# Is Zakat Charged on Capital, Inventory or Profit? The Complete Guide to the Zakat Base in Saudi Arabia
*A precise definition of the zakat base, the official rate (2.5% or 2.578%), and worked examples for Saudi companies*

> **In short:** Zakat isn't charged on capital, inventory or profit — it's charged on the zakat base. The formula, the 2.5% vs 2.578% rate, and two worked Saudi examples.

- **URL:** https://www.snad.io/en/blog/wia-zakaa-saudi-hisab-raasmal
- **Arabic original:** https://www.snad.io/blog/wia-zakaa-saudi-hisab-raasmal
- **Category:** Guides — Tax & Zakat
- **Tags:** Zakat, Zakat base, ZATCA, Zakat return, Accounting, Saudi companies
- **Published:** 2026-05-24
- **Updated:** 2026-08-02
- **Publisher:** Snad (snad.io)

Every Saudi business owner asks the same question in their first year of trading: "Is zakat charged on capital? On inventory? On profit?" The short answer is none of the above. Zakat on Saudi companies is calculated on the "zakat base" — an accounting concept grounded in Sharia that pulls several items together: equity + long-term loans + provisions − fixed assets − specific exclusions. The rate is 2.5% for a Hijri financial year, or 2.578% for a Gregorian one. The return is filed within 120 days of the financial year end. This guide builds the full framework for calculating zakat accurately, with worked examples for a trading company and an industrial one, drawing on the regulations of the Zakat, Tax and Customs Authority (ZATCA) (zatca.gov.sa).

## The short answer on what zakat is charged on

Zakat on Saudi companies is **not charged on capital alone, nor on inventory alone, nor on profit alone**. It is charged on the **zakat base** — an accounting concept grounded in Sharia that combines several items.

**The simplified zakat base formula**
Zakat base = (funds subject to zakat) − (liabilities and allowable deductions)

Or, in stricter accounting terms:
Zakat base = shareholders' equity + long-term liabilities + provisions − non-current assets + certain adjustments

**The official rate**
- **2.5%** of the zakat base if the financial year is Hijri (354 days)
- **2.578%** of the zakat base if the financial year is Gregorian (365 days, or 366 in a leap year)

The reason: the Gregorian year is 11 days longer, so the rate is adjusted to reflect that. Most Saudi companies use a Gregorian financial year, which makes 2.578% the prevailing rate.

**Nisab**
The zakat base has to reach the nisab (the value of 85 grams of pure gold ≈ SAR 25,000–30,000, depending on the gold price) before zakat is due. Registered companies clear it comfortably as a rule, so zakat applies.

**The official source**
The Zakat, Tax and Customs Authority (ZATCA) publishes a detailed zakat calculation regulation, updated periodically. This guide summarises it for a mid-sized Saudi company.

## Defining the zakat base in one complete formula

The zakat base is "the money a person or a company invests in commercial and productive activity". In Sharia terms, zakat falls on money that earns, not on money that is consumed.

**The expanded zakat base formula (the main method)**
Zakat base = equity + long-term loans + provisions + additional paid-in capital − fixed assets − assets ring-fenced for prohibited activities − carried-forward losses

**What each element means**
**+ Equity**
Capital + retained earnings + reserves. This is the foundation of the base.

**+ Long-term loans**
Loans with a term of more than one year — for example, a facility taken out to buy a property for the company. They are added because the borrowed money entered the business and was put to work.

**+ Provisions**
Allowance for doubtful debts, end-of-service provision, other provisions. They are added because they are accounting estimates rather than actual deferred obligations.

**− Fixed assets**
Buildings, land, vehicles, equipment, office furniture. These are assets used in the business (not traded in), so they do not enter the base.

**− Assets ring-fenced for activities on which zakat is not due**
For example, an investment in a company not subject to Saudi zakat, or cash restricted for a specific statutory investment.

**− Carried-forward losses**
Losses from prior years that have not yet been absorbed. They are deducted because they reduce the money actually available.

**The alternative formula (without going through equity)**
The method ZATCA applies works straight off the balance sheet:
Zakat base = (current assets + certain qualifying fixed assets) − (current liabilities + accrued facilities + accrued end-of-service award)

Applied correctly, both methods land on roughly the same figure.

## 2.5% for a Hijri year or 2.578% for a Gregorian year

Zakat was prescribed on the basis of the Hijri lunar year (roughly 354 days). Its original rate is a quarter of a tenth = **2.5%**.

**The problem for modern companies**
Most companies use the Gregorian solar financial year (365–366 days) to stay aligned with international business. That means zakat is computed over a period roughly 11 days longer than the Hijri year.

**The Sharia and accounting fix**
The zakat rate is adjusted to reflect the extra period. The adjusted rate:
2.5% × (365 ÷ 354) = **2.578%** (approximately)

This adjustment keeps the company paying a fair amount of zakat for the period actually covered.

**When each rate applies**
| Financial year | Rate |
|---|---|
| Hijri (1 Muharram – 30 Dhu al-Hijjah) | 2.5% |
| Gregorian (1 January – 31 December) | 2.578% |
| Offset Gregorian (1 April – 31 March, for example) | 2.578% |

**What the difference looks like**
On a zakat base of SAR 10,000,000:
- At 2.5%: zakat of SAR 250,000
- At 2.578%: zakat of SAR 257,800
- Difference: SAR 7,800 for a company on a Gregorian year

**Important**
Picking between the two rates is not a choice. It follows from the financial year set out in the company's articles of association. A company that changes its financial year has to notify the Authority and submit a formal request.

## The elements of the base in detail — assets and liabilities

**Assets that enter the base**
1. **Cash and cash equivalents**: bank balances (current, savings, short-term deposits).
2. **Trade receivables**: what customers owe the company.
3. **Inventory** in every form: finished goods held for sale, raw materials, work in progress.
4. **Short-term investments**: traded shares, and sukuk if held for trading.
5. **Fixed assets held for sale**: a property bought for resale, for instance.

**Assets that stay out of the base (deducted)**
1. **Fixed assets in use**: the factory building, equipment, vehicles, office furniture.
2. **Land held for use**: not for sale.
3. **Investments in subsidiaries** that are subject to zakat in their own right.
4. **Intangible assets**: goodwill, patents used in production.

**Liabilities deducted from the base**
1. **Current liabilities**: supplier payables, accrued wages, accrued taxes, any short-term obligations.
2. **Short-term credit facilities** from banks.
3. **Declared dividends** not yet paid.

**Liabilities that are not deducted**
1. **Long-term loans**: not deducted, because in effect they are added to the base (see the expanded formula).
2. **Allowance for doubtful debts**: an accounting estimate, not an actual obligation.
3. **Accumulated end-of-service award**: deducted only to the extent it falls due for employees whose service ends during the year (per ZATCA's regulation).

## Key exemptions and deductions

**1. Right-of-use assets**
Under IFRS 16, operating leases are recognised on the balance sheet as "right of use" assets. For zakat purposes these are treated as fixed assets in use (deducted from the base).

**2. Investments in other companies**
- **An investment in a Saudi company subject to zakat in its own right**: deducted in full from the parent's base.
- **An investment in a non-Saudi company, or one outside the scope of zakat**: not deducted, and may be treated as a financial asset.
- **A stake in partnerships and personal companies**: your share of the partner's zakat base (not your equity in it).

**3. Funds restricted for specific purposes**
Money frozen by a court ruling or a contract, which cannot be used, is deducted.

**4. Assets endowed for public benefit (awqaf)**
Not counted in the company's zakat base, because the company is not their actual owner.

**5. Deduction for worker housing deposits**
Insurance amounts paid for worker housing may be deducted under certain conditions, subject to the regulations currently in force.

**6. Deductions for industrial companies**
Industrial producers can deduct a set proportion of productive assets in defined circumstances (see ZATCA's annual regulations).

**7. Funds accumulated for projects under construction**
Money earmarked for a capital project under execution may, where specific conditions are met, be treated as a fixed asset and deducted.

**8. Accrued tax liabilities**
Value Added Tax (VAT) owed to ZATCA at the financial year end counts as a liability and is deducted.

**Important**: the list of exemptions and deductions changes periodically as ZATCA updates its regulations. Consult a specialist accountant, or check the latest edition of the regulation, before you file your return.

