Template Header

Investing & Zakah:

There are different rates of zakah that apply to different types of assets. According to Imam Malik, zakah is due on three types of assets only: "the produce of plowed land, gold and silver, and livestock." Contemporary Islamic jurists have extrapolated zakah rates for nearly all types of assets.

Zakah on Stock Investments

Muslim scholars believe stocks and investments are most appropriately categorized as "the produce of plowed land," as both are "productive capital" assets which yield gains. Accordingly, zakah is due on the gains of such "productive capital," not the "productive capital" itself. As for the rate of zakah applicable to stock investments, the following hadith offers guidance: The Prophet (Salla Allahu Alayhi wa Sallam) said: "On a land irrigated by rain water or by natural water channels or if the land is wet due to a nearby water channel, ushr (i.e. one-tenth, 10%) is compulsory (as zakah); and on the land irrigated by the well, half of ushr (i.e. one twentieth, 5%) is compulsory (as zakah on the yield of the land)."

The hadith makes reference to a zakah rate of half of ushr (5%). However, according to scholars, this rate is not appropriate for investments like stocks as it is possible to clearly calculate net gains. Thus, the full (10%) rate is appropriate.

Zakah on Long-term Investments

Muslims are encouraged by their faith to invest for the long-term. Though investors may see gains in their portfolio value, the gain may not be realized for years. Islamic jurists have agreed that in order to distribute zakah sooner rather than later it is allowable to consider the difference in the market value of your portfolio from the beginning to the end of each Gregorian calendar year and pay 10.3% (or 10% calculated according to the lunar calendar) of the gain, if any, as zakah. This method of estimating your zakah is based on two assumptions:

  • You have/will reach nisab within the calendar year
  • You have held your investments or your resources for investment (cash, for instance) for at least one lunar year before your zakah is calculated for the calendar year
Zakah on Retirement and Brokerage

For the purpose of zakah, retirement accounts are considered part of net worth, as the contributor has eventual access to the funds. Thus for retirement accounts (401(k), Keogh, IRA, SEP-IRA, Roth IRA), the investor is subject to zakah on 10.3% of the increase in a Gregorian calendar year. Public trusts and charitable organizations are not subject to zakah. The same method as that illustrated above with Amana shares can be applied to zakah calculation for entire portfolios. Brokerage accounts with Saturna Brokerage Services are automatically incorporated as part of the zakah estimation performed by Saturna Capital.

Continue to Estimating Zakah This arrow indicates a link to follow for further information about Zakah.