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Business assets

Video: Zakat on business assets & liabilities - Imam Abid Khan

How to pay Zakat on business assets

Business assets are subject to Zakat and these include cash, finished goods, work in progress, raw materials and strong debts, i.e. money owed to the business that is likely to be received. Business assets must be valued at their current market price. For finished goods, this should be their retail sale price. For unfinished goods, this should be whatever price you expect the unfinished good to fetch on your Zakat anniversary date.

Proof from the Qur’an and Sunnah that business assets are Zakatable:

O you who believe! Give from that which you have earned and from that which we have given you from the harvests of the land. [Al-Baqarah: 267]

Charity (obligatory) is due upon camel, and upon Sheep and upon raisins. (Al-Muḥallā, (5/234-235))

By Ijma (consensus of the scholars):

Some narrations from the time of ʿUmar (Allah’s blessings be on him) show that the companions had consensus on the obligation of Zakat on business. (See Al-Mughnī (3/35)

Intentions

Note: Zakat is obligatory on:

  • Items that are bought and sold or prepared for sale.
  • With the intention of business and profit.

As a result: the prevalent intention behind buying a commodity or keeping a commodity in one’s possession is crucial in ascertaining its ‘Zakatableness’.

Example:

If you buy a car for personal use but also intend to sell it if you find a good price for it – there is no Zakat due.

HOWEVER

If you buy a car with the intention of reselling it but use it in the meanwhile – Zakat is due on it.

As you can see from the above examples, intentions are key in determining whether an item is Zakatable or not. It comes down to our own personal conscience to determine the purity of our intentions and make sure that we are being honest with ourselves when conducting our Zakat calculations.

Commodities and Assets

The resources and fixed assets that are used by a business to run, such as a building, factory, warehouse, office equipment, IT systems, transport vehicles, etc… which are not directly for sale – have no Zakat due upon them. Similarly, if an investment in the capital resources is made, such as renovations of the office – then this can be deducted from the wealth upon which Zakat is due.

The majority of the scholars are of the opinion that the value of the commodity to be taken into account for Zakat purposes is the selling price and not the buying price. The price to take into account would be the wholesale selling price if most items sell wholesale or retail pricing if most items retail.

Zakat that is levied upon the businesses should be in the form of money and currency and not from the type of wealth that the business deals in – unless the poor need that type of wealth, in which case it would be permissible for the business to give the Zakat in terms of the commodity that it does business in. This is the opinion of Ibn Taymiyyah (Allah have mercy upon him).

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