IFRS 18 and zakat in Saudi Arabia: where zakat is presented

IFRS 18 as issued internationally has an "income taxes" category. The version endorsed for use in Saudi Arabia adds zakat to it: SOCPA’s endorsement document creates a "Zakat and income taxes" category, so zakat expense sits below operating profit in the income statement of a Saudi company.

1. What SOCPA’s endorsement document says

• Zakat expense and income tax expense are classified together in the "Zakat and income taxes" category (paragraphs 47 and 67 as endorsed).
• The second required subtotal is named "profit or loss before financing and zakat and income taxes" (paragraphs 69 and 71 as endorsed).
• Zakat expense is shown as its own line, separate from income tax (paragraph 75 as endorsed).
• The statement of financial position shows liabilities for accrued zakat (paragraph 103 as endorsed).
• "Profit or loss before zakat and income taxes" is a subtotal named in the endorsed standard, so a company presenting it is not creating a management-defined performance measure (paragraph 118 as endorsed).

SOCPA’s stated reason is that Saudi companies are required to pay zakat and to present it as an expense of the period under the national Standard of Zakat (Revised).

2. Where each item sits

3. Zakat in the cash flow statement

The endorsed IAS 7 requires cash flows from zakat and taxes on income to be disclosed separately and classified as operating cash flows, unless they can be specifically identified with financing or investing activities.

4. The financing disclosures SOCPA added

• Receivables, deposits, payables and overdrafts are broken down by the nature of the financing, for example conventional finance and murabaha, or conventional and tawarruq.
• Bonds are disclosed separately from sukuk.
• Interest income from conventional deposits and loans is disclosed separately, however small the amount.
• Interest expense on conventional loans and bonds is disclosed separately from other finance costs, however small the amount.

In practice this means tagging conventional and Shariah-compliant balances and flows in the ledger, so the note can be produced from the system.

5. The international discussion, and why it matters

In March 2026 the IFRS Interpretations Committee concluded that, under IFRS 18 as issued, charges outside the scope of IAS 12 cannot be presented in the income taxes category. On that reading Saudi zakat would generally be an operating expense. SOCPA presented the opposite view to the IFRS advisory forum the same month. The International Accounting Standards Board has since tentatively decided to propose an amendment so that charges imposed by a government as a direct substitute for income taxes go in the income taxes category. Its work plan expects an exposure draft in the fourth quarter of 2026. The amendment is not final.

• For statements prepared under IFRS as endorsed in Saudi Arabia, SOCPA’s zakat category is what applies today.
• A group that also reports to a foreign parent, or states compliance with IFRS as issued internationally, should raise the difference with its auditor early.
• Anyone modelling operating profit for a covenant or a bonus should record which treatment was used.

6. How Entry Post helps

Entry Post prepares the IFRS 18 impact study, restates the comparatives, and builds the disclosure templates and the board and audit-committee briefing. Most impact studies take 4–6 weeks. If we are your auditor, our role stays within what independence rules allow; otherwise we work alongside your auditor.