🧾 Zakat and Taxation

1. Which of the following statements correctly distinguishes zakat from tax?

1. Zakat funds general state spending, while tax goes to set beneficiaries
2. Zakat is levied on annual profit, while tax is levied on accumulated capital
3. Zakat is a religious duty with set beneficiaries; tax funds public needs
4. Zakat is a voluntary gift by the payer, while tax is a compulsory levy under law

Zakat is a religious obligation whose proceeds go to defined categories of beneficiaries, whereas tax is a statutory levy that finances general public expenditure, so the reverse allocation is wrong. Zakat is compulsory for those who meet its conditions, so it is not a voluntary gift. Nor is zakat charged on annual profit alone: it is assessed on a wealth-based base, and tax is not confined to accumulated capital.

2. Which of the following best defines tax evasion?

1. Illegally reducing the tax payable by concealing income or falsifying records
2. Lawfully arranging transactions to use tax reliefs and reduce the tax payable
3. Paying tax on the same income in two different jurisdictions in one period
4. Postponing payment of tax with the written consent of the tax authority

Tax evasion is the illegal reduction of the tax payable, for example by hiding income or falsifying records, and it exposes the taxpayer to penalties. Arranging affairs within the law to use available reliefs is tax avoidance. Paying tax on the same income in two jurisdictions is double taxation, and a consented postponement is a payment facility, not a way of reducing the tax.

3. Najd Logistics Company's accounting profit has been reduced by a penalty paid to a regulator, which the tax rules treat as a non-deductible expense. Compared with accounting profit, its taxable (adjusted) profit will be:

1. lower, because the penalty reduces the income earned during the year
2. unchanged, because the tax result follows the accounting result
3. lower, because the penalty is deducted a second time for tax purposes
4. higher, because the penalty is added back for tax purposes

Taxable profit is obtained by adjusting accounting profit for items the tax rules treat differently. A non-deductible expense is added back, so taxable profit is higher than accounting profit. The tax result does not simply follow the accounting result, and an expense is never deducted twice for tax, so both the unchanged and the lower answers are wrong.

4. Two countries both tax the same income earned by a company. Which of the following is a recognised way of relieving this double taxation?

1. Applying the higher of the two tax rates to the whole income
2. Allowing a credit for the tax already paid in the other country
3. Taxing the income a second time when it is transferred home
4. Disallowing the foreign tax as a cost and taxing the full income

Double taxation arises when the same income is taxed in more than one jurisdiction. A common relief is a credit against the home tax for the tax already paid abroad. Applying the higher rate, taxing the income again on transfer, or treating the foreign tax as a non-deductible cost all increase or leave unchanged the burden instead of relieving it.

5. Which of the following is NOT one of the traditional criteria of a sound tax system?

1. Certainty of the amount, date and manner of payment
2. Convenience of payment for the taxpayer
3. Economy in the cost of collecting the tax
4. Discretion of the collector in setting each amount

The traditional criteria of a sound tax system are equity, certainty, convenience and economy. Discretion of the collector in setting the amount is the opposite of certainty, because the taxpayer cannot know what is due. Certainty, convenience of payment and economy of collection are all accepted criteria.

6. Under the Zakat Implementing Regulations, zakat for a Hijri year is levied at what percentage of the zakat base?

1. A rate of 2.5% of the base
2. A rate of 5% of the base
3. A rate of 10% of the base
4. A rate of 15% of the base

Article 15(1) of the Zakat Implementing Regulations (2024 text, in force at 21 March 2027) levies zakat at 2.5% of the zakat base for a Hijri year. Rates of 5% and 10% do not appear in Article 15 for the zakat base, and 15% is the standard VAT rate, a different levy governed by a different law.

7. Under the Zakat Implementing Regulations, a legal person is resident in the Kingdom for a zakat year if:

1. its shares are listed on the Saudi Exchange during the year
2. most of its employees hold Saudi nationality at year-end
3. it is incorporated under the applicable laws of the Kingdom
4. its customers are mainly located inside the Kingdom

Article 4 of the Zakat Implementing Regulations treats a legal person as resident if it is incorporated under the laws of the Kingdom or if its principal headquarters is in the Kingdom. A stock exchange listing, the nationality of employees and the location of customers are not residence conditions.

8. Under Article 7 of the Zakat Implementing Regulations, which of the following may NOT be exempted from zakat collection by an annual request on the ground of public benefit activity?

