The key distinction in Islamic jurisprudence is between assets intended for trade (zakatable) and assets used in the business (generally not zakatable). A factory machine is not zakatable. The goods it produces and the cash from selling them are.
| Asset Type | Zakatable? | Notes |
|---|---|---|
| Business inventory / stock | ✅ Yes | At current market value on Zakat date |
| Cash in business accounts | ✅ Yes | All liquid cash counts |
| Trade receivables (money owed to you) | ✅ Yes (majority view) | Include money customers genuinely owe you and are likely to pay |
| Investments held for growth | ✅ Yes | Stocks, bonds (halal portion), mutual funds |
| Machinery, equipment, vehicles | ❌ No | Fixed assets used in production are excluded |
| Commercial property used for business | ❌ No | The building itself is not zakatable; rental income received is |
| Goodwill, brand value, IP | ❌ No | Intangible assets are not counted |
| Employee salaries owed but not paid | ❌ Deductible | Deduct wages payable from zakatable assets |
Deductions: What Can You Subtract?
From your total zakatable assets, you may deduct liabilities that are immediately due:
- Wages owed to employees
- Trade creditors — money you owe suppliers and must pay now
- Taxes due in the current period
- Bank overdrafts or short-term business loans payable now
You generally cannot deduct long-term debt or future installments — only what is actually payable today.
The Basic Formula
If this exceeds the Nisab and has been held for a full lunar year, Zakat = 2.5% of the net amount.
Practical Example
Imagine a small retail business in its Zakat year:
- Inventory (stock on shelves and in warehouse): £40,000
- Cash in business bank accounts: £12,000
- Outstanding invoices likely to be paid: £8,000
- Trade creditors due this month: −£6,000
- Staff salaries due: −£4,000
Net zakatable: £40,000 + £12,000 + £8,000 − £6,000 − £4,000 = £50,000
Zakat due: 2.5% × £50,000 = £1,250
Does the Business Pay Zakat, or the Owner?
This is a genuinely live question in contemporary Islamic jurisprudence. The traditional view — and still the majority position — is that Zakat is a personal obligation on individual Muslim shareholders or business owners. Each owner calculates their proportionate share of zakatable business assets and adds it to their personal Zakat calculation.
Some contemporary scholars, particularly those working on corporate Zakat in Muslim-majority countries, have argued that a business can pay Zakat on behalf of its Muslim shareholders as an institution. This is acceptable where it happens, but it is not the individual Muslim's obligation discharged unless they have specifically designated or authorised it.
What About Rental Property?
The property itself (the building, the land) is generally not zakatable. However, rental income received and held in cash form is zakatable as part of your liquid savings. If you receive rent and it has been sitting in your account for the past year above the Nisab, Zakat is due on it.