Zakat on Stocks, Shares & ETFs
| Fatwa #1106 | Category: Zakaat & Sadaqah | Country: Canada | Date: 4th April 2024 |
| Fatwa #1106 | Date: 4th April 2024 |
| Category: Zakaat & Sadaqah | |
| Country: Canada | |
Question
Assalamualaikum,
As part of zakat-able wealth, I read that stocks (shares of publicly traded businesses on the stock exchange) or ETFs (percentage of shares of hundreds of companies traded as a stock) are counted. I read this fatwa on this website that advised on how to pay Zakat on ones stocks: https://askimam.org/public/question_detail/47924
I wanted to ask how to calculate zakat on these stocks for some clarification as I’m not sure what my situation entails. Here is some information:
The stocks are shares of multiple businesses that perform trade (i.e., sell goods or services) with one being an ETF that is comprised of companies that own or operate income producing properties (REIT). Each year, some of these companies pay dividends while some do not. The companies have what is known as a market cap, which is the value of the company based on its stock price. Often times, this number is far higher than the net assets the company owns (often times multiple times more). The stocks are bought with the intention of holding for many years and maybe selling at an undefined date (no specific timeline on when one would sell this stock). The aim is to grow wealth through share price increase, or receive dividends as part of the profits. Ideally, at a later date years from now, one can either choose to sell and turn it into cash for something like retirement or buying a home, or keep it and use the dividends. But currently no intention to sell as of now.
How would one calculate zakat on these stocks? Assuming intention to sell plays a part in calculation, what constitutes an explicit intention to sell?
Answer
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
An intention to sell must be found at the time of purchase for the share to be treated as stock in trade. Therefore, if you did not know your purpose, or you thought you will see what happens later, and did not have an explicit clear intention of purchasing the shares solely for reselling/trading, then the share will not be considered as stock in trade.[1]
As for Zakat on shares in a company which are not purchased with the explicit intention of resale, if the company is a trading company, then Zakat is technically due on the Zakatable assets of the company in proportion to one’s share, as well as the dividends received.[2] However, if the company is a non-trading company e.g. a real estate agency which only deals in rentals (not sales), then Zakat will only be due on the dividends received.
For a trading company, one can subtract the value of those items which are exempt from Zakat, i.e. machinery, land, furniture, cars, etc. and one will only pay Zakat on the percentage of current assets (Zakatable assets) in ratio to his share value.
Example: Zaid has $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 Zakatable. As such, the Zakat due on Zaid is 2.5% of $500 in addition to any dividends he may have received.
However, we understand that it is not easy to determine the Zakatable and non-Zakatable assets of the company. Therefore, some contemporary Ulama have allowed determining Zakat on shares by proxy. You may refer to the following article by Mufti Faraz Adam (and others) with regards to calculating Zakat on shares by proxy.
Zakat on share investments: determining a proxy for calculation – Darul Fiqh
In the event shares are purchased with the explicit intention on resale/trade, then one will pay 2.5% of the market value of that share.
And Allah Ta’āla Knows Best
Mufti Bilal Pandor
Concurred by
Mufti Muhammad Patel
Darul Iftaa Mahmudiyyah
Lusaka, Zambia
المحيط البرهاني في الفقه النعماني (2/ 247) [1]
وإذا اشترى عرضاً بدراهم أو دنانير، فالمشترى لا يصير للتجارة؛ إلا إذا نوى التجارة
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