1. A charitable association whose returns are spent on public charity purposes
2. A waqf whose deed provides for disbursements to general charity
3. A non-profit organization established under the Companies Law
4. A limited liability company trading for the profit of its Saudi owners

Article 7 of the Zakat Implementing Regulations lets persons carrying out public benefit activities obtain exemption by an annual request filed within 120 days from the end of the zakat year: charitable associations and their fully-owned establishments whose returns go to public charity, awqaf whose deed directs disbursements to general charity, and non-profit companies established under the Companies Law. A company trading for its owners' profit does not carry out a public benefit activity, so it remains a zakat payer.

9. Al-Waha Furnishings is incorporated in another country. Its board regularly meets in the Kingdom, where the chief executive also takes the senior management decisions, but most of its revenue comes from operations abroad. For zakat purposes it is:

1. resident, because two of the three headquarters conditions are met
2. not resident, because it is not incorporated under the laws of the Kingdom
3. not resident, because most of its revenue is earned outside the Kingdom
4. resident, but zakat is due on its Saudi branches' activity, not on activity abroad

Article 5 of the Zakat Implementing Regulations deems the principal headquarters to be in the Kingdom if at least two conditions are met: board meetings held there, senior executive decisions taken there, and the main revenue-generating business located there. Here the first two are met, so the company is resident under Article 4. Incorporation abroad does not prevent residence, and under Article 5 it pays zakat on its activity and that of its branches inside and outside the Kingdom.

10. Which of the following items is NOT deducted from the zakat base of a zakat payer holding legal accounts?

1. Goods in stock that are prepared for sale
2. Spare parts that are not prepared for sale
3. Net fixed assets used in the activity
4. Intangible assets held for non-trading purposes

Article 52 of the Zakat Implementing Regulations says inventory is not a deduction, and goods prepared for sale stay in the base even before manufacturing is complete. Spare parts not prepared for sale are deducted under Article 52 and Article 26, net fixed assets under Article 49, and intangible assets held for non-trading purposes under Article 50.

11. A limited liability company obtains a loan from one of its partners. Which of the following is NOT a condition for treating this partner's loan as a liability, rather than equity, for zakat?

1. The statements are approved by a chartered accountant
2. The contract identifies a payment period for the loan
3. The partner who grants the loan holds Saudi nationality
4. The financing return is in line with the market price

Article 30 of the Zakat Implementing Regulations treats a partner's loan as a liability only if the statements are approved by a chartered accountant in the Kingdom, the loan is classified as a liability, a payment period is set in the contract, the return is in line with the market price, and the entity is not fully controlled by one owner. The nationality of the lender is not a condition. If the conditions are not met, the loan is treated as equity.

12. Two zakat payers merge into a new entity that is accounted on a Hijri-year basis and adopts a short first fiscal year. Under Article 14 of the Zakat Implementing Regulations, the new zakat payer is held accountable for:

1. the actual number of days of its short fiscal year
2. no zakat, because the period is shorter than a Hijri year
3. two Hijri years, because the entity is newly created
4. a full Hijri year, as Article 15(4) is not applied

Article 14(1)(a) provides that a new entity created by a merger and accounted on a Hijri basis is held accountable for a full Hijri year when its fiscal year is short, and for two Hijri years when it is long; Article 15(4) is expressly not applied. Pro-rating by actual days and the exclusion of periods under 354 days belong to the ordinary rules of Article 15, and two Hijri years apply only to a long fiscal year.

13. Under Article 10 of the Zakat Implementing Regulations, the first zakat year of a zakat payer begins on the earliest of:

1. the first sale, the first invoice issued or the first receipt of cash
2. the commercial register, the first necessary license or the capital deposit
3. the first board meeting, the first shareholders' call or the first bank account
4. the VAT registration, the ZATCA registration or the first return filed

Article 10 of the Zakat Implementing Regulations sets the start of the first zakat year at the first date among the issue of the commercial register, the acquisition of the first license needed for the activity and the deposit of the capital. The payer may choose another start date by supplying documented proof acceptable to ZATCA. Sales, board meetings and VAT or ZATCA registrations are not the triggers.

14. A zakat payer receives a zakat assessment and files no objection. Under Article 117 of the Zakat Implementing Regulations, the zakat due becomes final and payable when how many days have passed from the date of the assessment?

1. 30 days
2. 45 days
3. 60 days
4. 90 days

Article 117 of the Zakat Implementing Regulations (2024 text, in force at 21 March 2027) makes the zakat final and payable on the payer's acceptance of the assessment or on the expiry of 60 days from its date with no objection filed. A period of 30 days applies to other steps, such as challenging a rejected reconciliation, and 90 days to the wait for an answer to an objection; 45 days is not a period in that article.