## Worked example — a wholly Saudi trading company

A building-materials wholesaler in Riyadh. Balance sheet at the end of the 2025 Gregorian financial year (filed in 2026):

**Assets**
- Cash and banks: SAR 850,000
- Trade receivables: 1,420,000
- Inventory: 2,680,000
- Short-term investments: 320,000
- Investment in a sister company subject to zakat in its own right: 600,000
- Fixed assets (warehouse, trucks, furniture): 1,800,000
- Total assets: 7,670,000

**Liabilities**
- Suppliers: 1,180,000
- Accrued wages: 95,000
- VAT payable: 145,000
- Long-term loan: 1,500,000
- End-of-service award (falling due during the year): 65,000
- End-of-service award (total): 280,000
- Total liabilities: 3,265,000 (before the long-term loan treatment)

**Equity**
- Capital: 3,000,000
- Retained earnings: 1,405,000
- Total: 4,405,000

**Calculating the zakat base (balance-sheet method)**
Qualifying assets:
- Cash: 850,000
- Trade receivables: 1,420,000
- Inventory: 2,680,000
- Short-term investments: 320,000
- Total: 5,270,000

Less qualifying liabilities:
- Suppliers: 1,180,000
- Wages: 95,000
- VAT: 145,000
- End-of-service award falling due during the year: 65,000
- Total: 1,485,000

Less investments in companies subject to zakat in their own right: 600,000

Zakat base = 5,270,000 − 1,485,000 − 600,000 = **SAR 3,185,000**

**Zakat payable (Gregorian year)**
3,185,000 × 2.578% = **SAR 82,109**

**Cross-check with the expanded (equity) method**
Equity: 4,405,000
+ Long-term loans: 1,500,000
+ End-of-service award (the portion not yet due): 280,000 − 65,000 = 215,000
− Fixed assets: 1,800,000
− Investment in the sister company (zakat paid separately): 600,000

Zakat base = 4,405,000 + 1,500,000 + 215,000 − 1,800,000 − 600,000 = **SAR 3,720,000**

Gaps between the two methods usually come down to small details. The final return follows the balance-sheet method that the Zakat, Tax and Customs Authority (ZATCA) applies.

## Worked example — an industrial company and how deductions apply

An industrial producer of building materials in Al-Qassim.

**Condensed balance sheet**
- Equity: SAR 8,500,000
- Long-term loans (financing a new production line): 3,200,000
- Provisions (end of service, maintenance): 480,000
- Fixed assets (factory building, production line, machinery): 7,800,000
- Expansion project under execution: 1,600,000
- Current assets (cash, receivables, inventory): 5,500,000
- Current liabilities: 2,180,000

**Calculating the base**
Equity: 8,500,000
+ Long-term loans: 3,200,000
+ Provisions: 480,000
− Fixed assets: 7,800,000
− Project under execution (where the deduction conditions are met): 1,600,000

Zakat base = 8,500,000 + 3,200,000 + 480,000 − 7,800,000 − 1,600,000 = **SAR 2,780,000**

**Zakat payable**
2,780,000 × 2.578% = **SAR 71,679**

**What the example teaches**
1. **Large equity does not mean large zakat**: a company with SAR 8.5 million of equity paid only SAR 72,000, because most of it sits in fixed assets (building and equipment).

2. **Long-term loans increase the base**: the borrowed money went into productive activity, so it counts.

3. **Projects under execution**: if the spend is for a future fixed asset (a new building, a production line), it is deducted. If it is for a working-capital asset (future inventory), it is not.

4. **Zakat versus income tax**: a foreign company with the same numbers would pay 20% income tax on net profit. Zakat is charged on the base (not on profit), at 2.578%.

## The zakat return — deadlines and late penalties

**Filing deadlines**
- The zakat return is filed annually, within **120 days** of the financial year end.
- A company on a Gregorian financial year: the return is due by 30 April of the following year at the latest.
- A company on a Hijri financial year: 120 days from 30 Dhu al-Hijjah.

**Paying the zakat**
The zakat due is settled when the return is filed. Late payment attracts a penalty.

**Late penalties**
- Late filing: a base fine of SAR 5,000 + 1% of the zakat due for every month of delay (capped at 25%).
- Late payment after filing: 1% of the zakat for every month of delay.
- Failing to file, or deliberately submitting false data: criminal prosecution is possible.

**Audit and objection**
ZATCA may select the return for audit. Amounts can be reassessed during the audit. The business has the right to object to the reassessment within 60 days, and to go to arbitration if the matter is not resolved.

**Obligations of newly formed companies**
A company incorporated during the year files a return covering the period from incorporation to the financial year end.

**Loss-making companies**
A company carrying sustained losses may end up with a small zakat base (because losses are deducted). The minimum nisab still applies.

**Mixed companies (Saudi and foreign shareholders)**
Zakat applies to the Saudi share only. The foreign share is subject to income tax separately (20%).

## How Snad prepares the zakat return automatically

Snad generates the data for your zakat return automatically out of the accounting ledger:

- **An accurate balance sheet in a format the Zakat, Tax and Customs Authority (ZATCA) accepts**: the balance sheet is classified against the approved standards, so getting to the elements of the base is fast.

