Saudi Zakat Trading Investments: Six Portfolio Tests

The non-trading condition for a Zakat investment deduction is tested through the actual Article 42 controls. A long-term label, a professional manager or an investee paying Zakat does not override a trigger that applies. At the same time, a trading finding must be applied to the relevant portfolio rather than indiscriminately to every investment held by the company.

Establish the general condition and portfolio boundary

Current amended Arabic Zakat Implementing Regulations Article 42(1)–(2), p. 24, requires non-trading purpose subject to each investment’s particular provisions. When trading treatment applies, its effect concerns the assets of the relevant investment portfolio without affecting the entire investments item in the financial statements.

ZATCA’s Zakat General Guideline, first version October 2024, section 5.3.3, pp. 215–218, explains the controls and the portfolio concept. One financial-statement line can therefore require a more detailed investment analysis.

Dariba recommends reconciling portfolio/custody records to the ledger. Merely renaming internal accounts does not establish genuinely separate portfolios or displace the activity and transaction facts.

Check the actual nature of the payer’s activity

Article 42(3)(a) considers whether the nature of the payer’s activity is investment trading, evidenced by financial statements, statutory documents or other documents clarifying that nature. The rule is broader than a single accounting caption.

Obtain the actual business model, legal documents and supporting records. An occasional treasury investment and an investment-trading business require their actual facts considered; do not invent a numeric turnover safe harbour that Article 42 does not provide.

The statutory trading cases operate where any applies. Passing one test is not conclusive if current classification, transaction conduct or another limb points to the stated trading treatment.

Read the management mandate and its exceptions precisely

Article 42(3)(b) concerns management by another person who is not attached to the investor under an employment contract and has sale/purchase decision authority. The wording preserves the exception where the agreement specifies a non-trading investment role, and the stated fund-manager exception for investment funds.

A third party merely providing advice does not necessarily hold the relevant decision authority. Conversely, a manager being licensed does not itself establish the particular exception or a qualifying non-trading mandate.

Dariba recommends retaining the signed agreement, authority limits and actual operation. The paragraph’s exception concerns this management trigger; other Article 42 tests and the investment’s detailed conditions still need review.

Treat current classification as a substantive trigger

Article 42(3)(c) treats classification within the payer’s current assets as a trading case. It is not sufficient to say that the investee is subject to Zakat or that management informally expects to hold the investment.

Official General Guideline Example 78, p. 220: a SAR 8 million investment in a local company is current and is not deductible, despite the investee being Zakat-subject. Example 77, p. 219: the SAR 5 million investment meets the stated non-current, non-trading and registration/subjection conditions and is deductible.

The comparison illustrates different factual cases; it does not direct taxpayers to relabel an asset without a valid accounting basis. The domestic guide explains the other Article 43 conditions.

Test the specified listed-portfolio transaction sequences

Article 42(3)(d) addresses listed investments where, during the year in the same portfolio, a sale then purchase is followed by one or more sales, or a purchase then sale is followed by one or more purchases.

Preserve the complete sequence and dates. The provision is not simply a blanket statement that any sale anywhere makes the whole corporate investment balance trading, nor does it state an invented value or frequency exemption.

Dariba original illustration: a recorded purchase, sale and subsequent purchase in the same listed portfolio matches the described purchase–sale–purchase sequence, subject to the actual paragraph’s facts. This illustration is not a ZATCA worked example and does not establish the treatment of a corporate reorganisation or other unresolved transaction characterisation.

Review disposal intentions and decisions

Article 42(3)(e) addresses an announced or evidenced desire or decision to dispose of the investment, whether at a specified price or within less than one year. Do not restrict the actual wording to formal board minutes only.

Dariba recommends comparing investment approvals, disposal mandates, budgets and communications. These are practical evidence suggestions, not a prescribed exhaustive list or a rule that one document decides every case.

The specified-price limb also matters. A company should not assume a holding necessarily qualifies merely because no disposal is expected in the next twelve months while it has an evidenced disposal decision at a specified price.

Apply the separate liquidity-presentation test

Article 42(3)(f) addresses financial statements presented by liquidity where the payer has not provided evidence that the investment is expected to be realised over a period exceeding 365 days after the Zakat year-end. Arabic text, p. 24 states the actual 365-day threshold.

Liquidity presentation therefore does not remove the need to support the holding horizon. Use the relevant year-end facts and evidence; an unsupported assertion that the portfolio is strategic does not establish the required position.

This test differs from Article 42(3)(e)‘s disposal wording. Keep the particular limbs separate rather than converting all six conditions into one generic management-intention test.

Carry the conclusion into the correct investment route

An investment satisfying the non-trading controls still needs the relevant domestic, foreign, fund or instrument conditions. Article 42(4) expressly connects sukuk/bonds with Article 55. The investment overview identifies those routes and their separate documentation/payment requirements.

For each relevant portfolio, record which tests were reviewed, the evidence, the actual conclusion and the resulting deduction amount. This supports a defensible position and a repeatable annual review.

Dariba recommends revisiting the analysis when mandates, classification, disposal plans or conduct change. A conclusion accepted on last year’s facts is useful history; it is not a substitute for applying the current year’s controls.