15. Within how many days from the end of the zakat year must an accounting-books zakat payer file its zakat return and pay the zakat dues?

1. 120 days
2. 150 days
3. 180 days
4. 240 days

Article 102 of the Zakat Implementing Regulations (2024 text, in force at 21 March 2027) requires the return to be filed and the dues paid within 120 days from the end of the zakat year, extended to the next working day if the deadline falls on an official holiday. The longer periods of 150, 180 and 240 days are not allowed by the article.

16. Company H, a resident holding company, owns all the shares of Subsidiary A and a majority stake in Subsidiary B, both resident, and chooses to file a consolidated zakat return. Which statement is correct?

1. Subsidiary A is consolidated, while Subsidiary B files a separate return
2. Both subsidiaries are consolidated, because the holding company controls them
3. Neither subsidiary is consolidated, so three separate returns are filed
4. Subsidiary B is consolidated, while Subsidiary A files a separate return

Article 16 of the Zakat Implementing Regulations allows a holding company to file consolidated accounts and a consolidated zakat return with its fully owned subsidiaries, directly or indirectly. A subsidiary that is not fully owned is accounted separately whatever the ownership ratio, and files its own return. Control through a majority stake therefore does not bring Subsidiary B into the consolidation, while Subsidiary A, fully owned, is included.

17. Najd Logistics Company is a zakat payer whose fiscal year coincides with the Hijri year. Its zakat base for the year is SAR 3,200,000. The zakat due for the year is:

1. SAR 8,000
2. SAR 77,589
3. SAR 80,000
4. SAR 82,486

Article 15(1) of the Zakat Implementing Regulations (2024 text, in force at 21 March 2027) levies 2.5% of the zakat base for a Hijri year: 3,200,000 x 2.5% = SAR 80,000. SAR 8,000 shifts the decimal point, SAR 77,589 prorates by 354/365 and SAR 82,486 prorates by 365/354, although no proration applies when the fiscal year equals the Hijri year.

18. Al-Waha Furnishings, a zakat payer, closes its accounts on a Gregorian fiscal year of 366 days (a leap year), and its zakat base for that year is SAR 4,248,000. Taking the Hijri year as 354 days and rounding to the nearest riyal, the zakat due for the year is:

1. SAR 102,718
2. SAR 106,200
3. SAR 109,500
4. SAR 109,800

Article 15(2) of the Zakat Implementing Regulations (2024 text, in force at 21 March 2027) prorates the 2.5% rate on the actual number of days of the fiscal year: (2.5% / 354) x 366 x 4,248,000 = SAR 109,800. SAR 106,200 ignores the proration, SAR 102,718 inverts the ratio to 354/366, and SAR 109,500 uses 365 days although this fiscal year has 366.

19. Company X started its activity during the year and its first fiscal period is 240 days, shorter than the Hijri year of 354 days. Its zakat base for that period is SAR 1,416,000. The zakat due for the period is:

1. SAR 23,277
2. SAR 23,600
3. SAR 24,000
4. SAR 35,400

Article 15(3) of the Zakat Implementing Regulations (2024 text, in force at 21 March 2027) subjects a fiscal period of less than 354 days at commencement to zakat, and Article 15(2) prorates the 2.5% rate on actual days: (2.5% / 354) x 240 x 1,416,000 = SAR 24,000. SAR 35,400 charges the full annual rate, while SAR 23,277 and SAR 23,600 divide by 365 and 360 days instead of 354.

20. At year-end Al-Rimal Trading Company, an LLC holding legal accounts, reports the following (SAR): - Share capital 3,600,000; statutory reserve 450,000; retained earnings 820,000 (including the current-year profit) - Long-term bank loan 1,200,000; end-of-service provision 350,000 - Net fixed assets 2,700,000; investment in a resident zakat-paying company, non-current and non-trading 640,000; intangible assets held for non-trading purposes 180,000 - Investments held for trading, classified as current assets 320,000 - Net book profit 515,000; adjusted net profit 590,000 All other items are nil. The zakat base is:

1. SAR 2,625,000
2. SAR 2,655,000
3. SAR 2,900,000
4. SAR 2,975,000

Under Articles 21, 23 and 26 of the Zakat Implementing Regulations the base is equity 4,870,000, plus non-current liabilities 1,550,000 (Article 29, within the 3,520,000 of non-current assets deducted under Articles 43, 49 and 50), plus the 75,000 difference between adjusted and book profit, less deductions 3,520,000 = SAR 2,975,000, which lies between the minimum and maximum bases. Omitting the profit difference gives SAR 2,900,000, omitting the end-of-service provision gives SAR 2,625,000, and deducting the trading investments gives SAR 2,655,000, which Article 42 does not allow.

