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Zakat on Shares

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Salaams. My company had given me shares (involuntary), around 2010. Ive never even really knew how much was it and actually didn’t bother to check as I thought it was hardly anything. I decided to investigate and managed to sell it at a price of +-R17000 in May 2019. It is a French Company and the shares were in Euros. I used this money to pay my credit card immediately. My question is, Do i pay Zakaat on this? If so, how will it be calculated? For all the years or just the once off? Jzk

Answer

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

You state that the shares were given to you by your company. Accordingly, they will be considered as an investment to generate dividends.

When one owns a share in a company[1], he is entitled to receive a share of the company’s annual profits and is considered to have ownership in the company’s assets to the value of his share. Therefore, one can subtract the value of those items which are exempt from Zakat, i.e. machinery, land, furniture, cars, etc. As such, one will only pay Zakat on the percentage of current assets in ratio to his share value. The information regarding the percentage of non-Zakat-able assets can be obtained from the company’s annual report.

Example:

Zaid got $1000 worth of shares in company ABC. Hypothetically speaking, 50% of the company’s assets cover machinery, land, furniture, cars etc. and 50% of the company’s assets are in the form of cash, stock in trade, receivables, etc.

This means 50% of the $1000 i.e. $500 is Zakat-able. As such, the Zakat due on Zaid is 2.5% of $500 in addition to any dividends he may have received.[2]

Therefore,

  • Ascertain the value of the shares you owned in 2010 and each subsequent year.
  • Obtain the company’s annual reports to determine what percentage of the assets were Zakat-able.
  • Pay the Zakat (using the above equation) on the value of the shares owned each year from 2010 to 2019.
  • Zakat will be due on the R17,000 if your zakat date arrived and that money was still in your possession and not already spent.

Generally, it is easy to ascertain the value of the shares over the years. However, if it is difficult to do so, you may consider the value of the shares in 2019 i.e.R17,000 to determine the Zakat due upon you for each year since 2010.

If the company in which you owned shares is not a trading company, rather it merely receives income from property, you will only pay Zakat on the dividends you received over the years.[3]   

And Allah Ta’āla Knows Best

Bilal Yusuf Pandor

Student Darul Iftaa

Lusaka, Zambia

Checked and Approved by,
Mufti Ebrahim Desai.

 


[1] It is permissible to invest in shares/stock market with the following conditions:

1.     The main business of the company is not in violation of Shariah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the Shariah, such as the companies manufacturing, selling or offering liquors, pork, haram meat, or involved in gambling, night club activities etc.

2.     If the main business of the companies is halal, like automobiles, textile, etc. but they deposit their surplus amounts in an interest-bearing account or borrow money on interest, the shareholder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company.

3.     If some income from interest-bearing accounts is included in the income of the company, the proportion of such income should be given in charity and must not be retained by him. For example, if 4% of the whole income of a company is accrued from interest-bearing deposits, then 4% of the dividend should be given in charity.

4.     The shares of a company can be purchased only if the company owns some non-liquid assets. If all the assets of a company are in liquid form, i.e. in the form of money, then that cannot be purchased or sold, except on par value, because in this case the share represents money only and the money cannot be traded in except at par value.

An Introduction to Islamic Finance – Maktaba Ma’ariful Quran Pg. 207

 

اسلام اور جديد معاشي مسائل ج 2 ص 28-27  [2]

فقهي مقالات  ج 1 ص 156-155

فتاوي دار العلوم زكريا ج 3 ص 145

 

فتاوى دار العلوم زكريا ج 3 ص 146 [3]

 

This answer was collected from Askimam.org, which is operated under the supervision of Mufti Ebrahim Desai from South Africa.

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