calculating zakat

It is common for companies to lose track of calculating Zakat as they grow and expand. Zakat is an Islamic form of charity and is one of the five main pillars of Islam. It applies to all types of wealth, from farming and crafting to major stocks, which means Saudi companies must abide by it and make it part of their financial equation every year. 

Zakat for Businesses

Businesses are a form of what Islam identifies as trade; they offer products and receive money in return. As a result, Zakat is imposed on these businesses, and its calculation is important to consider by their finance departments. Your company’s Zakat value is calculated by adding the overall value of whatever products you have in stock since the last time you paid Zakat to the current assets, which are the overall existing amount of money on the day of Zakat payment, plus your accrued income, which is money your company is owed. 2.5% of that sum is your company’s Zakat. 

Zakat for Rented and Intangible Products 

For businesses that do not sell their products, like companies that develop buildings for rent and not for sale, Zakat is the current assets, plus the accrued income, divided by 40. The outcome is the actual value of Zakat. There are corporations where the product they ‘sell’ is not tangible; some companies might sell services. For those, the amount of existing money, plus the amount of money they are owed is added up and divided by 40, that outcome is their actual Zakat value. Zakat does not need to be paid for the value of furniture and other possessions within the company. 

Zakat for Stocks

Because stocks have market value, owning them imposes Zakat on the owner. In some cases, the corporation in which those stocks are invested might calculate its overall Zakat on behalf of all its investors, and as a result, those investors are exempt from Zakat, as it was paid. If investors are paying Zakat individually, stocks are priced on the day Zakat is due, and 2.5% of that value is paid as Zakat. It is common for businessmen to sum up all their income value and pay 2.5% of that. Bank bonds are in this case excluded since interest is involved, money from which cannot be accepted as Zakat. 

Nissab and Hawl 

The terms ‘Nissab’ and ‘Hawl’ always accompany Zakat. As businesses develop into digital entities, Arabic terms written in English come up in everyday business among GCC corporations. ‘Nissab’ means the value when and if passed, Zakat must be paid. It is the value of 85g of gold for individuals, however it does not affect the value of Zakat mentioned above for companies. ‘Hawl’ is the time of the year Zakat is paid; that is once every Hijri calendar year. Your wealth is required to have been an excess for an entire Hijri calendar year, and it is advised to consult with experts, especially for special cases.