How the assets of companies established by a joint-stock company are subject to zakah
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Q: A holding joint-stock company operates in the manufacturing sector and carries out its industrial activities by establishing joint ventures with other Saudi and foreign investors, in varying proportions, such that each company has a distinct legal personality and an independent financial liability in accordance with its founding contract and the Companies Law.
Each of these companies individually issues annual financial statements, based on which the zakah due on the Saudi party's share in these companies is calculated and paid to the Zakat and Income Authority. The parent company also compensates these companies for the amount paid as zakah. Subsequently, the parent company prepares consolidated final financial statements covering the results of the parent company's and its subsidiaries' activities. Based on these, the zakah due on the group of subsidiaries and the parent company as a single unit is calculated, then the amount previously paid by the subsidiaries to the Zakat and Income Authority is deducted, and the difference is considered the zakah due on the parent company. In other words, the zakah due on the parent company and its investments in its subsidiaries is calculated based on the consolidated financial statements, applying the principle of the unity of the parent company's financial liability, so that double zakah does not occur. And based on the saying of the Exalted and Blessed is He:[An-Nahl 16:43] We direct our question to your eminence regarding the following issues: Q1: From a Sharia perspective, is zakah calculated on the parent company and its subsidiaries separately—each company individually—
or is zakah calculated based on the consolidated financial statements of the parent company and its subsidiaries as detailed above, with an elaboration of the ruling to the extent possible?
A1: Zakah is calculated on the assets of the parent holding joint-stock company and its subsidiaries, each company individually; because each company has an independent legal personality and independent financial liability. When calculating this, the parent company's investments in the capital of its subsidiaries must be deducted so that the same wealth is not subject to zakah twice in the same lunar year.
Q2: Is the company required to pay zakah on the loans it obtains from government lending funds , such as the General Investment Fund and the Industrial Development Fund, to finance the construction of the company's factories and the expenditure on its activities, or does the responsibility lie with the lender? It is known that these funds collect administrative fees for each loan, deducted from the loan amount initially, and the company is classified as a solvent debtor, in addition to its pledging some of its assets to the lending authority as security for the debt.
A2: The money the company borrows from investment funds or others falls into one of the following cases: 1- The lunar year passes over all of it or part of it before it is spent; in that case, zakah is obligatory on the portion over which the year has passed.
2- All of it or part of it is used to finance fixed assets; in that case, there is no zakah on the portion used for that purpose. 3- It is used to finance the company's current operations, which are considered trade goods; in that case, zakah is obligatory on it based on what it has become, and it is assessed at the end of the lunar year.
Q3: Is the company required to pay zakah on the loans it obtains from non-governmental funding sources, whether local (domestic) or international (foreign), or is this the responsibility of the lender? It is known that these sources collect administrative fees for each loan, paid to them along with the annual installments, and the borrowing company is solvent and regular in repayment, and it provides guarantees to the lender.
A3: The answer to this question is included within the second question; because there is no difference in the zakah of a loan between the lender being a government source or a private source, from the perspective of the borrower.
Q4: If there is government participation in the capital, is the government's share in the capital subject to zakah?
A4: For companies in which government entities participate,
zakah is imposed on all of its zakatable assets; because those entities have an independent legal personality and a commercial purpose.
Q5: Are the shareholders of these companies required to pay zakah on their share in them, or is it sufficient for the shareholder to rely on what the company has paid?
A5: The situation of a shareholder in a joint-stock company is not free from one of the following cases: First: The company is a trading company, and the shareholder's purpose is to acquire the share and benefit from its profits. In this case, the shareholder is satisfied with what the Zakat and Income Authority takes, unless that amount is less than the prescribed zakah. If it is less, he is obligated to pay the difference. Second: The company is a non-trading company, and the shareholder's purpose is to acquire the share and benefit from its profits. There is no zakah on this company; rather, each shareholder pays zakah on his share of the profits if it reaches the nisab (minimum threshold) by itself or by adding it to other wealth, and the lunar year has passed over it. Third: The shareholder's purpose is trading in shares, buying and selling. In this case, he is obligated to assess the shares he holds at the completion of the lunar year based on their market value, and pay their zakah, provided that the investment is in a company that deals in permissible matters.
Q6: Is there a difference between the zakah of shares for a shareholder who
trades in shares by buying and selling, and a shareholder who acquires these shares with the initial purpose of obtaining their profits, and if they are offered to him at a suitable price, he sells them?
A6: Yes, there is a difference; the one who trades in shares by buying and selling is obligated to pay zakah on them, considering them as trade goods. As for the one who acquires them with the initial purpose of obtaining their profits, and if they are offered to him at a suitable price, he sells them, he is not obligated to pay zakah; because he has not made them trade goods, but his action is predominantly for acquisition. However, if his action is predominantly considering them as trade goods, waiting for prices to rise, then he is obligated to pay their zakah.
Q7: For a shareholder who delays receiving the profits distributed by the company to its shareholders for more than a lunar year , is zakah obligatory in his liability, or is the company obligated? It is known that the company announces this to them in the media.
A7: If a shareholder delays receiving his profits in the company after they have been announced, then zakah is obligatory on him if the lunar year passes over them after he is able to receive them.
Each of these companies individually issues annual financial statements, based on which the zakah due on the Saudi party's share in these companies is calculated and paid to the Zakat and Income Authority. The parent company also compensates these companies for the amount paid as zakah. Subsequently, the parent company prepares consolidated final financial statements covering the results of the parent company's and its subsidiaries' activities. Based on these, the zakah due on the group of subsidiaries and the parent company as a single unit is calculated, then the amount previously paid by the subsidiaries to the Zakat and Income Authority is deducted, and the difference is considered the zakah due on the parent company. In other words, the zakah due on the parent company and its investments in its subsidiaries is calculated based on the consolidated financial statements, applying the principle of the unity of the parent company's financial liability, so that double zakah does not occur. And based on the saying of the Exalted and Blessed is He:
So ask the people of the message if you do not know.
فَاسْأَلُوا أَهْلَ الذِّكْرِ إِنْ كُنْتُمْ لاَ تَعْلَمُونَor is zakah calculated based on the consolidated financial statements of the parent company and its subsidiaries as detailed above, with an elaboration of the ruling to the extent possible?
A1: Zakah is calculated on the assets of the parent holding joint-stock company and its subsidiaries, each company individually; because each company has an independent legal personality and independent financial liability. When calculating this, the parent company's investments in the capital of its subsidiaries must be deducted so that the same wealth is not subject to zakah twice in the same lunar year.
Q2: Is the company required to pay zakah on the loans it obtains from government lending funds , such as the General Investment Fund and the Industrial Development Fund, to finance the construction of the company's factories and the expenditure on its activities, or does the responsibility lie with the lender? It is known that these funds collect administrative fees for each loan, deducted from the loan amount initially, and the company is classified as a solvent debtor, in addition to its pledging some of its assets to the lending authority as security for the debt.
A2: The money the company borrows from investment funds or others falls into one of the following cases: 1- The lunar year passes over all of it or part of it before it is spent; in that case, zakah is obligatory on the portion over which the year has passed.
2- All of it or part of it is used to finance fixed assets; in that case, there is no zakah on the portion used for that purpose. 3- It is used to finance the company's current operations, which are considered trade goods; in that case, zakah is obligatory on it based on what it has become, and it is assessed at the end of the lunar year.
Q3: Is the company required to pay zakah on the loans it obtains from non-governmental funding sources, whether local (domestic) or international (foreign), or is this the responsibility of the lender? It is known that these sources collect administrative fees for each loan, paid to them along with the annual installments, and the borrowing company is solvent and regular in repayment, and it provides guarantees to the lender.
A3: The answer to this question is included within the second question; because there is no difference in the zakah of a loan between the lender being a government source or a private source, from the perspective of the borrower.
Q4: If there is government participation in the capital, is the government's share in the capital subject to zakah?
A4: For companies in which government entities participate,
zakah is imposed on all of its zakatable assets; because those entities have an independent legal personality and a commercial purpose.
Q5: Are the shareholders of these companies required to pay zakah on their share in them, or is it sufficient for the shareholder to rely on what the company has paid?
A5: The situation of a shareholder in a joint-stock company is not free from one of the following cases: First: The company is a trading company, and the shareholder's purpose is to acquire the share and benefit from its profits. In this case, the shareholder is satisfied with what the Zakat and Income Authority takes, unless that amount is less than the prescribed zakah. If it is less, he is obligated to pay the difference. Second: The company is a non-trading company, and the shareholder's purpose is to acquire the share and benefit from its profits. There is no zakah on this company; rather, each shareholder pays zakah on his share of the profits if it reaches the nisab (minimum threshold) by itself or by adding it to other wealth, and the lunar year has passed over it. Third: The shareholder's purpose is trading in shares, buying and selling. In this case, he is obligated to assess the shares he holds at the completion of the lunar year based on their market value, and pay their zakah, provided that the investment is in a company that deals in permissible matters.
Q6: Is there a difference between the zakah of shares for a shareholder who
trades in shares by buying and selling, and a shareholder who acquires these shares with the initial purpose of obtaining their profits, and if they are offered to him at a suitable price, he sells them?
A6: Yes, there is a difference; the one who trades in shares by buying and selling is obligated to pay zakah on them, considering them as trade goods. As for the one who acquires them with the initial purpose of obtaining their profits, and if they are offered to him at a suitable price, he sells them, he is not obligated to pay zakah; because he has not made them trade goods, but his action is predominantly for acquisition. However, if his action is predominantly considering them as trade goods, waiting for prices to rise, then he is obligated to pay their zakah.
Q7: For a shareholder who delays receiving the profits distributed by the company to its shareholders for more than a lunar year , is zakah obligatory in his liability, or is the company obligated? It is known that the company announces this to them in the media.
A7: If a shareholder delays receiving his profits in the company after they have been announced, then zakah is obligatory on him if the lunar year passes over them after he is able to receive them.
Source
www.alifta.gov.sa
The Arabic text is copied verbatim from the original source, without any edits.