21. Najd Logistics Company, a zakat payer holding legal accounts, shows these equity items at year-end (SAR): share capital 5,400,000; statutory reserve 720,000; fair-value reserve from an unrealised gain on investments 185,000; accumulated losses (630,000); treasury shares (240,000). The equity included in the zakat base is:

1. SAR 5,250,000
2. SAR 5,435,000
3. SAR 5,675,000
4. SAR 6,065,000

Under Article 23(1) of the Zakat Implementing Regulations equity enters the base at its year-end value (Articles 17 and 18). Realised and unrealised profits are both included (Article 38), losses carried forward reduce equity (Article 39) and treasury shares reduce equity (Article 40): 5,400,000 + 720,000 + 185,000 - 630,000 - 240,000 = SAR 5,435,000. SAR 5,250,000 wrongly excludes the unrealised fair-value gain, SAR 5,675,000 ignores the treasury shares and SAR 6,065,000 ignores the accumulated losses.

22. Company X, an unlisted zakat payer holding legal accounts, has a zakat base of SAR 500,000 under Article 21, which is below its adjusted net profit of SAR 900,000. Its net book profit is SAR 800,000 and the total assets not deducted from the base are SAR 700,000. The zakat base after applying the minimum base rule is:

1. SAR 700,000
2. SAR 800,000
3. SAR 900,000
4. SAR 1,600,000

Article 27(2) of the Zakat Implementing Regulations applies when the base falls below adjusted net profit. The undeducted assets plus the difference between adjusted and book profit are 700,000 + 100,000 = 800,000, which is less than the adjusted net profit of 900,000, so the base is SAR 800,000 under Article 27(2)(a). SAR 900,000 applies Article 27(2)(b), which needs the sum to exceed the adjusted profit, SAR 700,000 drops the profit difference and SAR 1,600,000 adds the adjusted profit to the assets.

23. Ms Noura's company computes a zakat base of SAR 8,400,000 under Article 21. Its equity in the statement of financial position is SAR 5,700,000, and a partner's loan of SAR 650,000, not included in that equity, fails the Article 30 conditions and is treated as equity. Adjusted net profit is SAR 520,000 and net book profit is SAR 430,000. The zakat base after the maximum base rule is:

1. SAR 6,350,000
2. SAR 6,440,000
3. SAR 7,090,000
4. SAR 8,400,000

Article 28 of the Zakat Implementing Regulations caps the base at property rights and equivalents plus the difference between adjusted and book profit, and Article 28(2) includes partners' loans reclassified under Article 30: 5,700,000 + 650,000 + 90,000 = SAR 6,440,000. SAR 8,400,000 leaves the cap unapplied, SAR 6,350,000 omits the profit difference and SAR 7,090,000 counts the partner's loan twice.

24. Al-Waha Furnishings, a zakat payer holding legal accounts, reports the following current assets (SAR): - Goods prepared for sale 1,560,000 - Spare parts not prepared for sale 620,000 - Raw materials classified as current assets that are not part of the final product 340,000 - Receivables and cash 2,280,000 Its current liabilities total SAR 3,600,000. The current liabilities added to the zakat base are:

1. SAR 465,000
2. SAR 720,000
3. SAR 960,000
4. SAR 1,890,000

Under Article 52 of the Zakat Implementing Regulations, spare parts not prepared for sale (paragraph 3) and current raw materials that are not part of the final product (paragraph 4) are deducted, but goods prepared for sale are not (paragraph 2). Article 25(3) then adds the matching share of current liabilities: 960,000 / 4,800,000 x 3,600,000 = SAR 720,000, which does not exceed the 960,000 deducted; as current liabilities are below current assets, Article 29(2)(b) adds nothing more. SAR 465,000 deducts the spare parts only, SAR 1,890,000 also deducts the goods prepared for sale, and SAR 960,000 adds the value of the deducted assets instead of the proportional share.

