How is Zakat Determined for Stocks?

Answered by Shaykh Faraz A. Khan

Question: I understand that if one acquires an asset such as property e.g. an apartment for the purposes of living in it, but not as an investment, then one does not pay Zakat on it. If it is for investment with the intention of selling for a profit, one must pay Zakat on it every lunar year that passes, even if the sale is not yet made. Please confirm for me if my understanding is correct.

If so, I want to know if the same principle applies to stocks as well. Although an investment, does one’s knowledge of when they wish to sell it have any bearing on the payment of Zakat on it at all? That is, is it relevant whether one intends to keep the stock for the long-run without knowledge of when they want to sell it, or if they know they want to sell it at a specified date in the near-future, say in three months?

Answer: Assalamu alaikum wa rahmatullah,

I pray this finds you in the best of health and states.

Your understanding is correct: if an asset is purchased with a clear and firm intention for resale, zakat is due on it every year before its resale; if purchased for other than resale or without a clear intention for resale, then no zakat is due, until/unless it is sold, at which point zakat would be due on the income generated from the sale (assuming one owns nisab). [Ibn Abidin/Haskafi, Radd al-Muhtar ala Durr al-Mukhtar]

With respect to stocks, if one purchased it for resale, it is deemed trade merchandise and hence zakat is due on it every year based on its market value that year.

If purchased not for resale but rather to receive annual dividends, then the stock itself is not deemed an article of merchandise. Rather, one is deemed a co-owner of the company, based on one’s respective share. In that case, one pays zakat on all goods and monetary assets of the company, yet may deduct those assets that are not zakatable, i.e., company assets for use and not for sale, such as land, machinery, cars and the like.

Please also see this related answer:

Rulings Related to Zakat on Shares

And Allah knows best.
wassalam
Faraz

Checked & Approved by Faraz Rabbani