Andersen

2022/05/09

Can you imagine that paying more can actually increase your wealth? That is the essence of Zakat that links in the Islamic religion the act of giving to spiritual wealth. In the following article, you will find a brief definition for Zakat, Zakat in business and its objectives, and finally, the added value provided by the team of Andersen in Saudi Arabia.

What is Zakat?

The definition of Zakat is linked as noticed above, to the religious dimension as it constitutes one of Islam’s five pillars. It was imposed on Muslims starting the second year of Hijrah (Prophet migration from Mecca to Yathrib), with specific details regarding its amount, statement, and money. Zakat is defined in the Arabic dictionary as related to “purity, growth, blessing and praise.” It aims to achieve the “purification” of money, meaning its cleansing (Ibn Manzur, Lisan al-Arab), and the purification of money is extended to touch the purification of the soul.  Zakat holds double benefit, contributing to financial growth and nourishing freedom by liberating the soul from selfishness and greed. It is no secret that Zakat has a fixed percentage (2.5%) and is obtained from surplus wealth and gains that meet the quorum, before distributing it once every year to specified beneficiaries.

Conditions applying to Zakat

Among the most commonly asked questions, are those related to the conditions applying to Zakat. To sum it up, it is incredibly important and a condition that the person paying Zakat has to be the full owner of assets, besides the money’s ability to generate income, that is, its use in investment and its surplus comparing to basic needs. The one-year rule is one more condition. Zakatable money is to be owned for one complete lunar year. If one owns wealth for a lunar year, Zakat is considered obligatory on the amount remaining at the end of this year. Of course, it all applies providing that the total amount of wealth exceeds what is known as “nisab” (quorum), amounting to more than a threshold figure at the beginning of the year and the end.

Zakat in business

The philosophy of Zakat is of significant importance from an economic perspective, and there has been a lot of talk recently about Zakat in business, especially in order to highlight its benefits and to encourage Islamic business communities to pay it, thus, to fulfill its responsibilities and emphasize that the source of wealth is halal (permissible in religious discourse).

While calculating Zakat, one has to distinguish between fixed assets and current assets. Among the fixed assets, we notice tangible and intangible goods and wealth measured in terms of money in a company to create wealth and to produce a benefit for the company and debts such as payable accounts and wages.

Current assets are the balance sheet account provided with funds and which are expected to generate profits within one year of normal business operation, for example, cash, accounts receivable (AR), inventory, negotiable securities, prepaid and convertible expenses. Zakat is only imposed on the receivable account when it is confirmed that the debtor will pay the amount. Intangible assets include stocks, bonds, patents, treasury, investment certificates, etc., which are used to generate sources of capital from the public and pay dividends or interest in return. Income from intangible assets is usually excluded from Zakat if the investing company has paid Zakat.

Zakat objectives

One of the main objectives of Zakat is to secure balanced social and economic development, growth, self-purification, and wealth. Zakat on business means calculating Zakat, presenting it, and disclosing it by the entities that pay Zakat and accounting, and this allows the possibility of comparison and reporting of financial information on Zakat, in addition to the approved tax incentives.

Zakat does not envision compensation, but it is rather a form that allows the economic cycle to continue in a way that benefits everyone, and its percentage guarantees the provision of resources that allow subsidizing work and production on a regular basis. This is done by distributing wealth between those who profit from surplus money and those who lack it, and once this redistribution occurs it is possible to activate supply and demand thanks to the investment money secured for the least resourceful. The positive effects of Zakat are translated at the national and social level. At the state level, Zakat contributes to alleviating the burdens caused by bad economic conditions on the budget, to reducing unemployment rates and contributing to sustainable development. As for the social level, it is translated in the form of cohesion and social solidarity, which promises integration of roles and thus reduces poverty and other societal troubles.

Zakat in Saudi Arabia

In the Kingdom of Saudi Arabia, it is the Zakat, Tax and Customs Authority that undertakes the task and responsibility of collecting Zakat from the concerned parties and activities. As for the establishments that must pay Zakat, the authority enlists them in the framework of each activity practiced by the following groups, in order to earn money: Saudis residing in the Kingdom and those who receive the same treatment as nationals within the countries of the Gulf Cooperation Council (GCC). According to the authority, Zakat is always subject to activities such as trading in goods and services, investment in goods and services, commercial contributions, investment in the security field, in the long or short term, industrial activities (factories, laboratories, workshops, brokerage, etc. finance and insurance).

Andersen in Saudi Arabia Services

Noting the fact that Zakat is not synonymous with tax, Andersen in Saudi Arabia consultants provide a wide range of professional services in Zakat and business advisory services to help clients achieve greater success, solve complex challenges and secure solutions for each person carrying out an economic activity in the Kingdom of Saudi Arabia or the shares of non-Saudi partners in resident companies listed in the Capital Market Authority. The company provides advice on calculating and evaluating general compliance in line with the regulations and regulations of the General Authority for Zakat and Income and develops planning for Zakat with advice and assessment of related requirements, preparing, reviewing, and filing Zakat returns, in addition to submitting objections to the assessments of the General Authority for Zakat and Income, and commodity tax and services.

Andersen in Saudi Arabia consultants develop the best plans to reduce the risks that a company may face, about tax and Zakat, in line with the understanding of Zakat and tax regulations and the amounts due, and thus mitigate the risks that the company may be exposed to, with all professionalism and thanks to their accurate understanding of the applicable Zakat and tax systems. The team of Andersen in Saudi Arabia also ensures tax advice, social security compliance and other employment-related advice on local Zakat obligations.