RESOLUTION NO. 28(3/4) CONCERNING PAYMENT OF ZAKAT ON COMPANY SHARES

Quote - The Council of the Islamic Fiqh Academy holding its Fourth Session, in Jeddah (Kingdom of Saudi Arabia) from 18 to 23 Jumada Thani 1408 H (February, 6 to 11, 1988),

Having considered the research papers submitted to the Academy concerning “Payment of Zakat on company shares”;

RESOLVES

First: Shareholders may pay Zakat on their shares. The company’s management may pay Zakat on their behalf:

§ If its statues so stipulate,

        §       By virtue of a General Assembly ruling,
        §       If the law o the land requires that companies must pay Zakat on behalf of its   shareholders,
        §       Or if a shareholder himself empowers the Management of the Company to   pay Zakat on his behalf.

Second: The management of the company shall pay Zakat on shares in the same manner as person pays Zakat on his wealth. In other words, it shall pay Zakat on the assumption that the capital of all shareholders is the property of a single person, and calculate Zakat accordingly, taking into account the type and value of assets subject to Zakat, its percentage and any other consideration relevant the Zakat of a physical person; according to the principle of mixed assets generally accepted by some Fiqh scholars (Fuqahas) concerning all assets. In calculating Zakat, the company shall take due account of shares not liable to Zakat, such as shares owned by the Public Treasury, charitable institutions, philanthropic societies and non Muslim shareholders and make the necessary deductions.

Third: If, for any reason, the company did not pay Zakat on its assets, each shareholder liable to Zakat must do so on shares he owns. If the shareholder can calculate the amount the company would have paid on his behalf had it done so, he should then pay the same, since that is the basis for calculating Zakat on shares.

If the shareholder has no mean of knowing these elements of information for calculating the amount due, then:

If he had invested in the company to benefit from the annual dividends of his shares, and not for trading purposes, then the owner of such shares will not pay Zakat on the market value of shares, but only on the basis of the dividends, at the rate of ¼ of 1/10 (2.5%) after the elapse of one year from the date of the actual reception of the dividends, provided that all other conditions are met and no impediment exists. This ruling is in conformity with resolution 2 (2/2) adopted by the Council of the Academy at its 2^nd session, with respect to Zakat on the rented real estates and non agricultural leased lands.

If, on the other hand, the shareholder has invested in shares for trading purposes, then his shares are subject to Zakat as commercial goods. After the elapse of one year period, and if they are still in his possession, he shall pay Zakat on their market value; if there is no stock market, he will pay Zakat on their value as appraised by qualified experts. He will pay ¼ of 1/10(2.5%) of their market value plus their dividends, if they yield any dividend.

Fourth:If during the year, the shareholder sells his shares he will add their price to his wealth and should pay Zakat on the total of his assets at the end of the year. As far as the buyer is concerned, he shall pay Zakat as indicated above. - Unquote

(From the Book "Resolution and Recommendations of the Council of the Islamic Fiqh Academy (1985-2000)”: Resolution No. 28(3/4))

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