Not all assets owned by a business need to have Zakat paid on them. Zakat is due on ‘productive’ assets. This sounds complicated but basically just means any asset bought in order to be resold or manufactured in order to sell. Other productive assets are those considered to be inherently and naturally productive such as gold, silver and cash assets. When it comes to intrinsically productive business assets there’s no need to have intended to sell or trade the items, in order to have Zakat due on them.
Other assets such as stock and inventory (excluding animals pastured for their milk and offspring), require an intention to sell to become productive wealth (Mal Nami). This intention of sale must be made at the time the items are acquired. Provided the intention to sell remains, these assets need to have Zakat applied to them.
Examples of business assets which require Zakat to be paid on them:
- Cash – any cash owned by the business
- Cash receivables – money owed to the business for a cash loan
- Trade receivables – outstanding invoices for goods and stock
- Stock & inventory – any stock or inventory bought to resell
Examples of business assets which don’t require Zakat to be paid on them:
- Service receivables – any money owed to the business for services
- Prepaid expenses – money which has already been paid and is therefore no longer owned by the business
- Fixtures & fittings – Personal assets and belongings which may grow in value over time
- Property, plants and equipment – As these items may grow in value over time, they’re not considered to be productive wealth in Islamic law.
- Intangible fixed assets – for example copyright, trademark, patent and/or good will