Is Zakat Calculated on My Half of the Business, or Is It Treated as a Single Entity?

Answered by Shaykh Muhammad Carr

Question

My friend and I co-own a business, with each of us holding a 50/50 share. A year ago, the total value of our inventory exceeded twice the Nisab. However, neither of us individually owns wealth equal to the Nisab, except for our share in the inventory.

Is Zakat due on each of us based on our individual 50% shares, or should the business be treated as a single entity for Zakat purposes?

Additionally, how should the inventory value be calculated for Zakat purposes, using the purchase price, the selling price, or the current market value?

Answer

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

May Allah reward you abundantly for your commitment to fulfilling this sacred obligation. Zakat is one of the fundamental pillars of Islam, emphasizing both spiritual growth and social responsibility. Allah says, “Accept charity offerings from their wealth, cleansing and making them grow thereby to full purity in faith and deed.” [Quran, 9:103]

• For zakat purposes, the business, rather than individual shares, is considered in calculating the minimum taxable [nisab] amount based on the rule of khalta. The rule of khalta in Zakat refers to the mixing or partnership of wealth between two or more individuals in such a way that their combined wealth is treated as one entity for Zakat.

The Prophet (Allah bless him and give him peace) said, “One should not combine what is separate, nor separate what is combined, out of fear of (paying) Zakat.” [Bukhari]

• Zakat on inventory is calculated based on its current value. “It is necessary to pay 2.5% of the value.” [Khatib, Mughni al-Muhtaj] The value of the merchandise is determined by two qualified evaluators of the goods in question. [See, Zakat From Principles to Practices]

I pray this is of benefit and 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 benefitted 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.