Zakat on share price

Apr 19, 2021 | Business & Trade

Question

Dear Mufti sab,

As salamu alaikum,

I have an urgent query to you. I watched a video clip few days back from which I could not clarify myself.

Recently my company where I am in service( its a multinational company) has listed in stock exchange offered primary shares for all employees. I have accepted the offer and deposited necessary amount and got primary shares. These shares are now at lockup period and I can’t sale them now.. however, the price of shares have increased much manifolds in just one month time. Company has already declared a percentage of dividend which will be credited next month in sha Allah. Actually, currently I don’t have any plan to sale the shares rather take the dividend and wait till lockup period is over and even more until its required to sale..now, my question is what value should I consider for zakat calculation? Face value or market value? Pls note Market value is much higher and the amount is not even in my hand and I can’t even sale. I have watched a video of u on this but did not get clarity unfortunately regarding the price to be considered.

Whatsoever, the case is, I would like to pay the zakat rightly no matter what the amount comes in sha Allah.

Pls help at your earliest


Answer

If at the time of purchasing the shares your intention was to sell those shares on for a profit, be it at a later date, then the entire share value will be zakatable at 2.5% of the market rate. This would be the case even if your intention was to hold them and benefit from dividends initially, as long as your primary intention at the time of purchase was to eventually sell them. Even if you cannot sell them at this stage you will have to pay according to the market rate as it will still be treated as trade stock, though you have forfeited your right to sell for a certain amount of years.

If you do not have the cash in hand at this moment then you should pay as much as you are able to and then make the payments after selling the shares. If you are going to do this then make a note of this in your will, so that if you were to pass away during that time your inheritors will be aware of this debt which you have.

If however, when you purchased the shares your primary intention was to hold the shares and benefit from the dividends and not to sell the shares off, then you will have to work out the zakatable asset composition of your company and pay 2.5% accordingly.

For example, if the ratio of zakatable assets to non-zakatable assets in your company is 20%, then you will pay zakat of 2.5% of 20% of the share value. Hence, if your shares are worth £10,000 then the zakatable assets composition of those shares will be valued at £2000 (20% of £10,000) and your zakat will be 2.5% of the £2000 which is £50.

You should be able to work out the zakatable assets composition of your company by looking at the balance sheet. The zakatable assets are items such as cash, cash receivables, trade receivables etc.

Some Muftis working on behalf of the National Zakat Foundation UK studied the balance sheets of the FTSE100 companies determining that more than two-thirds of the FTSE100 have less than 25% of zakatable assets. They have thus provided 25% as a proxy for calculations. The muftis working on this project include Mufti Faraz Adam, Mufti Bilal Omarjee and Mufti Zubair Butt. This may be used as a proxy for calculations to make things easier if it is difficult for you to work out the zakatable asset composition yourself. Though, a note should be made that this is for companies in the UK and this research was always intended to be revised based on changing circumstances in the UK.

See: https://nzf.org.uk/news/zakat-on-share-investments-determining-a-proxy-for-calculation/ (accessed 26 April 2021)

https://darulfiqh.com/2018/05/18/zakat-on-share-investments-determining-a-proxy-for-calculation/(accessed 26 April 2021)

Answered by:
Ifta Research Fellow

Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel