The Minister of Finance, Mohammed bin Abdullah Al-Jadaan, approved amending Article 73 of the Zakat Collection Executive Regulation, adding a new mechanism to calculate Zakat for real estate projects under construction, and off-plan sales projects, in line with the nature of these real estate activities.
According to the official gazette, the new amendments will be applied for fiscal years starting January 1, 2015, with the possibility of retroactive application - upon the taxpayer's request - to previous fiscal years. According to what was published in the official gazette “Umm Al-Qura”, the new amendments will apply to fiscal years starting on January 1, 2025, with the possibility of applying them retroactively - upon the taxpayer's request - to previous fiscal years to which the executive regulation for the collection of zakat issued by Ministerial Decision No. (1007) applies.
According to the amendments, they will be applied retroactively to previous fiscal years. <According to the amendments, taxpayers will be able to exclude the value of properties that are still under construction from the zakat pot, provided that they are intended for sale after their construction is completed, and are not offered for sale in their current state. The annual cost of sales must not exceed 25% of the book value of these properties as shown in the financial statements for the year in question. To ensure the accuracy of the treatment, the regulation sets a number of controls, most notably that these projects are classified as non-current assets in the financial statements, and that the cost of sales ratio is calculated separately for each project, based on the data of each project separately.
<As for off-plan sales projects - which must be licensed by the competent authorities in accordance with the regulations in force in the Kingdom - the regulation has approved a new formula for calculating zakat, which allows deducting the value of the project at the end of the fiscal year plus the value of the capital additions made during the same year, if the result is positive. This formula is applied to each project independently. <If the balance of the project is distributed between current and non-current assets in the financial statements, the deduction from the zakat base starts from the part classified as a non-current asset, and is then supplemented - if necessary - from the current part. The amendments also stipulate the inclusion of sources of financing for off-plan sales projects, as stipulated in the third chapter of the executive regulations.
In order to assess the effectiveness of these amendments, the decision stipulates that the Zakat, Tax and Customs Authority will submit a study to its board of directors after one year of implementation, addressing the impact resulting from the application of the new zakat treatment for off-plan sales projects.
The decision stipulates that the Zakat, Tax and Customs Authority will submit a study to its board of directors after one year of implementation. These amendments are expected to reduce the financial burdens on real estate developers and stimulate the implementation and marketing of housing projects at early stages, especially in light of the Kingdom's orientation towards enhancing the housing supply and enabling citizens to own their housing units at more stable prices.
These amendments are expected to contribute to reducing the financial burdens on real estate developers.
