A Saudi Zakat payer holds a long-term (non-trading) equity investment in another Saudi company. Under Article 5 of the Zakat Implementing Regulations (Ministerial Resolution No. 2216 of 1440H), when is the Zakat payer generally entitled to deduct the value of that investment from its own Zakat base?
- Whenever the investee is a Saudi company, regardless of whether the investee itself pays Zakat or income tax on its own base
- Only if the investment is held for trading purposes and is actively bought and sold during the Zakat year
- Only if the investee itself is subject to Zakat on the corresponding share of its own base, so that the same funds are not effectively zakated twice in the same ownership chain
- Only if the investment is in a foreign (non-Saudi) company, since domestic investments are never eligible for this deduction
Why C? And why not the others?
Correct answer: C. Only if the investee itself is subject to Zakat on the corresponding share of its own base, so that the same funds are not effectively zakated twice in the same ownership chain
The deduction is designed to prevent the same underlying funds from being zakated twice within one ownership chain: an investment in another entity qualifies for deduction only where that investee itself is a Zakat payer that includes the corresponding share of the investment in its own Zakat base, so the liability is captured once, at the investee level, rather than twice. The option allowing deduction for any Saudi investee regardless of the investee's own Zakat status is wrong because a Saudi company can itself be wholly or partly outside the Zakat regime (for example, a mixed-ownership or foreign-owned entity taxed under the Income Tax Law), in which case deducting the investment would let that share of funds escape Zakat entirely rather than merely avoiding double-counting. The option limiting the deduction to trading-purpose holdings is wrong because the opposite is true: the deduction is aimed at investments held on a non-trading, long-term basis, while trading stock is treated differently within the Zakat base calculation. The option confining the deduction to foreign investees is wrong because foreign investments are generally the ones excluded from this deduction, since a foreign investee does not pay Saudi Zakat on its own base, which is exactly the double-zakating concern the rule addresses for domestic investees.
Source: Zakat Implementing Regulations (Ministerial Resolution No. 2216 of 1440H), Article 5; ZATCA Guideline for the Rules of Zakat Collection from Investors