Is purchasing shares permissible? Zakaat on shares.

Question:

Is purchasing shares in a foreign company permissible? Also would one have to pay Zakaat on the shares?

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.


Dealing in shares, purchasing and selling, can be permissible in Shari’ah subject to the following conditions:

1. The main business of the company is not in violation of Shari’ah.
Therefore, it is not permissible to acquire the shares of the companies
providing financial services on interest, like conventional banks, insurance
companies, or the companies involved in some other business not approved by the Shari’ah, such as the companies manufacturing, selling or offering
liquors, pork, haram meat, or involved in gambling, night club activities,
pornography etc.

2. If the main business of the companies is halal, like automobiles,
textile, etc. but they deposit there surplus amounts in an interest-bearing
account or borrow money on interest, the share holder must express his
disapproval against such dealings, preferably by raising his voice against
such activities in the annual general meeting of the company.

3. If some income from interest-bearing accounts is included in the income
of the company, the proportion of such income in the dividend paid to the
share-holder must be given charity, and must not be retained by him. For
example, if 5% of the whole income of a company has come out of
interest-bearing deposits, 5% of the dividend must be given in charity.

4. The shares of a company are negotiable only if the company owns some
non-liquid assets. If all the assets of a company are in liquid form, i.e.
in the form of money that cannot be purchased or sold, except on par value,
because in this case the share represents money only and the money cannot be traded in except at par.[1]

As far as paying Zakaah on shares, if shares are purchased with the express intention for resale or capital gain, then the entire current market value of the shares is subject to Zakah.

 If however, shares are purchased not for re-sale but as an investment to generate dividends then only the current asset-ratio portion of the share will be Zakatable. If determining or calculating the current asset ratio is difficult then Zakah should be given on the entire share.

And Allah Ta’āla Knows Best

Mufti Arshad Ali

Darul Iftaa, Jaamia Madinatul Uloom (Trinidad)

www.fatwa-tt.com /www.jaamia.net


[1] Introduction to Islamic Finance, Mufti Taqi Usmani