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Zakat on Business

Requirements for Obligatory Zakat on Business

  • Muslim: Only the Muslim’s share of the business is subjected to Zakat.
  • Compulsory for Halal assets only: Non-Halal assets and activities are not subjected to Zakat.
  • Haul - Periodic term: Haul is based on asset value calculated from the initial inception or start of business until the completion of one whole year, according to Hijrah (355 days) or Gregorian (365 days) calendar.
  • Nisab valuation: Nisab valuation (basic minimum value) is calculated based on the current value of 86 gram of gold.
  • Full ownership (al-Milk at-tam): Assets that are fully owned physically (hiyazah) or full management control of the assets (tasaruff).
  • Compulsory for productive assets (an-Nama’): The assets must have growth potentials.
  • Intention to do business (urud at-tijarah): The intention or purpose for business must be made when an asset becomes part of the business that is conducted in order to gain profit.

How to Calculate Zakat on Business

Computation Methods


The computation of Zakat on Business is based on the *Working Capital Model (Syari’yyah) that considers current assets and deducts current liabilities and makes the necessary adjustments at year end. The Accounting and Auditing Organisation for Islamic Financial Instituitions (AAOIFI) FAS 9 sets out accounting rules related to Zakat on Business.

Formula


Zakat on Business = (Current Assets – Current Liabilities +/- Adjustments) x 2.5% x
% of Muslim Ownership Share
 

Example for Small Business

Today's date: 14/04/13
Today's Nisab:   $5,677 

1. Current Assets $
Cash in hand 3,000
Bank balance 5,800
Closing stocks 4,500
Trade debtors 1,500
Total Current Assets (A)  14,800 
2. Less Current Liabilities $
Trade creditors 500
Accrued operating expenses 2,000
Total Current Liabilities (B)  2,500 
Net Current Assets (A-B)  12,300 
3. +/- Adjustments  $ 
Add Current Assets 
+ Donations in last quarter 500
+ Personal drawings 30,000
Less Current Assets 
- Obsolete stocks 1,000
Total Assets due for Zakat  41,800 
4. x Zakat Rate 2.5%  1,045 
5. x % of Muslim Ownership (E.g.:100%)  1,045 

Total Zakat on Business


 
1,045