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Zakat on company shares can be paid either by the shareholder directly or by the company management, depending on specific conditions.
The following explains Zakat's calculation and payment based on investment purposes and company actions.
1. Zakat Payment by Shareholders or Company Management
Shareholders can pay Zakat directly on their company shares. Alternatively, the company’s management can handle this payment on behalf of shareholders, provided one of the following conditions applies:
2. Zakat Calculation by Company Management
When the company management pays Zakat, it should do so in the same manner as an individual pays Zakat on their wealth. The company must treat the total capital of all shareholders as the wealth of a single person.
Zakat is then calculated based on the assets held by the shareholders, including their types, values, and other relevant factors. Additionally, shares owned by non-Zakat-liable entities (such as public treasuries or non-Muslim shareholders) should be excluded from the calculation.
3. Zakat Payment by Shareholders if the Company Does Not Pay
If the company fails to pay Zakat, each shareholder must pay Zakat on the shares they own. Shareholders who can determine the amount the company would have paid on their behalf should pay that same amount.
If the shareholder cannot calculate this amount, the following guidelines apply:
Suppose the shareholder invested in the company to receive dividends and not for trading purposes. In that case, they must pay Zakat only on the dividends received, not on the market value of the shares. Zakat is calculated at 2.5% after one year from receiving the dividends.
If the shareholder invested for trading, Zakat is calculated based on the market value of the shares after one year. In the absence of a stock market, qualified experts can appraise the value. Zakat should be paid at 2.5% of the market value, plus any dividends received.
4. Zakat on Shares Sold During the Year
Shareholders must add sale proceeds to their wealth and pay Zakat on total assets. The buyer of the shares will pay Zakat on their shares according to the same guidelines.
And Allah knows best!
WRITTEN BY
Atta-ur-Rehman
Atta-ur-Rehman, a specialist in Fiqh from Fazal-Jamiat-ul-Uloom-ul-Shariah, Jama'at ul-Umar Karachi, is an expert in Islamic jurisprudence. His expertise spans various aspects of Shariah, including Zakat, financial rulings, family laws, and ethical guidance in everyday life. With a deep understanding of Islamic principles, he provides a reliable insights into matters of faith, worship, and personal obligations.