Zakat on Shares

Question:

I have a zakat question on stocks and shares. There are two type of Shares, listed which vary daily with market forces and non-listed which have fixed price, is zakat payable on the total value of each or is the non-listed exempted from zakat? How is Zakat paid on shares?

Answer:

In the name of Allah, Most Compassionate, Most Merciful,

To begin with, it should always be remembered that paying Zakat on stock and merchandise is obligatory (wajib). The jurists (fuqaha) have categorically stipulated the obligation of paying Zakat on merchandise, and there is a consensus on this position amongst the scholars of the Ahl al-Sunnah wa al-Jama’ah.

Sayyiduna Samura ibn Jundub (Allah be pleased with him) narrates that, “the Messenger of Allah (Allah bless him and give him peace) used to command us to pay Zakat on those items that were for sale.” (Sunan Abu Dawud, no: 1557)

Thus, based on this, if one has shares in a particular company, paying Zakat on those shares will be obligatory. In the case of shares being purchased with the intention of capital gain, Zakat will be obligatory on the face/market value of the shares.

For example, I purchased some shares at the rate of 5 Dollars with the intention of selling them when their value increases. Now, at the time of paying Zakat, the value of the share became 10 Dollars, thus Zakat will be obligatory on the current value which is 10 Dollars and not 5 Dollars. The reason is that the share itself has become an article of trade, for it was purchased with the intention of re-sale, and Zakat is obligatory on the current market value of goods and merchandise.

However, if shares were purchased with the intention of receiving the annual dividend, then one is allowed to subtract the value of those items which are exempted from Zakat, i.e. machinery, land, furniture, cars, etc… This information (on the percentage of non-Zakat-able assets) can be obtained from the company’s annual report.

This will be clearer with an example. Suppose I purchased some shares of a particular firm worth 100 Dollars. Now, 10% of the company’s assets are in the form of raw material, 10% in the form of cash, 10% are produced goods and 10% of the assets are goods which are under process of being manufactured, totalling 40%. On the other hand, machinery, land, furniture, and cars (for use and not sale) total 60%. In this case, Zakat will be obligatory on only 40% of the shares, i.e. 40 Dollars.

The reason being that the share in this case does not become an article of trade in of itself; rather one has purchased the share with the intention of receiving a share of the company’s annual profits. Hence, one is considered having ownership in the company’s assets to the value of his share. Thus, it will be permitted not to pay Zakat on those items that are exempt from Zakat, such as machinery, furniture, and building.

If one is unable to obtain the details from the company, then one should pay Zakat on the current market value of the whole share.

In light of the above, it becomes clear that Zakat is payable on all types of shares. If non-listed shares mean those that are purchased with the intention of gaining the annual dividend, then Zakat will have to be paid in the manner outlined above.

And Allah knows best

[Mufti] Muhammad ibn Adam
Darul Iftaa
Leicester , UK

Question #: 5820
Published: 06/12/2004