Zakaath, - Dought&clear, - * He is asking about paying zakaah on the profits of a company only

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I am the owner of a small company that designs and manufactures decorative glass. My question has to do with paying zakaah. I pay zakaah on the net profits after deducting taxes, which reach a rate of 30%. Is paying it in this manner correct?
I got confused about my situation after I heard from some of the brothers that this is not correct. Please note that the way my company works is that we make a contract with a customer to design and manufacture some domes or windows made of coloured glass, then we import the raw materials such as glass, lead, tin solder etc from abroad. We bring it to our warehouse where we use it for manufacturing, and some of it remains and is counted among our stock at the end of the financial year, when we do our stocktaking and the finance department publishes the budget showing the profits for that year, on which the payment of zakaah is based.
My question is:
Should zakaah be paid on the net profits, or on the capital?
Or should it be paid on the assets of the owner that are listed in the budget issued by the finance department?
Are the taxes – which are taken from the profits and paid to the department of zakaah and income – regarded as a kind of zakaah?
I hope that you can tell me the right way of paying zakaah, because I am confused about my situation. I pray that Allaah will guide me to the right way so that I can correct any mistake that I may have made in the past or so that I can put my mind at rest if what I have done is correct.
Praise be to Allaah.
We ask Allaah to reward you with good for your keenness to ask about the rulings of your religion. What every Muslim should do is to ask about the rulings of his religion without any delay or hesitation.
The answer to your question is:
Firstly:
This company of yours is a manufacturing and commercial company, and manufacturing and commercial companies must pay zakaah on trade goods, but there is no zakaah on the tools, materials, vehicles, buildings and furnishings that are intended to be used and not to be sold for profit.
See question no. [ 74987] and [ 69916]
Based on this, the way in which your zakaah is to be worked out at the end of the year is:
You should calculate what the company has in its stores of materials that were bought with the aim of selling them. That includes the “glass, lead, solder etc”. Its value should be calculated at the end of the year, regardless of the price for which it was bought.
To that should be added the cash that is kept in the company or in the bank.
To that should be added the debts that people owe you and which you expect will be repaid. Then you should pay zakaah on the total at a rate of 2.5%.
Secondly:
With regard to the company’s profits throughout the year, these profits may be divided into two types:
1 – Profits that result from the sale of glass to customers
These profits are subject to zakaah, and a new year should not be started for them, rather the year for them starts when the capital with which they are bought was acquired, if it reaches the nisaab.
Al-Mughni, 4/75
2 – Profits that result from the assembly process itself (i.e., they may be regarded as payment for assembly and manufacturing). Zakaah is due on these profits if they meet the nisaab and one year has passed since they were acquired.
It may be difficult in practical terms to differentiate between these two types of profit, hence it is better to pay zakaah on the entire profit at the end of the year as based on the capital. Whatever is profit on trade goods, you will have paid its zakaah at the proper time (i.e., after a year has passed) and whatever is payment for the work, you will have paid its zakaah in advance, and paying zakaah ahead of time is permissible.
Thirdly:
There is no zakaah on profits that are spent during the year and which do not remain at the end of the year.
Fourthly:
The year of trade goods for a company does not start from the date the company was first established or from when the raw materials were purchased, rather it starts from when the money with which the raw materials were purchased was acquired.
For example: if you first acquired the nisaab in Muharram, and the company was founded in Rajab, and you bought the raw material and started work in Ramadaan, the year for the trade goods starts in Muharram, not in Ramadaan.
Shaykh Ibn ‘Uthyameen (may Allaah have mercy on him) said: Note that the year for trade goods does not end one year after they were bought, rather it is one year after the original wealth was acquired. Because it is it is another form of money which is part of your capital, where you have changed it into trade goods, so the year starts with the acquisition of the original wealth. End quote.
Majmoo’ Fataawa Ibn ‘Uthaymeen, 18/234
See also the answer to question no. 32715
Fifthly:
With regard to calculating zakaah after deducting taxes:
If the taxes are deducted and paid before the end of the year (i.e., the year for zakaah purposes), then what you are doing is correct, because the money that has been paid has not been with you for a year.
But if they are paid after the year is over, then it is more on the safe side to pay zakaah on it; the fact that this money is taken wrongfully from you does not mean that zakaah is waived.
Sixthly:
As for regarding taxes as part of zakaah, that is not permissible, because zakaah is to be spent in specific ways as defined by Allaah, may He be exalted, in the verse (interpretation of the meaning):
“As-Sadaqaat (here it means Zakaah) are only for the Fuqaraa’ (poor), and Al‑Masaakeen (the poor) and those employed to collect (the funds); and to attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for Allaah’s Cause (i.e. for Mujaahidoon — those fighting in a holy battle), and for the wayfarer (a traveller who is cut off from everything); a duty imposed by Allaah. And Allaah is All-Knower, All-Wise”
[al-Tawbah 9:60]
Taxes are not spent in these ways. Moreover, governments do not take taxes on the basis that they are zakaah.
The scholars of the Standing Committee said:
The fact that taxes are on a property does not mean that zakaah should not be paid, and that does not waive the duty to pay it on the income earned through that building, if it reaches the nisaab and one year has passed. End quote.
Fataawa al-Lajnah al-Daa’imah, 9/339
See also question no. 2447
The scholars of the Standing Committee were also asked:
What do you say about the manner of paying zakaah? I own a shop that sells lumber and one year has passed for the products that are in the store. There are debts connected to the products in the store, as the purchasers have paid some of the price and the rest is to be paid at a later date. There are also annual expenses such as the rent for the store, annual fees, taxes, insurance, and employee salaries.
They replied:
Zakaah must be paid on the products that are offered for sale, such as the lumber etc, if its value reaches the nisaab by itself or when added to whatever cash or other trade goods you have, and one year has passed. As for the debts, rent, fees, etc, these do not mean that it is not obligatory to pay zakaah. End quote.
Fataawa al-Lajnah al-Daa’imah, 9/348
Seventhly:
With regard to zakaah for past years, you have to work out the zakaah for every year and pay whatever you still owe, because ignorance of how zakaah is to be paid does not mean that the obligation is waived. This is a debt that you owe and must pay.
And Allaah knows best.