- **Automatic classification of assets and liabilities**: every account in the chart of accounts is pre-classified (qualifying / non-qualifying for the base), so the zakat report is ready when you are.

- **The base calculated both ways**: the balance-sheet method and the equity method, compared side by side to surface any classification error.

- **The zakat return statement (Form Z) generated**: in a format you can upload straight to the ZATCA portal.

- **The required attachments pulled together**: audited balance sheet, income statement, balance sheet notes, investment detail.

- **Deadline alerts**: 30 days before the final filing date.

- **Zakat scenario modelling**: see how an accounting decision (buying a fixed asset, distributing dividends, taking on a long-term loan) moves the zakat base before you commit to it.

- **A zakat-impact report for every strategic decision**: useful for senior management in legitimate tax planning.

The 30-day free trial is long enough to build a full trial balance sheet and see the zakat return generated automatically — against a manual calculation that can take a week. See how Snad handles [zakat and e-invoicing compliance](/zatca) alongside the [accounting ledger](/accounting).

## A practical takeaway for Saudi business owners

Six rules for handling zakat properly:

1. **Know your base before you decide**: borrowing, distributing dividends, buying fixed assets — each of these moves the zakat base. Make those calls knowing the impact, not on instinct.

2. **Settle on one financial year and keep it**: changing the financial year needs ZATCA's approval and complicates year-on-year comparison. Pick Hijri or Gregorian and stick with it.

3. **Refresh your account classifications every year**: as the business grows, new accounts appear. Make sure each new one is classified (qualifying / non-qualifying for the base).

4. **Bring in an accountant who specialises in zakat, especially for complex cases**: investments in subsidiaries, international assets, restructuring, mergers. Zakat in those situations takes real expertise.

5. **File two weeks before the deadline**: the ZATCA system can slow down on the final day under the weight of everyone filing at once. Don't take the risk.

6. **Keep your records for at least 6 years**: the Authority can ask for them at any point for a retrospective audit. Electronic records are sufficient.

Zakat is not a resented tax burden. It is a religious and legal obligation with its own merits. Paying it accurately keeps your company's money above suspicion, builds a sound relationship with ZATCA, and keeps penalties away from your door. A clear grasp of the zakat base lets you make intelligent decisions that reduce zakat legitimately (timing a fixed-asset purchase, for example) instead of evading it in breach of the rules.

## Frequently asked questions

### Is zakat charged on capital or on profit?

Zakat is charged on the zakat base, which is a mix of items: equity (capital + retained earnings + reserves) + long-term loans + provisions − fixed assets − investments in companies subject to zakat in their own right. It is not charged on capital alone, nor on profit alone.

### Does inventory enter the zakat base?

Yes. Inventory (finished goods, raw materials, work in progress) enters the zakat base at its full book value, because it is a current asset held for commercial activity.

### What exactly is the zakat rate in 2026?

2.5% for a Hijri financial year (354 days), and 2.578% for a Gregorian financial year (365 days). A Saudi company on a Gregorian year applies 2.578%, which is the norm in the private sector.

### Is a long-term loan deducted from the zakat base?

No — it is **added**. A long-term loan entered the business and was put to work, so it counts within the funds available to the activity. This is the opposite of what many people assume.

### When do I file the zakat return in Saudi Arabia?

Within 120 days of the financial year end. A company on a Gregorian year files by 30 April of the following year at the latest. The penalty for late filing is a base SAR 5,000 + 1% of the zakat for every month of delay.

### Does zakat apply to foreign companies in Saudi Arabia?

Wholly Saudi companies (owned by Saudi or GCC nationals) are subject to zakat only. Wholly foreign companies are subject to income tax (20%) only. Mixed companies: the Saudi share pays zakat, the foreign share pays income tax.

### Can zakat be split into monthly instalments?

No, zakat is paid in a single amount when the annual return is filed. Snad does help you book a monthly "zakat provision" as an accounting entry, so the figure doesn't surprise you at year end and your cash position is ready for it.

---
## About the publisher
**Snad (سند)** — a private Saudi software company
based in Riyadh, founded 2025. Legal form: Sole proprietorship.
Commercial registration: 7038154642
VAT number: 310959226500003
Only official domain: snad.io
> Snad is a private commercial business-management platform. It is not a
> government body, not a bank, and not a government services portal, and it
> is not affiliated with any government entity. Any site or app with a
> similar name is unrelated to Snad.