Article 3(5) of the Zakat Implementing Regulations establishes that state-owned resident companies and Public Investment Fund-owned resident companies are subject to Zakat as Zakat payers — but with an important qualification: their treatment is governed by “the rules stipulated in the relevant Royal Orders and Ministerial Resolutions.”

This single sentence creates a two-tier framework. At the first tier, state and PIF entities are within the Zakat regime — not the CIT regime. Saudi government agencies and their equivalent bodies hold Saudi ownership for Zakat purposes, consistent with the foundational principle that Saudi ownership triggers Zakat. At the second tier, the specific application of Zakat to any given state entity may be modified, adjusted, or specified by a Royal Order or Ministerial Resolution that applies to that entity individually or to a category of state entities.

This means that the standard Zakat IR methodology — with its prescribed Zakat base calculation, additions, deductions, and minimum base rules — may not apply in full or at all to specific state-owned entities if a governing Royal Order has established different terms. The standard Zakat IR provisions serve as the general framework; Royal Orders serve as entity-specific or category-specific modifications.

Article 3(3) of the Zakat IR confirms that shares held by Saudi government agencies and authorities, and their equivalents, in resident companies are treated as Saudi shares for Zakat purposes. This is the standard rule for government shareholdings in mixed-ownership companies — the government’s share is subject to Zakat on the same basis as a private Saudi shareholder’s share.

In practice, the government’s share in a joint venture company is treated as the Saudi-owned portion of the ownership split. The entity computes Zakat on the government-held percentage of its Zakat base and CIT on the non-Saudi (foreign) percentage of its taxable income. There is no separate “government exemption” for agencies participating in commercial joint ventures — they are treated as Saudi owners within the standard proportional framework.

Saudi development funds, quasi-governmental entities, and authorities participating in joint ventures should similarly be assessed against the Saudi ownership definition — their participation typically constitutes Saudi-side ownership for Zakat purposes, though specific structures should be confirmed against the applicable regulatory framework governing the particular entity.

The Public Investment Fund of Saudi Arabia is one of the world’s largest sovereign wealth funds, with an extensive portfolio of both domestic and international investments. PIF-owned resident companies — those wholly or majority owned by PIF — are Zakat payers under Article 3(5) of the Zakat IR, subject to the applicable Royal Orders and Ministerial Resolutions.

For PIF’s portfolio companies that are listed on Tadawul, the listed-company Zakat rules interact with the PIF ownership structure. For those that are private entities, the standard Zakat IR framework applies (as potentially modified by specific Orders). PIF’s direct equity stakes in wholly-owned subsidiaries, joint ventures with foreign partners, and strategic investments each have their own Zakat implications at the entity level.

Joint ventures in which PIF is a partner — either directly or through portfolio holding companies — require the foreign co-investor to understand that the PIF share is Saudi ownership for Zakat purposes. The JV entity will have Zakat obligations on the PIF-owned portion and CIT obligations on the foreign-owned portion, following the standard proportional split. The entity-level Zakat for the PIF share is calculated under the standard framework unless a specific Royal Order governs the PIF entity’s participation differently.

Article 7 of the Zakat IR establishes exemptions from Zakat collection for certain public-benefit entities. Charitable associations and non-governmental organisations that meet specific conditions — including disbursing returns to public charity purposes rather than to specific persons, and satisfying annual reporting obligations to ZATCA — may be exempted from Zakat collection.

Awqaf (endowments), companies and foundations owned by Awqaf meeting specific conditions, non-profit organisations established under the Companies Law meeting specific conditions, and persons on whom ZATCA has issued a specific Zakat exemption decision — all may qualify for exemption from Zakat collection under Article 7’s conditions.

These exemptions are not automatic — they require annual application to ZATCA within 120 days of the end of the Zakat year, demonstrating that the relevant conditions are met. For entities that may qualify, the annual exemption application is an important compliance step that must be managed alongside (or instead of) the Zakat return filing.

Foreign investors entering joint ventures with Saudi government entities, PIF, or PIF portfolio companies face a distinctive tax structuring question: the Saudi partner’s share will create Zakat obligations at the JV entity level. The foreign investor must understand from the outset that the entity will be filing two separate returns with ZATCA — a Zakat return on the state/PIF share and a CIT return on the foreign share.

Several practical considerations arise in this context. First, the foreign investor’s returns and governance rights in the JV must account for the dual compliance burden. Second, Zakat base adjustments (which can affect the equity structure of the entity) may interact with the foreign investor’s CIT base calculations. Third, for state partners governed by specific Royal Orders, the Zakat calculation methodology may differ from the standard rules — creating potential asymmetries in how the two sides of the JV compute their respective tax bases.

The due diligence process for any foreign investment alongside Saudi state entities should include a thorough assessment of the Zakat obligations that will arise at the JV entity level — not just the CIT position of the foreign share.

If a Saudi government entity owns 100% of a company, is that company subject to Zakat or CIT?

Zakat. A company 100% owned by Saudi government agencies and authorities is fully within the Zakat framework — 100% of the Zakat base is subject to Zakat. There is no CIT obligation because there is no non-Saudi ownership. The specific Zakat methodology applicable to state-owned entities may, however, be governed by Royal Orders and Ministerial Resolutions rather than the standard Zakat IR rules — the governing instrument should be verified for the specific entity.

What happens in a JV where PIF owns 51% and a foreign company owns 49%?

The standard proportional split applies: Zakat on 51% of the Zakat base (the PIF share, treated as Saudi ownership) and CIT on 49% of taxable income (the foreign share). Both are calculated independently and filed by the JV entity. Whether PIF’s specific Zakat obligations under any governing Royal Order affect the entity-level Zakat computation depends on the terms of those Orders — this requires specific verification with qualified advisors familiar with PIF’s Zakat framework.

Are Saudi government entities’ shareholdings in overseas companies subject to Saudi Zakat?

The Saudi Zakat framework focuses on Saudi-resident entities and Saudi-source activity. Saudi government entities investing in overseas companies generate offshore returns that may or may not be subject to Saudi Zakat depending on the specific entity’s governing Orders and the nature of the investment. This area is entity-specific and requires analysis of the applicable Royal Orders for the investing government entity.