Zakaat on Capital

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Q: Is zakaat payable on capital amount invested in a business or only on the profits gained?

A: In business zakaat must be paid on the current value of one's share in the business, notwithstanding the amount initially invested, on condition that the investor has entered into a partnership (Islamic Shirkat) with one or more people in that enterprise. For example, if one invested R100,000.00 in a business, then consider what percentage of the total value of the business does that sum represent. If it represented 20 percent (for example) of the total value, then the investor owns 20 percent of the business and when the zakaat year is up he or she must pay zakaat on 20 percent of the value of the business at that point in time. Assuming, in the above example, the business is valued at one million rands, then the investor must pay zakaat on R200,000.00 because this amount represents 20 percent of a R1m. Two and a half percent of this amount will be taken out for zakaat purposes.
 
NOTE: Such evaluation has to be market related, so partners cannot just assume a nominal or token value for zakaat purposes.
 
As regards profits, these generally form part of of one's cash assets. So by calcualting 2.5 % of total cash at the end of the zakaat year, the profits's zakaat would be taken care of. One does not need to separately calculate zakaat on total profits earned for the entire year.
 
I trust your query has been answered. However, if your situation is different to the one described above, then feel free to write back with further clarification.
 
And Allah knows best.

Mufti Siraj Desai