Understanding Zakat on Stocks and Methods of Calculating It

Stocks Zakat is one of the types of zakat mandated by Islam to enhance social solidarity and purify Muslims' wealth, as it supports the conditions of the poor and needy, improving their lives and fulfilling their needs. Zakat on stocks is a fair distribution of wealth that increases growth, sustenance, and blessings. Is there anything more beautiful than achieving economic stability through zakat, which grants Muslims great reward and blessings?

Here is our article to explore together the Shariah rules for zakat on stocks, methods to calculate it, and how to distribute stocks zakat to the poor and eligible recipients through the trusted Al-Wafa Association.

Definition of Stocks Zakat

Stocks zakat is a Shariah financial obligation on the market value of stocks and any profits achieved, provided their value reaches the gold nisab of 85 grams of pure gold and a full lunar year passes. Zakat is deducted based on the investor's intention at 2.5% of the net assets or market value if the company does not pay zakat on behalf of shareholders.

Stocks are considered trade offerings, so zakat is obligatory if they are investments or trading activities, allowing the owner to gain reward and blessings by helping the poor and needy.

Shariah Rules for Stocks Zakat

• Stocks invested in permissible companies are subject to zakat.
• For trading stocks aimed at profit through buying and selling, zakat is 2.5% of market value as they are trade goods.
• Investment stocks intended for profit without selling are zakatable at 2.5% of company assets, including merchandise, debts, and cash.
• If the investor cannot determine the profit from investment stocks, 10% of the profit is paid upon receipt, or 2.5% of stock value based on accounting methods.
• If stocks are losing, zakat is based on current market value, not purchase value.
• If the company pays zakat on stocks, shareholders are not required to pay again to avoid double payment.

Methods to Calculate Stocks Zakat

Calculation methods vary based on stock type, whether for trading or long-term investment:

• Trading stocks zakat: Multiply number of stocks by current market price, then add profits.
• Investment stocks: Use company-declared zakat based on zakatable assets, usually lower.
• Investment stocks without declared zakat: Deduct 2.5% of profit after it is received and a full year passes.
• Funds zakat: Calculate 25% of fund value, then deduct 2.5% or the declared percentage.

Timing of Stocks Zakat

• Zakat is due after a full lunar year on stocks once nisab is reached.
• Long-term investment stocks: Year counted from stock purchase or profit receipt date.
• Trading stocks: Year counted from start of stock trading activity.
• Zakat can be accelerated before completing the year if nisab is met, as a charitable act.

Stocks Exempt from Zakat

Exempt stocks include:

• Stocks in companies that already pay zakat.
• Long-term investment stocks bought for annual profit, not trading.
• Stocks pledged as loan collateral.
• Stocks not currently owned or held in trust.
• Stocks below nisab value (less than 85 grams of gold).

Stocks and Investment Funds

Stocks and investment funds are common investment methods providing profit, but they differ:

Stocks

Individual stocks represent a share in known companies, providing high profits and voting rights, but come with high risk as they depend on a single company.

Investment Funds

An investment fund is a portfolio containing bonds, stocks, and real estate, pooling investor capital in one place, managed strategically by specialists to buy diversified assets. It offers lower risk, diversity, lower management costs, and higher real profit potential.

Distributing Stocks Zakat to the Poor

Stocks zakat can be distributed to the poor and needy to meet daily needs and provide a dignified life, through trusted charitable organizations like Al-Wafa Association, ensuring fair, quick, and secure distribution.

All you need to do is deliver the zakat amount, and Al-Wafa Association will manage distribution in an organized and safe manner with an experienced team handling all responsibilities.

Frequently Asked Questions

Is there zakat on stocks?

Yes, stocks are subject to zakat, provided they reach nisab and a full lunar year has passed.

How is stocks zakat calculated?

Zakat is 2.5% of market value for trading stocks and on zakatable assets and profits for investment stocks after a full year and reaching nisab.

How to compute stocks zakat?

Depends on investor intention: for trading stocks, 2.5% of market value; for investment stocks, 2.5% of company assets if known, else 2.5% of profit.

Is zakat paid on capital or profit?

Zakat is due on both capital and profits, provided nisab is met and a full year passes. Profit zakat comes from deposited profit, while capital zakat comes from invested principal.