Saudi Zakat Contract Costs and Own-Use Construction

Identify the asset and the actual deduction route

A cost connected with a long contract or construction project is not automatically a current expense or a deductible fixed asset. Zakat Collection Regulations Article 49(5) identifies capital construction and projects being built for use in the accounts payer’s activity rather than sale. Article 49(7) separately identifies contract costs classified as non-current.

Read these categories with Article 48’s recognition, value, use and applicable registration conditions. ZATCA’s Guideline for Deduction Items from the Zakat Base, July 2025, sections 3.2.1.3 and 3.2.4, explains the contract-cost and own-use construction routes. The accounting asset, annual expense and final Zakat base require separate analyses.

Distinguish capitalised contract costs from ordinary period expenses

Section 3.2.1.3 describes costs incurred to obtain or fulfil a customer contract. It refers to IFRS 15’s recognition requirements and gives examples such as qualifying commissions and direct labour or materials connected with performance. It also distinguishes costs recognised directly as period expenses.

Dariba analysis: a contract reference on an invoice is not enough to establish a recognised contract-cost asset. Determine the proper accounting treatment first. Do not capitalise every sales, marketing or administrative cost merely because a future contract may benefit, or claim the same amount as both an immediate expense and an asset deduction.

The guideline identifies general administrative costs not explicitly chargeable to the customer and costs relating to fulfilled performance obligations among its examples of period-expense treatment. Those actual expenses follow the applicable Zakat expense controls. This guide does not independently determine every IFRS recognition question.

Apply the non-current condition to the actual closing balance

Article 49(7) and section 3.2.1.3 identify non-current contract costs for the fixed-asset deduction route. The guideline uses the balance in the statement of financial position at the end of the period. A current contract-cost balance is not automatically within that paragraph just because another part of the same contract is non-current.

Dariba recommendation: retain the contract-cost roll-forward, nature of each capitalised amount, amortisation or impairment where relevant, recovery period and approved classification. A tax-schedule relabelling cannot establish the financial-statement classification. If another express deduction provision is said to apply, identify it and its conditions separately.

Assess construction for the company’s own use before completion

Section 3.2.4 describes construction costs accumulated for an asset intended for the company’s activity, such as a new administrative headquarters, until it is ready for use and transferred to the relevant fixed-asset category. Article 49(5) expressly addresses qualifying construction in progress for use rather than sale.

The source distinguishes this construction asset from the later commencement of accounting depreciation when the asset is ready for use. A qualifying closing construction balance can therefore have an asset-deduction analysis even though an annual depreciation expense has not yet begun. The actual recognition and deduction conditions remain necessary.

Dariba recommendation: document the intended operational use, approved project and costs, stage of construction, financial-statement recognition and any change of purpose. Work in progress is not synonymous with property held for sale, and the absence of completion alone does not answer the specific own-use route.

Follow the official combined example without importing the current balance

Official example: section 3.2.4, Example 10, concerns a company building a new administrative building to replace its existing premises. The deduction schedule includes SAR 10,828,125 property, plant and equipment, SAR 4,798,750 own-use construction in progress and SAR 24,764,375 non-current contract costs. These total SAR 40,391,250.

The separately identified SAR 7,218,750 current contract-cost balance is not included in that deduction schedule. The example expressly requires the relevant deduction conditions to be met; it does not decide every cost merely from its ledger label.

Dariba analysis: keep the project and cost categories visible. Deducting the accepted construction balance is not the same as deducting a current construction expense. The total is a gross asset deduction, not the final base or a guaranteed equivalent reduction in Zakat liability.

Keep resale property and special project regimes separate

An own-use building is different from a development intended for sale. The property-project guide explains the separate current Article 73 route. The BOT and BOOT guide addresses the special operating-project conditions.

Do not apply the own-use example automatically to every developer, contractor or concession asset. Establish who owns or recognises the actual asset, whether the entity builds it for its own activity or for a customer, and which provision governs the closing balance.

Connect the asset and expense schedules to the whole base

Keep the recognised closing asset, current-period charge and classification evidence together. The operational-assets guide explains the wider controls, while the expense-evidence guide explains the separate current-expense tests.

Then calculate applicable liability corrections, permitted additions and the minimum/maximum base. The deductions overview connects those steps. A supported asset classification is an input to that calculation, not a complete Zakat conclusion.