Saudi Zakat Exclusions: Charities, Awqaf and Non-Profits

Public-benefit status does not create one unconditional Zakat exemption. Current Article 7 sets different conditions for associations/foundations/training units, Awqaf and non-profit companies, including different measures for specified-person spending. Identify the actual category and supporting evidence before comparing a percentage or making the annual request.

Distinguish Article 6 scope from Article 7 exclusion

The amended Arabic 1445H Zakat Implementing Regulations Article 6, p. 8, addresses persons or interests outside the regulations. Article 7, pp. 8–10, instead provides the stated public-benefit collection exclusions, including relevant wholly-owned establishments and persons with an actual ZATCA decision.

Article 7 requires an annual request within 120 days after the Zakat year ends and compliance with the relevant category’s conditions. A charity registration, historical approval or non-profit description alone does not establish the current year’s entitlement.

ZATCA’s Zakat General Guideline, first version October 2024, section 4.5, pp. 86–105, explains these categories and examples. The current amended Arabic text controls wherever translated wording or a historical guide differs.

Apply the association, foundation and training-unit conditions

Article 7(1) concerns charitable associations, non-governmental foundations, training units and their qualifying wholly-owned establishments. The returns must serve public charitable purposes or society, subject to the specified foundation exception; licensing/legal documentation and audited financial statements or other ZATCA-accepted documents are required. A training unit needs the stated final non-profit-training licence.

The specific foundation exception permits specified-person spending not exceeding 10% of the foundation’s net profit, with the additional subconditions. Those include authorised objectives, all non-public-benefit spending in the numerator, the stated revenue components, proportional treatment for multiple owning foundations and prescribed financial/accountant evidence.

Do not apply this foundation net-profit denominator indiscriminately to every association, Waqf or non-profit company. General Guideline section 4.5.1, Examples 33–35, pp. 91–92, preserves the actual entity, spending and documentary facts rather than a blanket charitable-label exemption.

Read the 10% boundary and weighted ownership correctly

The current Arabic Article 7 uses not exceeding 10% for its stated exception. Exactly 10% is not excluded merely because one translated summary says less than 10%; every other condition still has to be met.

Official Example 36, section 4.5.1, pp. 92–93: foundations A and B own 30% and 70% of company M. Their specified-person spending ratios are 10% and 15%. The guide applies proportional ownership: 30% × 10% plus 70% × 15% gives 13.5%, exceeding the 10% condition.

Dariba analysis: a company jointly owned by eligible-category organisations still needs the actual ownership-weighted calculation and supporting denominator. Being entirely owned by organisations with a charitable name is not a substitute. This example does not permit averaging unrelated measures or ignoring one owner’s specified-person spending.

Assess Awqaf using the deed and actual yield

Article 7(2) addresses Awqaf and their qualifying wholly-owned companies/establishments. The deed must allocate spending to public charity, or the specified-person component must not exceed 10% of Waqf yield under the stated controls.

The numerator includes the stated payments to the founder, descendants, specific persons or descriptions outside public charity, and related entities. Yield includes all annual revenue under the provision, including asset returns, investment/company income and profits, donations and similar receipts. Multiple owning Awqaf require proportional calculation; the stated audited accounts or licensed-accountant report supports the ratio where the deed permits specified-person spending.

General Guideline section 4.5.2, pp. 94–100, explains these conditions. The Waqf-yield measure should not be replaced by the foundation net-profit denominator simply because both provisions mention 10%.

Establish full ownership through the actual chain

Official Example 38, p. 97: a Waqf owns 60% of company M and a commercial company owns 40%. The company fails the stated full-ownership condition. The guide does not grant a proportional exemption to the entire company merely because the Waqf controls it.

Official Example 40, p. 99: the Waqf owns 100% of B, B owns 40% of C and the Waqf directly owns C’s other 60%. On the example’s remaining qualifying facts, the direct and indirect interests establish full ownership of C.

Dariba recommends reconciling each legal link and the owner’s own eligibility. Full ownership addresses one condition; it does not replace the spending, deed, documentary or annual-request requirements. A subsequent external investor can change the analysis even if management control remains with the Waqf.

Use the non-profit-company revenue test

Article 7(3), Arabic text, p. 10, covers the stated non-profit companies and their qualifying wholly-owned companies under the Companies Law framework. Their constitutional spending fields must stay within the fields allocated to public non-profit companies.

Specified-person spending must not exceed 10% of company revenue, including the stated owner/board benefits, remuneration and salaries for services/work. All relevant spending must be supported by audited statements, a licensed accountant’s report or other documents ZATCA accepts.

Official Examples 42–43, section 4.5.3, pp. 102–103: 10% spending plus an additional 5% board benefit gives 15% and fails; 10% already including board benefits meets that percentage condition on the other stated facts. The revenue denominator and inclusive numerator matter; calling remuneration a normal expense does not automatically remove it from this particular test.

Preserve the annual evidence and the actual decision

Article 7(4) also recognises a person for whom ZATCA actually issues a non-subjection decision. It does not give an applicant the power to declare an unlisted category exempt without a decision or its legal conditions.

Keep the deed/bylaws, final licences, audited accounts or accepted alternative evidence, spending schedules, ownership chains, proportional calculations, annual application and response. Explain the actual beneficiary categories and denominator; a single 10% line in a spreadsheet may conceal different statutory measures.

Dariba recommends reviewing changes before the year-end application. This is an operating recommendation, not an invented prescribed certification for every case. Zakat collection exclusion does not itself certify an income-tax, VAT or withholding exemption.

Monitor Article 8 revocation and changed facts

Article 8, Arabic text, p. 10, permits ZATCA to revoke a non-subjection decision where incorrect information was supplied or exclusion conditions were not met, reassess using available information and inform the payer of the reasons.

General Guideline section 4.5.5, pp. 104–105, describes a company presenting full Waqf ownership while not disclosing an ownership amendment already admitting another partner. The example illustrates why the documents must match the facts at the relevant time.

Dariba recommends maintaining a current eligibility file rather than relying indefinitely on an old approval. Correct changed or inaccurate information through the appropriate process; neither a charitable mission nor an earlier decision guarantees the same result for later or misrepresented facts.