Zakat on a business is due on the wealth the business holds for trade, not on the fixed assets used to run it. The idea is straightforward: take your business's zakatable current assets, subtract short-term liabilities, and if the result is above the Nisab for a full lunar year, pay 2.5%. Scholars differ on some details, so this guide marks where opinions diverge. It is general guidance, not a fatwa.

The Basic Rule

Zakat applies to business wealth that has stayed at or above the Nisab for one lunar year (the hawl). The rate is 2.5%, or one-fortieth, of the net zakatable value. For the Nisab, many scholars use the silver-based threshold (about 595 grams of silver, or 612.36 grams in some Hanafi calculations), because it benefits recipients more. Follow the scholar you trust and be consistent. For the full explanation of the Nisab and the Zakat date, see our step-by-step Zakat guide.

What Counts as Zakatable

  • Cash in hand and in the business bank accounts, including digital payment balances.
  • Trade inventory: goods you hold for sale, valued at their current market value on your Zakat date.
  • Raw materials and work in progress, valued at their current market value.
  • Receivables you expect to collect: money customers owe you that is likely to be paid. Debts you doubt will ever be repaid are generally not counted until you receive them.
  • Investments the business holds for trading, such as shares bought to resell, at market value.

What Does Not Count

  • Fixed assets used to run the business: the shop or office, machinery, vehicles used for the business, shelving, computers and furniture. These are tools, not trade goods.
  • Property and equipment that you rent out. Scholars generally apply Zakat to the net income you keep from renting, not to the asset itself.
  • Goods that are not for sale, such as supplies you use up internally.

An item can be in either category depending on its purpose: a car used by the business is exempt, but a car dealer's cars are inventory.

Deduct Short-Term Liabilities

Subtract debts that are due and payable soon, such as amounts owed to suppliers, wages due, rent due and taxes due. For long-term loans, most contemporary scholars deduct only the instalments due within the next 12 months, not the entire balance. The result is your net zakatable wealth.

A Worked Example for a Small Shop

On the Zakat date, a shop owner has:

  • Cash in hand and till: 8,000.
  • Business bank account: 15,000.
  • Inventory at current market value: 22,000.
  • Customer debts expected to be collected: 5,000.
  • Liabilities due: 9,000 to suppliers and 3,000 in wages, a total of 12,000.

Zakatable assets are 8,000 + 15,000 + 22,000 + 5,000 = 50,000. Subtract 12,000 in liabilities, and the net is 38,000. Assuming this is above the Nisab, Zakat is 38,000 × 2.5% = 950. The shop's fixtures, shelves and delivery van are not included.

Valuing Inventory

Value stock at the price at which you could currently sell it. Many scholars use the prevailing market price on the Zakat date, whereas others accept cost price for goods that have not changed in value. Where retail and wholesale prices differ, a common approach is to use the price you would actually realise. Damaged or unsellable stock can be excluded or written down. Whatever method you choose, apply it consistently from year to year.

Freelancers and Service Businesses

If you sell services and hold no inventory, your zakatable wealth is mainly the money you hold: cash, bank balances and amounts clients owe you that you expect to receive. Subtract expenses and taxes that are due. Money you have set aside for personal savings is counted in the same way as other savings; see our guide to Zakat on savings and cash.

Partnerships and Companies

In a partnership, each partner is generally responsible for Zakat on their own share. For a company, there are two common approaches: the company pays Zakat on its zakatable assets on behalf of its shareholders, or the shareholders pay individually based on their holdings. Some companies and Islamic institutions follow the AAOIFI standard on Zakat, which provides a detailed method. If the business is large or complex, speak to a scholar or a qualified Islamic accountant.

Common Mistakes

  • Including fixed assets that are not for sale.
  • Using cost price for inventory that has risen sharply in value, without checking the opinion you follow.
  • Forgetting receivables or cash held in digital wallets.
  • Ignoring liabilities that are due, which overstates the Zakat.
  • Mixing personal and business wealth, which makes it hard to calculate correctly.

Your year-end routine

On your Zakat date, list cash, inventory at market value and collectable receivables, subtract liabilities that are due, and take 2.5%. Keep the stock count and the valuation method on file so next year is quicker. Questions about your business structure belong with a qualified scholar.