Saudi Arabia: Zakat rules for investments in investment funds

The Minister of Finance has approved (Ministerial Resolution No. (29791) dated 09/05/1444H) the Zakat rules for investments in investment funds approved by Capital Market Authority (CMA). These rules apply to the fiscal years starting on or after 1 January 2023.

The Zakat collection on the investment funds is applied to the fund’s unitholder (natural/juridical persons) with the following exception:

• Unitholders of financing funds
• A unitholder who owns the entire fund directly or indirectly and has submitted a consolidated Zakat return including the fund 

According to the Ministerial Resolution, investment funds including those operating as special purpose establishments (SPEs) are not subject to Zakat collection provided that they do not perform an activity not included in their article of association. However, they are required to comply with the following obligations under these rules:

Registration with Zakat and Tax, Custom Authority (ZATCA) for Zakat proposes:

• The funds approved by CMA prior to 1 January 2023 must register with ZATCA before the end of their fiscal year when the decision becomes effective.

Example: A fund with a fiscal year from October 2022 to September 2023, must register with ZATCA before the end of this fiscal year, i.e., before September 2023. However, the year to apply these rules shall be the fiscal year ending September 2024.

• The funds approved on or after 1 January 2023, must register with ZATCA before the end of their first fiscal year from the date of approval of their incorporation.

Submit information return within 120 days from the end of the fiscal year, along with the following:

• Audited financial statements
• Record of transactions with related parties
• Any additional information/documents required by ZATCA

Other considerations:

• The fund needs to notify ZATCA within 60 days from the date of its liquidation
• Transfer pricing bylaws and any of its amendments would apply to the transactions between related parties and the fund

• The funds will be required to comply with the requirements of these rules starting from 1 January 2023 and non-compliance may result in adverse consequences with ZATCA.
• The unitholders may have to consider the implications under these rules by reviewing whether they can benefit from the new rules to accept the deductibility of these investments in their returns.

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com