one of the premise of payment of Zakat is that hoarding of money is not liked in Islam, and that money’s invested even in Property (which is rented) the Zakat is paid on annual rent and not on the value of the property. If is difficult for a large number of people either to invest in properties or start business. They can participate in development of business (and projects) by either participating in shares of the companies. Their investment is the capital of the company, which may have a large number of other shareholders with the company managed by specialists. Their return is based on the amount of profits that is generated by that company. Why should one pay Zakat on this type of investment (shares) on market value rather than on the profits received from it (similar to what is allowed in investment in properties i.e. Zakat on Rental Income). If the basis is that this type of investment is liquid (sell it quickly for cash) than what if the investor does not intend to trade in it but rather wants to hold it for long-term (for dividends only). Therefore should we not pay Zakat on the income received on this investment (like rent from property). Does not the ruling that Zakat is payable on value of investment (in shares) force us not to invest in shares but only in properties. Can you also give me references of Hadiths which
Q: How should one calculate Zakaat on investments?
A: If the company buys and sells merchandise, Zakaat will be calculated on the capital investment as well as on the dividends. If the company does not buy and sell but only leases out properties, Zakaat will only be calculated on the dividends earned, not on the capital amount. (Fatawa Rahimiya vol 2 pg.14)
Q: If one owns 40% of shares in a company, then how is Zakaat calculated on his share?
A: If the company is a trading investment then Zakaat is payable on the capital amount as well as the dividends. If the company is not a trading investment and only receives income, for example from rentals of properties then Zakaat is liable only on the dividends. In this case, as a shareholder of a trading investment, Zakaat is due at 2.5% of the 40% shareholding on the capital, as well as on the dividends.
and Allah Ta’ala Knows Best
Mufti Ebrahim Desai