Understanding the Controls of Residency and Principal Headquarters for Zakat Tax in Saudi Arabia

As Saudi Arabia continues to streamline its fiscal policies and regulations, understanding the rules surrounding residency and the principal headquarters for Zakat tax purposes is essential for businesses and individuals operating within the Kingdom. Let’s break down the key aspects of Articles Four and Five of the Saudi Zakat Tax regulations, which outline the controls of residency and the definition of a principal headquarters.

Article Four: Controls of Residency for Zakat Tax Purposes

Residency is a critical factor in determining whether a person or entity is required to pay Zakat in Saudi Arabia. For the Zakat Year, individuals and legal entities can be considered residents if they meet specific conditions:

For Natural Persons:

A natural person is deemed a resident if one of the following conditions applies:

1. Permanent Residence and Presence: If the individual has a permanent residence in Saudi Arabia and is physically present in the Kingdom for no less than 30 days (either consecutive or aggregated) during the Zakat Year.
2. No Permanent Residence but Extended Presence: If the individual does not have a permanent residence in Saudi Arabia but is physically present for no less than 183 days (either consecutive or aggregated) during the Zakat Year.

In both cases, presence in the Kingdom for even part of a day is considered a full day, except when the individual is in transit between two foreign destinations through Saudi Arabia.

For Legal Persons (Entities):

A legal person (corporate entity) is considered a resident of Saudi Arabia during the Zakat Year if:

1. Incorporation in the Kingdom: The legal person is incorporated under the laws of Saudi Arabia.
2. Principal Headquarters in Saudi Arabia: The entity’s principal headquarters is located in Saudi Arabia.

These residency controls help ensure that individuals and entities fulfilling their Zakat obligations are properly categorized based on their physical presence or legal ties to Saudi Arabia.

Article Five: Controls of the Principal Headquarters for Zakat Tax

The definition of a “principal headquarters” plays a pivotal role in determining whether a legal entity is liable for Zakat on its activities within and outside Saudi Arabia.

Criteria for Principal Headquarters:

A location is considered the principal headquarters in Saudi Arabia if at least two of the following conditions are met:

1. Board of Directors’ Meetings: The board of directors regularly meets in the Kingdom (using any means, including virtual meetings), where key policies and business decisions related to the establishment are made.
2. Senior Executive Decisions: Major decisions regarding the management of the business, including those made by the CEO and their deputies, are taken within Saudi Arabia.
3. Revenue Generation: A significant portion of the entity’s revenue is generated from business activities within Saudi Arabia.

Zakat Implications for Entities with Principal Headquarters in Saudi Arabia:

Once a legal person meets the criteria for having its principal headquarters in the Kingdom, the following applies:

• The entity must pay Zakat on its activities and the activities of its branches, both inside and outside Saudi Arabia.
• It must also disclose annual declarations regarding its income and business activities within and outside the Kingdom.

This regulation ensures that businesses with a substantial presence in Saudi Arabia are contributing to the Kingdom’s Zakat system based on their overall business operations.

Conclusion

Understanding the residency controls and the definition of a principal headquarters is vital for individuals and legal entities subject to Zakat in Saudi Arabia. Whether you are a natural person residing temporarily or permanently in the Kingdom or a legal entity with operations in the Kingdom, staying informed about these controls will ensure compliance with Zakat regulations. It also underscores the importance of being aware of the economic presence you have in Saudi Arabia, which is a crucial element in determining Zakat obligations.

summary

Saudi Arabia’s Zakat regulations define residency and principal headquarters to determine tax obligations for individuals and businesses. A natural person is considered a resident if they have a permanent residence in the Kingdom and stay at least 30 days in a Zakat Year or stay 183 days without permanent residence. For legal entities, residency applies if they are incorporated in Saudi Arabia or have their principal headquarters in the Kingdom.

Disclaimer:  The Content offers general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for their interpretation and actions based on this information, at their own risk.  

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