The deduction rule: a non-growing asset is deducted if it is owned by the business and used in its activity, and only to the extent of the added sources of funds that match it.
1 The main deductible items
| Item | Why it is deducted | Condition to verify |
|---|---|---|
| Fixed assets (net) | Held for use, not for sale | That they are used in the activity and owned |
| Projects under construction | They will become fixed assets | Their actual existence and documented costs |
| Long-term investments | Not held for trading | The intention to hold and their classification in the statements |
| Intangible assets | They are not trade goods | As permitted by the rules for each type |
| Property not held for sale | An asset held for use | Distinguishing property in use from property held for trading |
The cap on deductions
An asset is not deducted by more than the sources of funds added against it. If fixed assets were partly financed by short-term liabilities that were not added, deducting them in full is not accepted. This rule is one of the most frequently adjusted points on audit.
2 Items many people deduct in error
- Property held for sale: trade goods that enter the base and are not deducted.
- Investments held for trading: growing wealth that enters the base.
- Fixed assets not in use or held for sale: their treatment changes with the change of purpose.
- Receivables: not deducted merely because they are overdue, but on specific conditions proving they cannot be collected.
3 The zakat rate
The rule
- Zakat on trade goods is a quarter of a tenth: 2.5% for a full Hijri year
- If the financial year is Gregorian, the rate is adjusted for its extra days — the rate applied in law is about 2.578%
- If the period is shorter than a year, zakat is computed for it under the applicable rules
A zakat base of SAR 1,500,000:
| Financial year | Rate | Zakat due |
|---|---|---|
| Hijri | 2.5% | 37,500 |
| Gregorian | 2.578% | 38,670 |
Why the difference: the Gregorian year is about eleven days longer than the Hijri year, so the rate is adjusted to match the actual period over which the wealth was growing.
Check the rate in force
Rates and rules are issued by the competent authority and may be amended, and the treatment of some sectors differs. Rely on what the Authority’s guide and the return form state for your financial year, not on what you memorised before.
4 From the base to the amount due
Approved statements
The starting point
Additions
Sources of financing that remain
Deductions
Non-growing assets on their conditions
The base
Observing its floor
× the rate
According to the type of financial year
Zakat due
Recorded and paid
In mixed companies the result is apportioned to the ownership share subject to zakat
Lesson summary
- A non-growing asset is deducted on its condition, and only to the extent of the added sources matching it.
- Property held for sale and current investments enter the base and are not deducted.
- The rate is 2.5% for a Hijri year, adjusted for a Gregorian year.
- The base has a floor, not less than adjusted net profit.
- In mixed companies zakat is apportioned to the ownership share subject to it.
5 Test yourself
Three quick questions
Choose the answer you think is correct — the result appears immediately.
1. A real estate development company owns land held for sale. The zakat treatment?
What matters is the purpose: property in use is deducted, while property held for trading is growing wealth that enters the base.
2. A base of 800,000 and a Gregorian financial year. The closest zakat amount:
800,000 × 2.578% ≈ 20,624; the 20,000 figure uses the Hijri year rate of 2.5%.
3. What is the purpose of the “deduction capped at the addition” rule?
Without this rule the base could be reduced by deducting assets financed from short-term liabilities that were not added in the first place.