Do RSUs Require Purification?

Answered by Shaykh Muhammad Carr

Question

If a person receives restricted stock units (RSUs) as part of their compensation and later sells the resulting shares, how should any gains be Islamically purified? Specifically, do shares that are automatically sold or withheld to cover taxes require purification?

Additionally, when calculating the gain, what should be considered the “purchase price”: the share price at vesting, or zero on the basis that the shares were received as compensation rather than purchased?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

Allah says,

“So be mindful of Allah to the best of your ability, hear and obey, and spend in charity—that will be best for you.” [Quran 64,16]

If the shares in question are non-Sharia-compliant, you are not considered the legitimate owner of the shares. Irrespective of whether the shares are construed as a gift or remuneration. In your case, the shares are part of your remuneration.

Shari‘a-compliant shares that are automatically sold for your benefit require purification. The proceeds of the sale are directly linked to the shares sold and thus require purification.

Shares withheld to cover taxes do not require purification. In this case, paying taxes is considered a form of purification in itself. Tax recipients and recipients of impermissible income generally fall into the same bracket.

For Sharia purposes, the value of the shares is taken into consideration. Since you acquired the shares in a commutative transaction (compensation), it is subject to zakat. If you intend to trade in shares, the entire value of the shares is subject to zakat. Alternatively, if you hold it as an investment, the underlying zakatable assets are subject to zakat, not the whole share value.

Compensation

Receiving shares as part of your remuneration is valid on condition that the value is known.  It is stipulated that the remuneration be specified in terms of its type, amount, and quality, similar to the price in a sale. [Khatib, Mughni al-Muhtaj]

General Consensus on Purification of Income

In Islamic finance, the purification of income, particularly dividends, is a fundamental principle that ensures earnings comply with Shari‘a. There is a general consensus that purification is required.

Some scholars and Islamic finance standards, such as those by AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions), require the purification of shares if they include any proportion of income derived from non-compliant sources like interest (riba). This ensures the income is halal (permissible). Others believe that the dividend must be purified.

And Allah knows best.
I pray this is of benefit and that Allah guides us all.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefited from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door to students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari‘a Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.