Business zakat

Zakat on business assets and self employment

Business zakat is a balance sheet exercise. Once you know which lines to include, it takes minutes.

In short

Business zakat is due on trading stock, business cash and money owed to you by customers, less debts payable. Equipment, premises and vehicles used to run the business are exempt. Pay 2.5 per cent of the net figure on your zakat date.

Include: stock, business cash, receivables you expect to collect
Exclude: tools, machinery, premises, delivery vehicles
Deduct: supplier invoices, wages and tax due now
Shareholders pay on their share of zakatable assets

Trading stock

Everything held for resale is zakatable at the price you would sell it for on your zakat date, not the cost price. Raw materials and work in progress are included; packaging and consumables that are not sold on are not.

Fixed assets are exempt

Assets used to produce income rather than be sold are outside zakat. That covers your premises, ovens, laptops, tools, machinery and company vehicles, however valuable they are.

Receivables and bad debt

Money owed to you by reliable customers is zakatable now. Debt you realistically do not expect to recover can be left out until it is actually paid, at which point zakat becomes due on it.

Company shares

If you hold shares to trade, pay on the market value. If you hold them long term for dividends, pay on your proportionate share of the company's zakatable assets, or use a simplified estimate where the accounts are not available.

Frequently asked questions

Does a limited company pay zakat, or do I?

Zakat is an obligation on people, not entities. Owners pay on their share of the company's zakatable assets.

Do I include VAT I have collected?

No. VAT you hold on behalf of the tax authority is a liability, so deduct it.

What if the business made a loss?

Zakat is on assets held, not profit made. If you still hold zakatable stock and cash above nisab, zakat remains due.