Overview
Before calculating a single riyal of Zakat, the first question to answer is: does this entity — or this ownership interest — pay Zakat at all? The answer depends on nationality, residency, and how the business is structured.
The most common mistake in Saudi tax planning is failing to correctly classify entities and ownership interests. A foreign-owned company that believes it pays only CIT may have a Saudi partner whose share is subject to Zakat. A GCC national operating in Saudi Arabia as a sole proprietor pays Zakat, not CIT. These distinctions have significant financial consequences and ZATCA has full visibility of ownership through the commercial registry and shareholder registers.
The legal framework is set out in Articles 3–7 of the Zakat Implementing Regulations, covering who is subject to Zakat, residency rules, and who is excluded from Zakat (or exempt).
The Legal Definition of “Saudi” for Zakat Purposes
Under Article 1 of the Regulations, “Saudi” means a person holding Saudi nationality, or a national of a Gulf Cooperation Council (GCC) member state who is accorded treatment similar to Saudi nationals. The GCC member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
This definition is broader than most people assume. A UAE national operating a business in Riyadh is, for Zakat purposes, treated the same as a Saudi national. They are a Zakat payer. Their income from business activities in the Kingdom is subject to Zakat — not to CIT at 20%.
Bahraini, Emirati, Kuwaiti, Omani, and Qatari nationals who are resident in Saudi Arabia and carry on a commercial activity are Zakat payers under the Regulations. They are not subject to Corporate Income Tax on their Saudi-source business income.
Residency Rules Under Article 4
Residency determines whether the Zakat obligation applies. A natural person is considered a Saudi resident during a Zakat year if either of the following conditions is met:
| Test | Condition |
|---|---|
| Permanent residence + physical presence | Has a permanent residence in the Kingdom AND is physically present for at least 30 consecutive or aggregate days during the Zakat year |
| Physical presence only (no permanent residence) | Physically present in the Kingdom for at least 183 consecutive or aggregate days during the Zakat year |
Transit days do not count as days of physical presence — a person physically in the Kingdom while in transit between two foreign destinations cannot count that day towards the 30 or 183-day threshold.
A legal person (company) is resident if it is incorporated under Saudi laws, or if its principal headquarters is in the Kingdom.
Article 3: Who Is Subject to Zakat?
The following persons are subject to the Zakat Implementing Regulations (Article 3):
| Category | Description | Zakat Status |
|---|---|---|
| Resident Saudi national practising an activity | Saudi (or GCC) national resident in the Kingdom with a commercial licence or activity | Pays Zakat |
| Sole corporation owned by Saudi person | Single-owner company incorporated in Saudi Arabia and owned by a Saudi/GCC national | Pays Zakat |
| Saudi/GCC partner’s share in resident company | The proportionate Saudi/GCC-owned interest in a capital company, including government agency shares | Pays Zakat on Saudi % |
| CMA-licensed Finance Funds | Finance funds licensed by the Capital Market Authority | Pays Zakat |
| State-owned and PIF-owned resident companies | Per applicable Royal Orders and Ministerial Resolutions | Pays Zakat (per applicable rules) |
| Saudi shares in Exchange-listed companies | Shares held by Saudi nationals in Saudi Exchange listed companies (excluding non-Saudi founder shares) | Pays Zakat on Saudi shares |
Who Is NOT Subject to Zakat (Article 6)
Article 6 explicitly excludes the following from Zakat:
Persons subject to the Income Tax Law and shares directly or indirectly owned by non-Saudis. Non-Saudi, non-GCC investors pay Corporate Income Tax — not Zakat — on their Saudi business income.
Shares in resident capital companies owned indirectly or directly by persons engaged in oil and hydrocarbon production — whether resident or non-resident — are excluded from Zakat (with a carve-out for shares in listed capital companies engaged in hydrocarbons on the Saudi Exchange).
A non-Saudi, non-GCC investor who owns shares in a Saudi company does not pay Zakat on that investment. They are subject to Corporate Income Tax at 20% on their proportionate share of taxable income. Applying Zakat to the full entity without separating the ownership split is a compliance error that ZATCA will assess.
Mixed Ownership Entities: Both Regimes Apply
Where a Saudi company has both Saudi/GCC and non-Saudi shareholders, two regimes operate simultaneously on the same legal entity. The split is applied to the Zakat base (for Zakat) and to taxable income (for CIT) in proportion to the respective ownership percentages.
Al-Rashidi & Partners Co. is a Jeddah-based engineering services company with the following ownership structure: 55% Saudi national (Abdullah Al-Rashidi), 25% UK company (BritTech Ltd), 20% UAE national (Khalid Al-Mansouri).
For Zakat purposes: 55% (Abdullah) + 20% (Khalid, GCC national) = 75% subject to Zakat on the Zakat base.
For CIT purposes: 25% (BritTech Ltd, non-Saudi) subject to CIT at 20% on proportionate taxable income.
Both the Zakat return and the CIT return must be filed by the same entity for the same period. The company files on behalf of both regimes in its single ZATCA registration.
CMA Finance Funds and Unitholders
Finance funds licensed by the Capital Market Authority (CMA) are subject to Zakat under Article 3(4). A “Finance Fund” under the Regulations means an investment fund established for direct or indirect funding activity in the Kingdom.
The Zakat payer in a fund context is the unitholder, not just the fund manager. A unitholder owns a unit in the fund — representing a common share in the fund’s net assets — and is accordingly a Zakat payer in respect of their unit. The fund manager has obligations to notify ZATCA upon fund expiration (within 60 days) and to provide the basis for Zakat calculation to unitholders.
Practical Scenarios: Determining Zakat Payer Status
| Scenario | Zakat? | CIT? | Explanation |
|---|---|---|---|
| 100% Saudi-owned LLC operating in Riyadh | Zakat only | No CIT | Fully Saudi-owned — Zakat applies to 100% of base |
| 100% UK company operating via Saudi branch | No Zakat | CIT only | Fully foreign-owned — CIT at 20% on taxable income |
| 60% Saudi / 40% French JV | Zakat on 60% | CIT on 40% | Split regime — both apply in proportion to ownership |
| Kuwaiti national operating sole proprietorship in Jeddah | Zakat only | No CIT | GCC national = treated as Saudi for Zakat purposes |
| Non-resident foreign company receiving Saudi-source fees | No Zakat | WHT applies | No PE — subject to withholding tax at source, not CIT or Zakat |
| Saudi national holding shares in Saudi Exchange-listed company | Zakat on Saudi shares | No CIT | Listed Saudi shares owned by Saudi national — Zakat applies |
- Zakat payers are Saudi nationals and GCC nationals resident in Saudi Arabia who carry on a commercial activity. GCC nationals are treated the same as Saudi nationals for Zakat purposes.
- Residency requires either permanent residence + 30 days physical presence, or 183 days physical presence without permanent residence.
- Non-Saudi, non-GCC investors are subject to CIT — not Zakat. In mixed-ownership entities, both regimes apply in proportion to the ownership split.
- The Zakat payer classification affects the entire compliance approach: filing regime, return form, calculation methodology, and ZATCA portal registration.
- CMA-licensed Finance Funds are Zakat payers, and unitholders have Zakat obligations in respect of their fund units.
This article is for informational purposes only and does not constitute legal or tax advice. Regulations referenced are based on ZATCA publications current at time of writing. Always verify with a qualified Saudi tax professional for your specific circumstances.