Detailed Zakat Information

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Stocks which are permissible to buy and own may be purchased for either holding them and expecting their dividends or for participating in the management of the company, or for using them as tradable objects waiting for a good opportunity to realize a capital gain and sell. In the latter case one is called in Shariah merchant or trader, regardless of the English jargon of “investor,” and one is to pay Zakat as in the case of mutual funds at the same rate and net asset value on the due date of Zakat.

Holding stocks for their dividend is usually done on a long term vision, during which capital gains may also be realized but the owner usually keeps holding them for long period. There are three views on the Zakat in this case:

a) The view of the majority, which came in a resolution of the OIC Fiqh Academy, maintains that one has to calculate the Zakat-able part of the value of the stock, from the company’s balance sheet and pay Zakat on it in the due date at the rate of 2.5%. The Zakat-able part is: cash + receivables + inventories of goods in process and ready for sale-short term debts.

b) The minority view, in the case where the owner is only investing in these stocks even for long term but without any interest in the management and little concern about dividends, states that this investment is similar to trading in stocks, in the Shariah meaning of the word. Accordingly, the owner has to pay Zakat at the rate of 2.5% on the market value on the due date.

c) The third view is a subset of the first one; it actually adds to the first one that if it is difficult to calculate Zakat from the balance sheet, one may pay 10% on the net income of the stock, in analogy with agriculture. But there is not enough logical support in Shariah for this opinion.

To read more about detailed information on Zakat, click here…

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