Zakaat is one of the pillars of Islam: a fixed share of qualifying wealth, given every lunar year once that wealth reaches a minimum threshold. For many people today, a good part of their wealth is held in shares. This guide sets out how scholars commonly approach Zakaat on shares, so you can organise your own calculation and know what to ask.
The basics: nisab, the year, and 2.5%
Zakaat is due when your zakatable wealth has stayed at or above the nisab for a full lunar year (a hawl). The nisab is commonly given as the value of 85 grams of gold or 595 grams of silver; scholars differ on which to use, and many use the silver value because it is lower and so reaches more people. The rate on cash, trade goods and investments is 2.5% (one-fortieth).
Most people pick one date each lunar year, their Zakaat date, and value everything they own on that day.
Shares you trade
If you bought shares to sell them for a profit in the short term, they are treated like trade goods. The common position is that Zakaat is due on their full market value on your Zakaat date, at 2.5%.
Shares you hold for the long term
If you hold shares as a long-term investment, for dividends and growth, scholars take different approaches:
- Zakaat on the company's zakatable assets. You pay on your share of what the company holds that is itself zakatable, such as cash, receivables and inventory, rather than on the whole share price. This is the approach set out in AAOIFI's standard on Zakaat, and it needs figures from the company's balance sheet.
- Zakaat on the full market value. Some scholars prefer this for simplicity and caution: it can mean paying more, but never less.
Some also hold that where the company itself pays Zakaat, the shareholder's obligation is met. Ask a scholar you trust which approach to follow, and then apply it consistently from year to year.
Dividends and cash
Dividends you have received and still hold on your Zakaat date are part of your cash, and count towards your zakatable wealth like any other cash.
Funds
For a fund, the same thinking applies to your share of the fund's holdings. Many Shariah-compliant funds publish a Zakaat figure per unit each year, which makes this much easier.
Putting it together
- Choose your Zakaat date and keep it each lunar year.
- On that date, list your cash, savings, gold and silver, trading shares at market value, and long-term holdings valued the way your scholar advises.
- Subtract debts that are due now, where your scholar allows it.
- If the total is at or above the nisab, Zakaat is 2.5% of it.
The Zakaat calculator in Hudood Financial helps you add these figures up. The judgement about which approach applies to your holdings is yours to make, with a scholar's help.