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Saudi Arabia: rules for determining Zakat and income tax liabilities changed for listed companies

By way of Circular 6768/16/1438 of 4 December 2016 (the circular), the General Authority for Zakat and Tax (GAZT) changed the way in which Zakat and income tax liabilities of listed companies are determined.

Prior to the circular, Saudi-listed companies were subject to Zakat and/or income tax on the basis of their shareholdings as stated in the Articles of Association. In other words, the share of founding Saudi and other Gulf Cooperation Council (GCC) nationals was subject to Zakat, whereas the share of other founding shareholders was subject to income tax, with no regard being had to listed shares.

Under the circular, listed shares are taken into consideration in determining the income tax and/or Zakat liabilities. Hence, such liabilities are based on shareholdings as determined by the stock market system (Tadawulaty System ) at the year-end date (GCC shares being subject to Zakat and non-GCC shares to income tax).

The circular is applicable to financial years ended following the date of issuance (i.e., 4 December 2016). Accordingly, all companies with financial years ended at 31 December will be affected by the circular.

Note: GCC member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

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