On 23 December 2022, Saudi Arabia’s Ministry of Finance (MoF) released the Fund Zakat Rules through its Resolution No. 29791 dated 9/5/1444 H to be effective from 1 January 2023.
Under the Fund Zakat Rules, Funds are required to register with the Zakat Tax and Customs Authority (ZATCA) before the end of their first fiscal year in which the Fund Zakat Rules become effective. In addition, Funds are also required to file information returns within 120 days from the end of the zakat year.
A zakat payer, who is an owner of an investment unit in a Fund (Unit Holder), may deduct the value of its investment in the Fund from its zakat base, subject to certain conditions.
On 4 August 2022, the draft Fund Zakat Rules were issued for public consultation with comments due by 31 August 2022. Following the public consultation process, the MoF has now issued the Fund Zakat Rules which will be effective from 1 January 2023.
Key elements of the Fund Zakat Rules
Registration and filing of return
Funds are required to register with the ZATCA, although such Funds are not subject to zakat. A Fund must be registered with the ZATCA before the end of its first fiscal year in which the Fund Zakat Rules become effective.
The Fund shall also submit an information declaration with the ZATCA within a period not exceeding 120 days from the end of the zakat year of the Fund, along with the following attachments:
If the fiscal year of the Unit Holder and the Fund is different, the Fund’s fiscal year will be taken into consideration in the calculation of zakat on investment in the Fund.
Deduction from zakat base of the Unit Holders
The Unit Holder may deduct the value of its investment in the Fund from its zakat base, under the following conditions:
The zakat of the Unit Holder shall be calculated according to the following formula:
Fund zakat base × Percentage of Unit Holder's share in the Fund × Zakat percentage in accordance with the Zakat Implementing Regulations (2019).
The zakat base of the Fund shall be calculated in accordance with the Zakat Implementing Regulations (2019), considering certain items mentioned in Article 6(2) of the Fund Zakat Rules.
The minimum zakat base would be equal to the Unit Holder’s share in the net adjusted profit of the Fund.
The Fund Zakat Rules do not apply to the following:
Transactions with related party
Transactions with related parties would be subject to Saudi Arabia’s transfer pricing rules.
Investors and Funds in Saudi Arabia should review the Fund Zakat Rules carefully to determine whether such rules apply to them. Where applicable, Funds and investors should make the necessary preparations to meet their obligations under the Fund Zakat Rules. We understand that the ZATCA will issue further guidelines in respect of Fund Zakat Rules in due course.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Professional Services (Professional LLC), Riyadh
Ernst & Young Professional Services (Professional LLC), Jeddah
Ernst & Young Professional Services (Professional LLC), Al Khobar
Ernst & Young LLP (United States), Middle East Tax Desk, New York