Zakat on Business: Inventory, Stocks, and Receivables for the Muslim Entrepreneur
A shop owner in Dhaka, a SaaS founder in London, a farmer in Nairobi — all pay Zakat under the same rule. Here is the modern step-by-step.
The business-Zakat formula
For any commercial venture the Zakat base is: (a) Cash and bank balances of the business + (b) Inventory held for sale, valued at CURRENT MARKET price on your hawl date + (c) Receivables you reasonably expect to collect within a year − (d) Business debts due within 12 months. Multiply by 2.5%. Fixed assets (buildings, machinery, delivery vans, computers, furniture) used for operations rather than sale are NOT zakatable — they are the tools of your trade, exempt by consensus.
Trading stock: market value, not cost
Value your inventory at what you could realistically sell it for on your hawl date — not the price you paid. If you have unsold stock that has depreciated (fashion out of season, tech obsolete), use fair market value. If it has appreciated (rare goods, watches), use current market value. This is the AAOIFI standard adopted by most fatwa councils.
Stocks and shares in listed companies
Two approaches. (a) FULL market value approach — treat shares like trading goods; 2.5% of market value on hawl date. (b) LOOK-THROUGH approach — apply Zakat only to your PROPORTIONATE share of the underlying company's zakatable assets (cash + inventory + receivables) net of debts. The look-through is more precise but requires financial statement analysis; most retail investors use the full-market-value approach.
Receivables — what to count
Money owed to you from customers or clients that you reasonably EXPECT to collect within a year is zakatable NOW. Doubtful debts (customer went bankrupt, invoice > 2 years old, litigation) are NOT zakatable until actually collected. Once collected, you pay Zakat retroactively for the year of collection — not all missed years.
Business debts — what to subtract
Short-term business debts due within 12 months (supplier invoices, loan repayments due, tax bills, payroll) are deductible from the Zakat base. Long-term debts (equipment lease, factory mortgage, multi-year bond) are NOT deducted — otherwise almost no business would ever owe Zakat.
Partnerships and LLCs
Each partner assesses their share of the business separately. If you own 40% of an LLC, apply the formula to 40% of the qualifying assets. Silent investors also pay Zakat on their proportionate share of the company's zakatable assets.
Using our business calculator
Our business Zakat calculator has a person-type wizard that switches on the right fields for sole traders, LLCs, partnerships, farmers, and freelancers. Enter inventory + cash + receivables + debts, and it emits the correct 2.5% liability with a downloadable breakdown for your accountant.
FAQ
Do I pay Zakat on my delivery van and shop fittings?
No. Fixed operational assets are exempt by consensus. Only pay Zakat on trading stock, cash, receivables, and financial investments.
What about a Muslim-owned SaaS with no inventory?
The Zakat base is cash + receivables (annual contract values expected within a year) − short-term liabilities. Multiply by 2.5%.
Is my Muslim employer paying my Zakat for me?
No — Zakat is an individual obligation. Some countries let employers deduct Zakat as a service to employees, but the obligation remains individual.
Do I pay Zakat on the shares in an Islamic mutual fund?
Yes. If the fund publishes an "attributable Zakat per share" figure, use that. Otherwise apply 2.5% of your fund's market value on your hawl date.
What if my business made a loss?
Zakat is still due on the qualifying asset base (cash + stock + receivables − short-term debts). Losses reduce equity but do not automatically eliminate Zakat unless the asset base itself falls below nisab.