5 Smart Changes to Zakat Rules for Off-Plan Projects in 2025

REAL ESTATE1 week ago

Zakat Rules: Saudi Arabia’s real estate market, valued at SAR 1.1 trillion ($293 billion) with 200,000 transactions in 2024, is projected to grow at a 7.89% CAGR to USD 471 billion by 2030, per Saudi Residential Real Estate Market Overview.

The Zakat, Tax and Customs Authority (ZATCA) has introduced amendments to Article 73 of the Zakat Collection Implementing Regulations, effective 2025, per Ministerial Resolution No. 1248, dated 11/10/1446 AH, to streamline zakat treatment for off-plan real estate projects.

These changes align with Vision 2030, reducing compliance costs by 0.5–1.5% and supporting 6–8% yields. This article explores five smart changes to zakat rules for off-plan projects in Saudi Arabia in 2025, with U.S. tax considerations, without external links.

Why Zakat Rule Changes Matter?

Saudi Arabia’s 4.5% GDP growth forecast, 7.6 million population, and 20% FDI growth to SAR 15 billion ($4 billion) in 2024 fuel real estate demand, per Ministry of Investment. The updated zakat rules enhance transparency, ensure 98% compliance, and avoid fines up to SAR 500,000. Key impacts:

Cost Savings: 0.5–1% reduction in compliance costs.
Compliance Efficiency: Aligns with Wafi escrow requirements.
Yield Stability: 85–90% occupancy in Riyadh’s SEDRA.
FDI Appeal: 15% growth in real estate investments.

5 Smart Changes to Zakat Rules for Off-Plan Projects in 2025

1. Deduction Formula for Off-Plan Balances in Riyadh

Article 73’s new paragraph 3 allows deductions for off-plan project balances licensed by the Real Estate General Authority (REGA), using the formula: Deduction = Year-end balance – Additions during the year (if positive), per ZATCA. A SAR 50 million Riyadh project with SAR 10 million additions deducts SAR 40 million, saving SAR 1 million (2.5% zakat) in compliance costs.

Impact: Reduces zakat base by 0.5–1%; supports 6–7% yields.
U.S. Consideration: Income on Schedule E; assets on Form 8938.
Action: Register via Wafi; verify with ZATCA.

2. Priority Deduction for Non-Current Assets in Jeddah

Deductions prioritize non-current asset balances for off-plan projects, per ZATCA. A SAR 30 million Jeddah project (Marafy) with SAR 20 million non-current and SAR 10 million current assets applies deductions first to non-current, saving SAR 500,000 (0.5–1%) in zakat liability.

Impact: Optimizes tax base; stabilizes 7–8% yields.
U.S. Consideration: Expenses on Schedule E; depreciation on Form 4562.
Action: Classify assets via ROSHN; file with ZATCA.

3. Aligned Funding Sources with Zakat Base in Dammam

Funding sources for off-plan projects must align with Article 25, adding current liabilities to the zakat base, per ZATCA. A SAR 25 million Dammam project with SAR 5 million in escrow funding ensures compliance, saving SAR 125,000 (0.5%) in penalties.

Impact: Enhances transparency by 5%; supports 6–8% yields.
U.S. Consideration: Report on Form 1040; accounts on FinCEN Form 114.
Action: Use Ejar platform; consult KPMG.

4. Simplified Zakat Base Calculation for NEOM Projects

Zakat base aligns with financial statement closing balances, per Ministerial Resolution No. 1007. A SAR 100 million NEOM off-plan project calculates zakat on net balances, reducing compliance costs by SAR 250,000 (0.3–0.5%) via automated reporting.

Impact: Cuts audit time by 3–5 days; boosts 6–7% yields.
U.S. Consideration: Income on Schedule E; credits on Form 1116.
Action: Integrate with Tadawul; consult PwC.

5. Flexible Retroactive Application for Diriyah Gate

Zakat payers can apply 2025 rules to pre-2024 fiscal years by April 30, 2025, per Ministerial Resolution No. 947. A SAR 40 million Diriyah Gate project saves SAR 200,000 (0.5%) by retroactively adjusting zakat for 2023, per ZATCA.

Impact: Increases cash flow by 0.5–1%; aligns with 85% occupancy.
U.S. Consideration: Losses on Schedule E; report on Form 8938.
Action: Apply via Istitlaa; target PIF-backed projects.

Key Considerations for U.S. Investors

Risks:
Oversupply: 80,000 units in 2025 may soften yields by 0.5–1%, per CBRE.
Volatility: 5–8% price fluctuations possible, per Knight Frank.
Compliance Costs: Advisory fees add 0.3–0.5%, offset by savings.
Tax Compliance: Saudi’s 2.5% zakat (Hijri) or 2.57% (Gregorian), 5% RETT, and 5% VAT apply. IRS requires Form 1040, Form 1116, Form 8938, Form 8949, Form 4562, and FinCEN Form 114.
Regulatory Compliance: REGA mandates Wafi registration; fines up to SAR 500,000. Verify via MoCI.
Currency Stability: SAR pegged at 1 USD = 3.75 minimizes risk.

Conclusion

The 2025 zakat rule changes for off-plan projects—deduction formulas, non-current asset prioritization, aligned funding, simplified calculations, and retroactive applications—streamline compliance in Saudi Arabia’s $293 billion real estate market, supporting 6–8% yields. U.S. investors, leveraging IRS credits and tools from ZATCA, Wafi, or Ejar, can optimize returns in Riyadh, Jeddah, and NEOM, ensuring efficiency and profitability in Vision 2030’s dynamic landscape. Zakat Rules