Saudi Zakat Bad Debts and Certificate Exceptions

A bad-debt expense needs the Article 65 conditions. The 1% and final-insolvency-judgment exceptions concern the specified accountant-certificate requirement; they do not create an exemption from the revenue-recognition, activity or related-party tests. Distinguish an actual write-off from an impairment provision and from deducting the receivable itself from the Zakat base.

Identify the actual expense and applicable provision

Current amended Arabic Zakat Implementing Regulations Article 63(1), p. 32, refers bad-debt expense acceptance to Article 65, p. 33. Article 62’s general actual/activity/documentation controls also remain relevant.

The Zakat General Guideline, first version October 2024, section 5.2.2, pp. 165–166, describes debts written off from the entity’s assets and charged to losses in this context. A ledger provision and a completed write-off should not be treated as identical without analysing their actual nature.

Dariba recommends identifying the debtor, transaction, recognised revenue, write-off amount, decision and income-statement effect before applying any exception. A percentage calculation is not the starting proof that the debt qualifies.

Obtain the authorised-write-off certificate where required

Article 65(1)(a) requires a certificate endorsed by a chartered accountant licensed in Saudi Arabia stating that the write-off was made by decision of the authorised person. General Guideline p. 166 explains the condition, subject to the regulation’s specified waivers.

The accountant’s certificate, the underlying authority and the actual accounting entry have different evidential roles. A manager’s informal opinion that collection is unlikely is not automatically the required certificate.

Dariba recommends keeping the approval and supporting write-off schedule available to reconcile the certificate with the actual debt. Do not assume an external financial-statement audit opinion necessarily contains this particular confirmation.

Preserve the revenue-recognition and activity conditions

Article 65(1)(b) requires the revenue to have been recognised in its accrual year within the financial statements. Paragraph (c) requires the debt to arise from carrying on the activity.

Identify the invoice/revenue history and the actual transaction. A financing balance or capital contribution does not automatically become qualifying bad-debt expense merely because recovery is doubtful.

Dariba analysis: trace the original recognised amount to the later write-off. This makes unsupported timing, duplicate expense claims or an assumption that every debtor had previously been revenue easier to identify.

Apply the related-party exclusion independently

Article 65(1)(d) requires the debts not to be against parties related to the payer. Establish the relevant relationship under the governing definitions and actual facts rather than relying solely on an unrelated-party account code.

Official General Guideline Example 68, pp. 175–176: SAR 150,000 of related-party bad-debt expense is not accepted. A SAR 20,000 book loss becomes SAR 130,000 adjusted profit through that adjustment; the signed difference is SAR 150,000.

The example’s relationship finding is material. A low amount or an accountant’s certificate does not remove that independent condition.

Read the dedicated guideline’s three contrasting debt examples

Official example: the Guideline on Modification of the Activity Result, November 2024, section 5.2, Example 18, accepts a SAR 190,000 direct write-off representing 4% of revenue. The unrelated supply-of-goods debt had recognised 2024 revenue and a certified authorised write-off, with the conditions met in the 2025 example.

The result demonstrates why 1% is not a general deduction ceiling. A larger qualifying debt may be accepted with the required evidence. The percentage instead matters to the specified certificate waiver.

Official example: Example 19 rejects a SAR 250,000 housing-loan write-off for a former employee, despite the accountant’s report and authorised decision, because the loan did not arise from revenue recognised as the provision requires. An uncollectible employee advance is not automatically equivalent to an unpaid sales invoice.

Official example: Example 20 rejects a SAR 1,160,000 write-off against a wholly owned subsidiary, even though the holding company had recognised the service revenue and held the certified authorised decision. The related-party condition independently fails.

Dariba recommendation: use the cases as a condition matrix. A certificate cannot substitute for the required revenue history or remove a related-party exclusion. A final judgment or small amount likewise needs to be connected to the specific condition it actually addresses. The examples concern the direct write-off route; they do not decide every separate impairment, financing or asset-deduction provision.

Read the 1% exception as a certificate waiver

Article 65(2)(a) exempts the payer from paragraph (1)(a)‘s requirement where the bad debt does not exceed 1% of the payer’s revenue. The Arabic physical p. 33 expressly identifies the waived paragraph and actual percentage.

Dariba original arithmetic: assumed relevant revenue SAR 10 million gives a 1% comparison amount of SAR 100,000. The paragraph uses does not exceed; an amount at the stated boundary is not excluded merely because it equals it. Establish the actual relevant debt and revenue and the other conditions before applying the exception.

This illustration is not a numbered ZATCA example or a SAR 100,000 universal bad-debt allowance. It does not authorise dividing debts artificially or treating every amount below the comparison as automatically accepted.

Preserve the final bankruptcy or insolvency judgment route

Article 65(2)(b) separately waives the paragraph (1)(a) condition where a final judgment establishes the debtor’s bankruptcy or insolvency under the relevant laws. Final judgment is more specific than an unpaid invoice, pending claim or management assessment.

The other Article 65(1) conditions remain. A final insolvency judgment does not automatically convert a related-party debt or an amount never recognised as the required revenue into an accepted expense.

Dariba recommends retaining the actual final decision and connecting it to the debtor and relevant debt. This article does not decide every insolvency-procedure or judgment-finality question where the documents leave it unresolved.

Separate provisions, asset deductions and other tax regimes

Article 63(9)‘s current-year provisions and Article 24’s closing-provision classification have their own treatments. General Guideline Example 68 includes SAR 70,000 current-year provisions without the same disallowance made for its related-party bad debt.

Accepting a bad-debt expense also differs from deducting a receivable from the balance-sheet base under a specific route such as Articles 31–32. The receivables guide explains those boundaries.

Zakat expense acceptance does not itself establish corporate-income-tax deductibility or VAT bad-debt relief. Those regimes have their own provisions, evidence and timing.

Keep the complete evidence and signed adjustment together

Retain the debtor/relationship review, original activity transaction and revenue recognition, write-off decision and accounting entry, required certificate or actual waiver basis, relevant revenue comparison or final judgment and the income-statement reconciliation.

The profit-adjustment guide explains why a disallowed expense changes adjusted profit or loss and the signed base difference. A qualifying certificate waiver is not a separate deduction from every other part of the base.

Dariba recommends stating the precise condition or exception relied on and the remaining evidence. That provides a usable conclusion while avoiding the misleading claim that less than 1% or an insolvency judgment automatically resolves the entire bad-debt analysis.