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Zakaath, - Dought&clear, - * Is zakaah due on business premises?

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In 1996 I bought a shop for my brother to work in, but the shop has remained closed until now; my brother has not worked in it and I have not benefited from it. It did not enter my mind that zakaah may be due on it until recently. The price of the shop when I bought it was 400,000, then the price dropped to 300,000 in the year 2000. Now the price is between 700,000 and 800,000. In the coming year, in sha Allaah, I will try to open the shop so that someone can work in it and benefit from it.
I hope that you can advise us as to whether zakaah is due on it or not. What can I do if I do not have enough money to pay zakaah?.
Praise be to Allaah.
The Muslim does not have to pay zakaah on his car, house or shop, even if the value of these things is great. Rather zakaah is due on things that are bought and sold for the purpose of trade and profit, which are called “trade goods”. If a person has any property or real estate – land, houses or shops – which he has acquired for the purpose of trade, buying and selling, then he should work out their value at the time when zakaah becomes due and pay one-quarter of one-tenth. But if a person has acquired that property to live in, or to farm it, or to rent it out or to buy and sell in it, then no zakaah is due on it.
The scholars of the Standing Committee said:
Wealth that people own is of various types. With regard to money, zakaah is due on it if it reaches the minimum threshold (nisaab) and one hijri year has passed. In the case of agricultural land, zakaah is due on the grains and crops on the day of the harvest, not on the land itself. In the case of land or buildings that are rented out, zakaah is due on the rent when one year has passed, not on the land or building itself. If the land, building or other goods are for trade, then zakaah is due on them when one year has passed, and you should pay zakaah on the profit when one year has passed for the capital, if the capital has reached the nisaab. End quote.
Fataawa al-Lajnah al-Daa’imah, 9/331
Based on this, you do not have to pay zakaah on this shop.
And Allaah knows best.








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Zakaath, - Dought&clear, - * He deals in an’aam animals and in some cases onefull hijri year has not yet passed. How should he pay zakaah on them?

