Q: Can a proxy or estimate be used for Zakat calculation on shares purchased as a long-term investment?
A: National Zakat Foundation’s (NZF) recommendation to Muslim shareholders is as follows:
Ideally, a complete calculation and review of the balance sheet should take place to determine precise Zakat liability on any Sharia compliant shareholding. However, due to the technicalities and difficulties in this, a person may use a proxy of 25%.
When using the proxy, calculate 2.5% of 25% (0.625%) of one’s entire shareholding and pay the sum as Zakat.
This proxy cannot be used by shareholders of private limited companies. Likewise, a small company or start-up which is known to have only cash assets, should not use this proxy. Limited companies, startups and general partnership companies may contact NZF to work out their Zakat liability.
Note: The previous NZF recommendation of 40% is no longer applicable. Each year the proxy is revised to keep up to date with the most accurate representation of the composition of listed companies.
And Allah knows best!
Mufti Faraz Adam