25. Najd Logistics Company has total non-current assets of SAR 10,000,000, of which an investment of SAR 2,000,000 is held for trading and is not deducted from the zakat base; all its other non-current assets are deducted. Its non-current liabilities total SAR 4,000,000. The non-current liabilities added to the zakat base are:

1. SAR 800,000
2. SAR 2,000,000
3. SAR 3,200,000
4. SAR 4,000,000

Article 25(2) of the Zakat Implementing Regulations excludes from the addition the share of non-current liabilities matching the non-deducted non-current asset: 2,000,000 / 10,000,000 x 4,000,000 = 800,000, which does not exceed the asset. The amount added is therefore 4,000,000 - 800,000 = SAR 3,200,000. SAR 4,000,000 makes no adjustment, SAR 2,000,000 subtracts the whole asset and SAR 800,000 is the amount excluded, not the amount added.

26. Mr Faisal's company reports a net book profit of SAR 780,000 after charging a bad debt of SAR 130,000 written off against an unrelated customer. The revenue was recognised in its maturity year, the debt arose from the activity, but no chartered accountant certificate was obtained. Revenue for the year is SAR 8,000,000. Its adjusted net profit is:

1. SAR 650,000
2. SAR 780,000
3. SAR 860,000
4. SAR 910,000

Article 65 of the Zakat Implementing Regulations accepts a bad debt only with the certificate, unless the debt does not exceed 1% of revenue. One percent of 8,000,000 is 80,000, so the debt of 130,000 is not exempted and is not an accepted expense under Article 63; it is added back: 780,000 + 130,000 = SAR 910,000. SAR 780,000 accepts the debt, SAR 650,000 subtracts it and SAR 860,000 adds back only the 1% amount.

27. Al-Rimal Finance Company is a zakat payer of financing activities. Its equity is SAR 3,000,000 and its financing liabilities payable after one year or more are SAR 5,000,000. Total assets are SAR 20,000,000 and zakat assets are SAR 15,000,000. Ignoring the minimum and maximum, the zakat base is:

1. SAR 2,250,000
2. SAR 6,000,000
3. SAR 8,000,000
4. SAR 10,666,667

Under Article 68 of the Zakat Implementing Regulations the sources of funds are equity and liabilities payable after a year or more, here 3,000,000 + 5,000,000 = 8,000,000. Article 67 multiplies them by zakat assets over total assets: 8,000,000 x 15,000,000 / 20,000,000 = SAR 6,000,000. SAR 8,000,000 omits the ratio, SAR 10,666,667 inverts it and SAR 2,250,000 applies it to equity alone.

28. Al-Rimal Finance Company, a zakat payer of financing activities, reports a net profit of SAR 3,000,000 after a zakat allocation of SAR 400,000. The base given by the Article 67 equation is SAR 9,000,000. The zakat base after the minimum and maximum rules is:

1. SAR 9,000,000
2. SAR 12,000,000
3. SAR 13,600,000
4. SAR 27,200,000

Article 71(1) of the Zakat Implementing Regulations (2024 text, in force at 21 March 2027) sets the minimum base at 4 times the net profit and the maximum at 8 times, after excluding the zakat allocation. Net profit before the allocation is 3,400,000, so the minimum is SAR 13,600,000 and the maximum 27,200,000; the 9,000,000 equation result is below the minimum. SAR 12,000,000 keeps the allocation and SAR 27,200,000 is the maximum.

29. Najd Finance Company carries on financing activities and made no net profit for the year, although its total (gross) profit is SAR 7,500,000. The Article 67 equation gives a base of SAR 6,900,000. Which zakat base applies once the Article 71 limits are taken into account?

1. SAR 3,000,000
2. SAR 6,000,000
3. SAR 6,900,000
4. SAR 30,000,000

When the payer has no net profit, the limits come from Article 71(2) of the Zakat Implementing Regulations (2024 text, in force at 21 March 2027): 40% of the total profit for the minimum and 80% for the maximum. The cap is 80% x 7,500,000 = 6,000,000 and the equation result of 6,900,000 is above it, so the base is SAR 6,000,000. SAR 3,000,000 is the minimum, SAR 6,900,000 disregards the cap and SAR 30,000,000 wrongly uses the multiple of 4 reserved for net profit.

30. ZATCA issues a zakat assessment of SAR 750,000 to Company X. The company accepts SAR 300,000 and objects to the other SAR 450,000. To have its objection accepted in form, without a financial guarantee, the minimum it must pay is:

1. SAR 300,000
2. SAR 345,000
3. SAR 375,000
4. SAR 412,500

Article 116(2) of the Zakat Implementing Regulations (2024 text, in force at 21 March 2027) requires payment of all dues on the items not objected to, plus at least 10% and at most 25% of the objected amounts, or a financial guarantee. The minimum is 300,000 + 10% x 450,000 = SAR 345,000. SAR 300,000 pays nothing on the disputed items, SAR 375,000 takes 10% of the whole assessment, and SAR 412,500 pays the 25% maximum.

