Zakat Q & A - Zakat Ul-Fitr and Ramadan

Zakat Q and A

Please review our information on Zakat Ul-Fitr and pay this obligatory tax during Ramadan.

What does reaching Nisab mean?
Who does “whose hearts are warmed to embrace Islam” refer to?
What is ruling of Zakat on commercial commodities ?
How do I pay Zakat on the Company shares..?
What is Ruling Zakat on buildings and non-arable leased land ?

What does reaching Nisab mean?

The method of estimating the Nisab (minimum amount liable to Zakat) is applicable to cash money, gold, silver, commercial commodities and cattle. According to a prophetic hadith, "Gold is not liable to Zakat unless it reaches twenty dinars. Once it reaches this amount, half a dinar must be paid as Zakat on it. Likewise, silver is not counted for Zakat unless it reaches two hundred dirhams. Once it reaches this value, an amount of five dirhams must be paid as Zakat on it." Based on this hadith the Nisab of gold counted for Zakat is twenty dinars (85 grams) of fine gold, while the Nisab of silver is two hundred dirhams (595 grams) of fine silver. The Nisab of merchandise is an amount whose value equals eighty-five grams of gold. No Zakat is due upon other kinds of property unless they reach their Nisab, which will be specified later on. Zakat becomes due upon reaching the Nisab or more than it. According to the Hanafi and Maliki juristic schools, the Nisab is calculated at the beginning and end of the year. Any decrease or insufficiency in between is overlooked. Any increase of property after reaching the Nisab during the year is to be included in the total sum counted for Zakat. This is considered the easiest and most applicable among the other juristic views, which has made the majority of scholars adopt it.

Who does “whose hearts are warmed to embrace Islam” refer to?

a. This is one of the eight channels of distributing Zakat, which finds a solid proof to support it in Islamic legislation. The majority of jurists held that this category has the right to receive Zakat, even though they are not in need.

b. Among the most important fields to which this portion of Zakat is dedicated are the following:

People expected to be Muslims who adopt the Islamic moralities, but they are not yet Muslims, or those who have the ability to convince other people to embrace Islam.
The influential bodies or individuals such as leaders or presidents who can contribute to improving the conditions of Muslim communities and minorities abroad and support their claims, or who can urge the intellectuals to defend their cause. The same applies to funds dedicated to improving the image of Islam and Muslims through assisting the afflicted non-Muslim areas.
Those who have been Muslims for a period less than a year and are in need of support, not only financially but also morally, to cope with their new conditions of life. This can be realized through establishing social and scientific institutions to provide them with the appropriate climate.

c. There are some key points that regulate spending from this portion of Zakat, which must be taken into consideration:

The spending in this channel should be according and leading to the aims for which Zakat is ordained.
The spending in this channel should not affect spending in the other channels of distribution.
Spending in this channel of distribution should be undertaken cautiously to avoid the negative aspects that may be disadvantageous to the cause of Islam or badly affect the emotions of the people who have recently embraced Islam.

d. Effective modern technologies and methods should be applied in collecting and distributing Zakat in a way to guarantee achieving the aims of Shari`ah in the best way possible.

What is ruling of Zakat on commercial commodities?

Fixed assets: such as machinery, buildings, trucks and equipment. All fixed assets are not liable to Zakat.
Intention is the criterion of considering properties as commercial commodities or not. If a person purchases a car for personal use, but may sell it if it sells good, it should not be counted as a commercial commodity. But when a person purchases a number of cars for trade, then uses one of them, the used car will also be liable to Zakat as a commercial commodity.
The value of commercial commodities should be estimated according to the wholesale price, whether it will be sold by retail or by wholesale. This is the view approved by the Juristic Academy in Mecca.
A merchant should estimate the value of his commercial commodities according to the current market rate, whether it is higher or lower than the sale price. The sale price meant here is the price when Zakat falls due.
If the company pays Zakat on its shares, the shareholder is not obliged to pay Zakat on his shares to avoid double payment of Zakat. Otherwise, a shareholder will be obliged to pay Zakat on his shares as follows: * If the shareholder exploits his shares in trade, the amount of Zakat due on his shares would be 2.5%, according to the market value at the time Zakat becomes due. * However, if shares are invested to obtain annual revenues, Zakat is paid in the following way: a) If the shareholder managed to examine the accounts of the company and know the amount of Zakat due on his shares, he would have to pay 2.5% as Zakat on this basis. b) If he does not have knowledge of the company accounts, he may simply add the share revenues to the total sum of his property counted for Zakat and pay a rate of 2.5% as Zakat after the lapse of a full year since the wealth has reached the allotted Nisab.
Though dealing in securities is not lawful, Zakat is due on their face value, which is to be added to other kinds of property, after reaching the Nisab and the lapse of a full year. The payable amount of Zakat is 2.5 %.
All kinds of debts whether owed or due should be included under the item of debts. preserve the objectives of Shari`ah (guarding one's religion, soul, mind, offspring and property

How do I pay Zakat on the Company shares..?

On perusing research written about Zakat on company shares, the Council of the Academy decided the following:

First: Zakat is obligatory on company shares. The company should pay Zakat on behalf of the shareholders if the company bylaws so stipulate; if its general assembly issued a decree to this effect, the company is legally obliged to pay Zakat or if the shareholder authorized the company to pay such Zakat.

Second: The company administration should pay Zakat on shares just like an individual person pays Zakat on his own money. This means that the company will consider the money of all shareholders as the money possessed by a single person. Zakat will be paid accordingly, taking into consideration the criteria of Zakat payment such as the allotted Nisab, the amount to be paid, type of funds as well as any other conditions related to the payment of Zakat. The shares on which Zakat is not due are public treasury shares, charitable endowment shares, charitable authority shares and non-Muslim-owned shares.

Third: If the company did not pay Zakat for one reason or another, the shareholder must pay Zakat on his held shares. If he managed to examine the accounts of the company and know the amount of Zakat due on his shares, supposing that the company would pay Zakat in the same manner mentioned above, he would have to pay Zakat on this basis. If he does not have knowledge of the company accounts and is a shareholder of the company with the aim of making use of the annual revenue from the shares, he will pay Zakat on his shares as if they were invested items.

According to the decree of the Islamic Jurisprudence Academy in its second session regarding Zakat on buildings and non-arable leased land, the shareholder will pay Zakat on the revenues of his shares and not on the value of the shares themselves. The amount payable is a quarter of the tithe after the lapse of a year in which the shareholder receives revenue from his shares. If the shareholder purchases such shares with the purpose of entering into commercial transactions, he would pay Zakat on them as if they were commercial goods. If a year lapsed with such shares in his possession, he would pay Zakat on their market value. If he can ascertain the market value, he will pay Zakat on the value of the shares as estimated by experienced people. He has to pay a quarter of the tithe of their value as well as on the profit, if these shares made a profit.

Fourth: If a shareholder sold his shares during the year, he would add their sale price to his money and pay Zakat on both when a year lapses. The buyer will pay Zakat on the shares in the same manner mentioned above.

What is Ruling Zakat on buildings and non-arable leased land?

After the Academy surveyed the different studies submitted about "Zakat on buildings and non-arable leased land" and after detailed discussion on the subject, the following has been decided:

There is no Qur'anic verse or a Prophet's Hadith which points that Zakat is due on buildings and non-arable leased land.
There is no Qur'anic verse or a Prophet's Hadith which points that Zakat is immediately due on the revenues of buildings and non-arable leased land.

Therefore, the Academy decides the following:

First: Zakat is not due on the value of buildings and non-arable leased land.

Second: Zakat is due on their revenues following the lapse of a year after receipt.