – Suspension of commercial registration – Other administrative sanctions – for non-submission of documents

Source: Ministry of Commerce Announcement

How can we support?

• We can support you in maintaining books of accounts in compliance with SOCPA requirements
• Review documentation maintained by clients on quarterly basis (i.e, health check review)
• Advise you on authorized software’s to maintain books and accounts
• Address any queries or notices received from authorities, as necessary
• Offer pre-audit review service to ensure financial records are complete and accurate and ensure that it comply with local regulations.

Key Points

Details

Consideration For all Companies

– Ensure adequate books of accounts are maintained on a regular basis – Ensure accounts maintained are in line with SOCPA requirements in Saudi Arabia – Ensure ZATCA certified software is used for maintaining books of accounts – Ensure Arabic version of documents are also maintained for compliances – Ensure SOCPA certified auditors are being appointed on a timely basis – Ensure audited financial statements are being obtained by certified auditors – If necessary, appoint an internal auditor – based on requirements of the company – Coordinate with external auditor to prepare Qawaem compatible iXBRL – Ensure compliance with Qawaem portal to deadline – Monitor updates from MOC, ZATCA, and SOCPA for any regulatory changes‎

An analytical study determines the duality of Zakat (double zakat) according to the new Implementing Regulation for Zakat Collection issued by Ministerial Resolution No. (1007) dated 08/19/1445 AH.

With reference to the above subject and according to the Implementing Regulation for Zakat Collection for the year 1445 AH (the Regulations) issued by Ministerial Resolution No. (1007) dated 08/19/1445 AH, the regulations specified a basic base for Zakat and three alternative zakat bases that included an upper (maximum) limit  and a lower (minimum) limit for the Zakat base, as stated in Articles (27) and (28) of the regulations, as follows:

• The basic zakat base is the result of the equation, which includes the addition elements as stated in Article (23) of the Regulations, minus the deduction elements mentioned in Article (26).
• The second Zakat base is the adjusted net profit subject to zakat according to Chapter Six of the Regulations – Articles (62), (63), (64), (65).
• The third Zakat base is the non-deductible assets (current assets) after correction (deducting or adding reclassified items), plus the adjustments made to the book profit/ loss according to Article (27) of the Regulations.
• The fourth Zakat base is the total equity after correction (deducting or adding reclassified items), plus the adjustments made to the book profit/ loss according to Article (28) of the Regulations.

If the basic zakat base is zero or negative and the result of the taxpayer’s adjusted business results is a loss, then in this case no zakat is due from the taxpayer and the alternative Zakat bases are not considered.

 However, the base subject to zakat can be determined from the alternative Zakat bases mentioned above in two steps as follows:

• If the basic zakat base (the result of the equation) is higher than the adjusted net profit, it is considered the absolute zakat base, regardless of the other alternative bases mentioned above.
• If the basic zakat base (the result of the equation) is less than the adjusted net profit, it is not considered as the zakat base, but rather the lower of the other three alternative Zakat bases mentioned above is considered as the Zakat base. This means that if the basic zakat base is less than the adjusted net profit, the adjusted net profit is considered an alternative zakat base, but it is not considered as final until compared to the non-deductible assets (the third base). If the non-deductible assets are less than the adjusted net profit, they are considered an alternative base but still not final until compared to the fourth base which is the total equity.  If the total equity is the lowest, it is then considered as the final zakat base, and zakat is calculated accordingly. If the equity is also negative, it is considered as the final Zakat base and no Zakat will be due on the taxpayer.

While applying the provisions of the regulation and calculating the zakat base as explained above, we noticed that it sometimes results in duplication of zakat, or what is known in Sharia as double zakat, which is the subjection of one property to zakat twice in one year. This is because Article (27), paragraph (1), stipulates that if the zakat base is the adjusted net profit, that profit must include the results of investee companies, therefore leading to the zakat being paid twice on the same profit, once by the investor company and again by the investee company. Accordingly, we conducted an analysis to determine cases of double zakat based on the provisions of the regulation, and the result was as follows:

Non-duplication of Zakat cases:

• If the zakat base of the investor company (the holding company) is the result of the equation (the basic Zakat alternative) and there is a profit for an investee company registered by the holding company according to the equity method, then there is no duplication of the zakat on this profit, as this profit is added to the Zakat base as part of the equity and deducted from the Zakat base as part of the investments.
• If the zakat base of the investee company is the net non-deductible assets (currents assets) – the third alternative – , being less than the second alternative base, which is adjusted net profit, then there is no duplication of zakat, if the zakat base of the investee company is the adjusted net profit or any other alternative Zakat base, as the profit is not subject to zakat in the investee company.

Duplication of Zakat cases:

• If the zakat base of the investee company is the equity as an alternative base – the fourth alternative (including zakat-adjusted profit) and the zakat base of the investor company is the adjusted net profit (including the share of the investee company’s profit), then in this case there is a duplication of zakat, as the adjusted net profit is subject to zakat twice: once within the investee company’s equity and again within the zakat-adjusted profit of the investor company.
• If the zakat base of both the investee company and the investor company is the adjusted profit as an alternative Zakat base – the second alternative, then in this case there is a duplication of zakat, as the profit is subject to zakat twice: once within the investee company and once within the investor company.

The following are practical examples of cases of an investor and investee companies of duplication and non-duplication of Zakat as explained above:

The First Example – Duplication of Zakat:

Statement	Company A (Investee)	Company B (Investor)	Zakat Duplication
Total Basic Zakat Base – Result of the Equation (Alternative 1)	20,577,278	84,574,620	There is duplication of Zakat – see explanation below
Non- deductible assets (Alternative 3)	512,806,820	132,615,022
Add: The difference between the book net profit/loss and the adjusted profit/loss	–	–
The minimum zakat base (Article 27) (Alternative 3)	512,806,820	132,615,022
Equity and Equivalents according to the statement of financial position and any item reclassified to equity (Alternative 4)	713,593,069	590,797,805
Add: The difference between the book net profit/ loss and the adjusted profit/ loss	–	–
The maximum zakat base (Article 28) (Alternative 4)	713,593,069	590,797,805
Adjusted Net Profit (Alternative 2)	468,026,296	119,565,688
Zakat Base (Whichever is greater between the result of the base equation or the adjusted net profit) – which is the adjusted net profit	468,026,296	119,565,688
Zakat Base (Whichever is less than the adjusted net profit or the net non-deductible assets)	468,026,296	119,565,688
Due zakat	12,097,289.85	3,090,469.05

Accordingly, its clear that the zakat base for Company B (the investor) is the adjusted net profit according to Article (28) of the Implementing Regulation for Zakat Collection, and it includes the profit recorded according to the equity method of the investee company, which is Company A. Therefore, there is a duplication of Zakat on as the same amount of profit has been subjected to Zakat as part of Zakat base of both companies, which is not permissible according to Sharia rules, based on the hadith of the Messenger Mohammed Peace Be Upon Him “There is no duplication of zakat.”

The Second Example – Non-Duplication of Zakat:

Statement	Company C (Investee)	Company D (Investor)	Zakat Duplication
Total Basic Zakat Base – Result of the Equation (Alternative 1)	–	20,577,278	There is no duplication of Zakat – see explanation below
Non- deductible assets (Alternative 3)	63,792,371	512,806,820
Add: The difference between the book net profit/loss and the adjusted profit/loss	–	–
The minimum zakat base (Article 27) (Alternative 3)	63,792,371	512,806,820
Equity and Equivalents according to the statement of financial position and any item reclassified to equity (Alternative 4)	88,153,180	713,593,069
Add: The difference between the book net profit/ loss and the adjusted profit/ loss	–	–
The maximum zakat base (Article 28) (Alternative 4)	88,153,180	713,593,069
Adjusted Net Profit (Alternative 2)	92,868,518	468,026,296
Zakat Base (Whichever is greater between the result of the base equation or the adjusted net profit) – which is the adjusted net profit	92,868,518	468,026,296
Zakat Base (Whichever is less than the adjusted net profit or the net non-deductible assets)	63,792,371	468,026,296
Due zakat	1,648,870.61	12,097,289.85

Based on the above table, the Zakat base for Company C (the investee) is the non-deductible net assets (third alternative) which represent the current assets and not the adjusted net profit, as it is the lowest alternative Zakat base according to Article (27) of the Regulations. As for the Zakat base for Company D (the investor), it is the adjusted net profit (second alternative) according to Article (28) of the Regulations, and it includes the profit recorded according to the equity method in the investee company, which is Company C, noting that this same profit was subject to Zakat in Company D, as explained above, but it was not subject to Zakat in Company C because its Zakat base was the non-deductible assets. Therefore, there is no duplication of Zakat regarding this profit.