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I have a rare type of goat, namely the Syrian goat, and it is an expensive kind, the price of some of which may reach 50,000 riyals. I keep them and sell their offsrping and I buy and sell them, and in some cases I do not keep them for a full hijri year. Raising them costs money for feed and veterinary care, and they are kept in a shed and do not go out and eat vegetation. I hope you can advise me whether zakaah is due on them and how it should be calculated; are they regarded as an’aam animals or trade goods?.
Praise be to Allaah.
Firstly:
The majority of scholars are of the view that no zakaah is due on an’aam animals (i.e., camels, cattle, sheep and goats) unless they graze freely on grass in the pasture and one full hijri year has passed for all of them or most of them. But if they are fed and their owner spends money on their feed, no zakaah is due on them, unless their owner intends to trade in them – as is mentioned in your question – in which case they are subject to the zakaah on trade goods.
So these goats that you have are not subject to the zakaah on an’aam animals, rather they are subject to the zakaah on trade goods.
See more details in the answer to question no. 40156.
Secondly:
It should be noted that some people make a mistake with regard to the beginning of the year for zakaah. They think that it is the moment when they buy the trade goods, but that is not correct. Rather the year for trade goods is when the year from when one acquired the money with which one buys them has passed, if that money reaches the nisaab (threshold).
What this means is that if a person buys trade goods – such as goats that are fed etc – with gold or silver or cash that reaches the nisaab, then the year starts from the time when he took possession of that gold or silver or cash. Similarly, if he buys goats in return for a car that he trades, the year for the goats is the year from when he acquired the car.
The reason for that is that in trade you buy and sell, and exchange money or goods, and if the year is not based on the wealth which came before, there would be no zakaah on trade goods.
Shaykh Ibn ‘Uthaymeen (may Allaah have mercy on him) said, explaining this issue: If a person buys trade goods with money that reaches the nisaab, such as a man who has two hundred dirhams, and during the year he buys trade goods with it, the year does not start when he buys the good, rather it is based on the first, because the year for trade goods is to be based on the first.
Another example is if a man has one thousand riyals of which he takes possession in Ramadaan, then in Sha’baan of the following year he buys some trade goods. When Ramadaan comes, he must pay zakaah on those trade goods, because the year for trade goods is based on the year for the money with which they are bought.
The same applies if he trades goods that reach the nisaab for other goods. For example, a man has a car, and during the year he trades it for another car for the purpose of trade. The year should be based on the first car, because what is sought is its value, not the difference in the two products, and he did not buy the second car to use it, rather he wanted it so that he could trade it. End quote fromal-Sharh al-Mumti’.
Based on this, if you took possession of ten thousand, for example, in Ramadaan, then you bought goats with it in Dhu’l-Hijjah, and you started to sell them or their offspring, and buy others, the year for zakaah is in Ramadaan. You have to work out the value of the goats that you have each year, then add to that the cash that you have, and pay zakaah on the total at a rate of one-quarter of one-tenth. The year for zakaah will continue to be in Ramadaan unless the amount falls below the nisaab during the year, such as if a person sells what he has in Safar, for example, and he puts the money into buying land or a house to live in, then Allaah blesses him with wealth during Rajab, so he buys more goats to trade. Then the year for trading will start in Rajab.
And Allaah knows best.

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Zakaath, - Dought&clear, - * Is it obligatory to pay the zakaahfor trade goods on shop fittings and lost goods?

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I have a shop in which there is equipment worth 80,000 riyals, and there are people who owe the shop debts totalling 80,000 riyals. There was a fire in the shop 6 months ago and new merchandise has been and renovations have been done, which together add up to 40,000, of which 35,000 has been borrowed in the name of the shop, to be paid back in instalments.
My first question is: should we pay zakaah on the total amount of equipment that was in the store before the fire? Total cost + debts – new stock and renovation.
My second question is: A full year has not yet passed since the renovations; should we pay zakaah on it or only on the whole shop and the debts that we are owed?.
Praise be to Allaah.
The goods that are found in a shop fall into two categories:
1 – Those that are prepared for sale, whether they are real estate, food, clothes, or other kinds of goods that are sold.
2 – Those that are not prepared for sale, rather they are for producing goods or are to be used, such as manufacturing equipment, cars, furniture, cameras and computers, etc.
The first category are those that are called “trade goods” and these are the ones on which zakaah must be paid. As for the second category, they are known as fixed assets, and no zakaah is due on them.
In the answer to question no. 42072we stated that it is obligatory to pay zakaah on trade goods, and we explained the nisaab (minimum threshold), and the fact that fixtures that are not prepared for sale are not subject to zakaah.
In the answer to question no. 22449we explained that it is permissible to pay zakaah on trade goods in kind, and that it does not have to be paid in cash.
For information on how to calculate zakaah on trade goods, please see the answer to question no. 26236, in which it explains that zakaah is to be paid on the sale price, not the purchase price.
Conclusion:
If the time for paying zakaah on your shop has come, then you should take stock of what you have in the shop, such as the goods that you have there, and add them to whatever you have of cash, and add that total to the debts that you hope will be paid back, then pay zakaah on the total at a rate of one-quarter of one-tenth.
As for the debts which you have no hope that they will be paid back because they are owed by people who delay payment or who are poor, then no zakaah is due on them until you take possession of them and start to reckon a new year from the day you receive them. In order to be on the safe side, when you receive them pay zakaah for one year only, even if several years have passed. See question no. 1346.
The debts that you owe are not to be deducted from the wealth on which you have to pay zakaah, according to the more correct scholarly view. See question no. 22426.
The goods that were lost in the fire are not to be added to the total of goods in the store.
As for the things that you put in the store after the fire, if they have to do with furnishings, décor and fixtures, then as we have stated above, no zakaah is due on them, so they should not be included among the goods in the store that are subject to zakaah. If they are goods that are for sale, then if you bought them with the shop’s funds and profits, then zakaah should be paid on them when you pay zakaah for the shop’s good even if one year has not yet passed. If you bought them with other money that does not belong to the store, then you should count one year from the time when you acquired the wealth with which you bought them.
We ask Allaah to compensate you with good and to bless you with a goodly provision.
And Allaah knows best.

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