31. Najd Logistics Company, a Saudi resident company, rents heavy equipment from Delta Rentals, an unrelated non-resident company with no permanent establishment in the Kingdom, and no tax treaty applies. It pays SAR 428,000 of rent for the year, which Delta Rentals says includes SAR 96,000 of its own costs. The withholding tax to be withheld is:

1. SAR 16,600
2. SAR 21,400
3. SAR 64,200
4. SAR 85,600

Rent paid to a non-resident bears withholding tax of 5% under Article 63 of the Income Tax Implementing Regulations (rate as in force on 21 March 2027), and the tax is levied on the full amount paid whatever expenses the non-resident incurred: 5% x 428,000 = SAR 21,400. SAR 16,600 wrongly removes the SAR 96,000 of costs first; SAR 64,200 applies the 15% rate that belongs to royalties and other payments; SAR 85,600 applies the 20% rate for management fees.

32. Al-Waha Furnishings, a Saudi resident company, pays Company X, an unrelated non-resident with no permanent establishment in the Kingdom, SAR 340,000 of management fees under a hotel management contract and SAR 180,000 for technical consulting services. The total withholding tax to be withheld is:

1. SAR 26,000
2. SAR 77,000
3. SAR 95,000
4. SAR 104,000

Management fees paid to a non-resident bear 20%, and technical or consulting services paid to an unrelated non-resident bear 5% (Article 63 of the Income Tax Implementing Regulations, rates as in force on 21 March 2027): 20% x 340,000 = 68,000 and 5% x 180,000 = 9,000, a total of SAR 77,000. SAR 26,000 applies 5% to both payments; SAR 95,000 applies to the consulting fee the 15% rate reserved for payments to a head office or related company; SAR 104,000 applies 20% to both payments.

33. During the year, Najd Logistics Company, resident in the Kingdom, remits SAR 760,000 for technical services and SAR 240,000 of loan interest to its foreign parent, which has no permanent establishment in Saudi Arabia. The total withholding tax due on these remittances is:

1. SAR 50,000
2. SAR 74,000
3. SAR 114,000
4. SAR 126,000

Technical services paid to a head office or related company bear 15%, while loan interest bears 5% (Article 63 of the Income Tax Implementing Regulations, rates as in force on 21 March 2027): 15% x 760,000 = 114,000 and 5% x 240,000 = 12,000, a total of SAR 126,000. SAR 50,000 applies 5% to both payments; SAR 74,000 swaps the two rates; SAR 114,000 leaves out the interest.

34. Najd Holding Company, a Saudi resident joint-stock company, distributes SAR 1,750,000 of cash dividends. Its shareholders are Saudi investors (65%) and Delta Group (35%), a non-resident company with no permanent establishment in the Kingdom; no tax treaty applies. The withholding tax on the distribution is:

1. SAR 30,625
2. SAR 87,500
3. SAR 91,875
4. SAR 122,500

A distribution from a resident company to a non-resident shareholder bears withholding tax of 5% (Article 63 of the Income Tax Implementing Regulations, rate as in force on 21 March 2027), and only the non-resident's share is concerned: 35% x 1,750,000 = 612,500 and 5% x 612,500 = SAR 30,625. SAR 87,500 applies 5% to the whole distribution, including the Saudi shareholders; SAR 91,875 uses the 15% rate for other payments; SAR 122,500 uses the 20% rate for management fees.

35. Najd Industrial Company is a Saudi resident limited liability company with a taxable profit of SAR 2,640,000 for the year. Its capital is held 60% by Saudi partners and 40% directly by a non-Saudi partner. Using the income tax rate of 20%, the income tax due for the year is:

1. SAR 26,400
2. SAR 211,200
3. SAR 316,800
4. SAR 528,000

Income tax applies to the share of non-Saudi partners in a resident capital company, whose tax base is computed separately from that of its owners (Article 1 of the Income Tax Implementing Regulations; page 4 of the Simplified Guideline for Income Tax). Applying the 20% rate given in the question (rate as in force on 21 March 2027) to that share: 20% x 40% x 2,640,000 = SAR 211,200. SAR 26,400 applies the 2.5% zakat rate to the non-Saudi share; SAR 316,800 taxes the Saudi partners' share; SAR 528,000 taxes the whole profit.