When calculating zakah on securities, there are different approaches depending on the purpose for which the securities are held. Securities are categorized into three groups: those for trade, those for long-term appreciation, and those for income. Each category has its own zakah calculation method.
Zakah for Securities Held for Trade
For securities held for trade, zakah is calculated at 100% of the security’s market value, meaning the entire value is subject to zakah as the security is considered an asset for trade and exchange.
Zakah for Securities Held for Long-Term Appreciation and Income
For securities held for long-term appreciation or income, zakah is based on the zakatable assets of the underlying security, usually resulting in a much lower zakah base compared to securities held for trade.
Aligning with AAOIFI Guidelines
If you’ve noticed lower zakah amounts this year, it’s due to enhancements in our methodology. We have refined our zakah calculation methodology to better follow Shariah standards from the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
Previously, zakah was calculated for the entire portfolio based on a single intention, such as trade, income, or appreciation, which led to inconsistencies, especially for mixed-purpose portfolios. For some portfolios, securities may be held for income, while others for long-term capital growth or for trading.
More Precision and Accuracy
This year, we’ve introduced a new methodology approved by our Shariah advisory board to better reflect the mixed nature of portfolios. Instead of treating the portfolio as a whole, we now assess the percentage of the portfolio allocated to trade, income, or long-term appreciation. This more precise calculation aligns with the varied intentions behind holding different securities, leading to a fairer zakah amount.
The Result: Lower Zakah Amounts
Zakah amounts may be lower this year because we now account for the mixed purposes within portfolios. This approach helps ensure that zakah is calculated according to the nature of each security, avoiding a one-size-fits-all calculation for the entire portfolio.
If you have any questions or need further clarification about these recent changes, please reach out to our team.
