What are the requirements to pay zakat on investment?
- A Muslim
- The investment is 100% yours (you can sell & get profits as an investor)
- Has reached nisab which is the value that one must own for that year - check here!
- The investment period is a year (haul) - if it’s lesser, you’ll only pay zakat on the profits
- Halal (Shariah-compliant)
Let’s just say your total investment hasn’t reached the minimum value and other requirements, you’re lucky. It means you don’t have to open your wallet and pay for it.
That said, it also depends on the situations as well…
Situation 1: Shariah-compliant stock
When you’re investing in Shariah-compliant stocks, you’ll need to pay zakat. It only makes sense as there aren’t any impermissible thing in the company that is against Islam.
Image Source: Bursa Malaysia
For example, did you know that Top Glove’s stocks are Shariah-compliant? This directly means that if you‘re investing in Top Glove, be sure to pay up!
Situation 2: Stocks that aren’t Syariah-compliant
If the company has aspects that aren’t permissible in Islam - automatically it’s non-Syariah compliant. But that doesn’t mean you don’t have to pay. You’ll still have to pay zakat for your initial investment.
For example, Heineken company:
Image Source: Bursa Malaysia
Let's say you have an investment in Heineken worth RM50,000 (better yet, you don't have!). After a year, you earn profits of around RM10,000. Unfortunately, due to its being, not Shariah-compliant, you’ll only pay zakat for RM50,000.
RM50,000 x 2.5% (rate for zakat on your investment) = RM1,250
NOTE: For your info, the rate for zakat on your investment is 2.5%, similar to zakat on your assets. The difference is only how you count the zakat for short-term and long-term stocks.
Situation 3: The company pays zakat on its business
Just so you know, there's no double payment in any types of zakat - you’ll only pay once. That's why you don't have to pay zakat on your investment if the company already pays zakat. In a way, the company is paying on behalf of the investors.
Image Source: Maybank Annual Report
So, how can you know? You'll just have to get the info from the company itself. You could take a look at their annual report which is usually online or you can give them a call. Do note that PPZ won't be able to provide you with this info (trust us, we've called!).
Situation 4: The company doesn't pay zakat on the business
Then, it looks like you'll have to pay zakat on your investment if the company doesn't. Therefore, you should check first whether they pay it or not. At least, you already know and are prepared to pay it once a year!
Want to know how much you'll have to pay zakat? Here's how you calculate (take out your calculator)
For zakat on your short-term investment, you’ll only calculate the profits after you sell. And, you’ll also need to deduct your initial investment. Here’s the formula:
(Current investment value + Current balance - Related costs*) x 2.5%
P/s: The related costs* consist of the cost for selling and buying, broker fee and any other related spendings.
For example, your current investment value is RM20,000, your current balance is RM5,000 and your related costs are RM300. Here’s how you can count it:
(RM20,000 + RM5,000 - RM300) x 2.5%
RM24,700 x 2.5% = RM617.50
Another formula that you can use is:
([Selling price - Purchase cost] x Unit) x 2.5%
Let’s say you’ve 20,000 units worth RM2.50 for each (you bought at RM2.00):
([RM2.50 - RM2.00) x 20,000) x 2.5%
([RM0.50] x 20,000) x 2.5%
RM10,000 x 2.5% = RM250
Similar to short-term investment, you’ll just have to add the dividend and use the net worth of investment after minus the financing/loan that’s still not clear yet (if there are any).
Here’s the formula:
(Current investment value + Current balance + Dividend - Related costs*) x 2.5%
Imagine your current investment value is RM100,000, current balance is RM5,000 and you received a dividend around RM1,500. As for your related costs, it’s around RM300. (RM100,000 + RM5,000 + RM1,500 - RM300) x 2.5%
RM106,200 x 2.5% = RM2,655
What if you have investments from two different companies? This is how to calculate:
(RM50,000 + RM2,500 + RM1,000 - RM300) x 2.5%
RM53,200 x 2.5% = RM1,330
(RM30,000 + RM2,000 + RM500 - RM300) x 2.5%
RM32,200 x 2.5% = RM805
In total, Investment A + B
RM1,330 + RM805 = RM2,135
If you’re too lazy or maybe you’re just not good with calculation, just head over to this website to count how much zakat you’ll have to pay on your investment. This way, you can do a double and triple check!
So, where should you go to pay zakat on your investment?
You can pay at any zakat institution - PPZ branches or the state religious department. You can also opt to pay it online - depends on the availability (check this website!). You can refer here for more info:
- Kuala Lumpur: http://www.zakat.com.my
- Selangor: http://www.zakatselangor.com.my
- Penang: http://www.zakatpenang.com
- Pahang: http://www.zakatpahang.my
- Melaka: http://www.izakat.com
- Kedah: https://www.zakatkedah.com.my/
- Negeri Sembilan: https://www.zakatns2u.biz/
- Terengganu: http://www.maidam.gov.my/index.php/en/contact-us
- Johor: https://www.maij.gov.my/
- Kelantan: https://www.e-maik.my/v2/index.php/ms/perkhidmatan-kami/pungutan-zakat
- Perak: https://ezakat.maiamp.gov.my/
- Perlis: http://maips.gov.my/
- Sabah: https://appszakat.sabah.gov.my/
- Sarawak: https://www.tbs.org.my
What will happen if you don't pay or forget about it?
As Muslim, we should know that this is our responsibility. We’re sharing our fortune with the rest that isn’t as lucky. Plus, it’s one of the ways to purify the wealth from possible Shariah non-compliance.
However, worry not, if you forgot to pay zakat (considered a debt). You just need to visit any zakat institutions to explain your situation and pay the outstanding zakat payment - it's that easy.
It's just that you'll have to prepare a lot of money, especially if you're about to pay the outstanding zakat together with the current one as well. That's why it's better to pay it every year. Why don’t you put a reminder on your phone or book so that you won't forget?
Happy paying zakat!