المملكة: New amendments to Zakat… 3 controls for calculating the value of real estate under construction

The Zakat, Tax and Customs Authority proposed an amendment to the executive regulations for collecting zakat 1445 AH, with the aim of adding a paragraph that addresses the mechanism for calculating zakat on off-plan sales projects according to a treatment that takes into account the nature of these projects.
The proposed amendment stipulates that the value of properties under construction prepared for sale and scheduled to be sold after completion of their construction shall be deducted, unless they are offered for sale in their current condition, or the cost of sales percentage exceeds 25% annually of their value shown in the financial statements for the zakat year subject to the zakat declaration according to 3 Controls.
The controls include that real estate be classified as non-current assets in the financial statements, that the percentage for each project be calculated separately, and that the percentage be calculated based on the cost of sales, according to the following equation: Value of deductions “sales” at cost: “beginning balance + additions during the year.” = Cost of sales ratio.
The Authority stated that if real estate under construction prepared for sale is classified within inventory or among current assets according to the established accounting standards, it will be deducted from the zakat base when the previous controls are met, provided that it is added from current liabilities, according to what is stated in the twenty-fifth of the regulations.

Zakat on sales projects

The Authority obligated the processing of Zakat on off-plan sales projects to be in accordance with a deduction from the Zakat base for off-plan sales projects – licensed by the competent authority based on the regulations in force in the Kingdom – according to the following equation whenever the result is more than zero: Deducted from the Zakat base = the project balance at the end Year – the value of additions to the project during the year, so that the equation is applied to each project separately.
The amendment indicated that if part of the project balance is classified in the financial statements as current assets and the other part as non-current assets, then the beginning of the deduction resulting from applying the equation contained in Paragraph “A” of this article shall be from the non-current part, and the remaining deduction shall be completed – if Found – from the rolling part.