Do I pay Zakat on stocks and shares?

Short Answer

Yes, you do, but pay attention to why you own them.

Long Answer

If you own shares in a company, you need to ask yourself why you own them. Are you a long time investor, intending to hold them for the strength of the company and make money off of the long term growth? Or did you just buy those shares so that you could trade them whenever you realize a gain?

  1. Long term investment (something you plan to hold for a year or more):
  1. If the market value of those stocks are more than Nisab, then there are two things you have to pay Zakat on:
  2. Dividends: If you receive a dividend distribution from the company, then you can add that to the cash value of your assets and pay on the total cash in your possession. If your reinvested the dividends then you don’t have to worry about this step.
  3. Zakatable Assets: If the company holds cash, receivables, inventory then you will pay Zakat on the book value / net asset value as well as the dividends.
  1. Active trader, or have an active portfolio in a mutual fund,
  1. then you will pay Zakat yearly on the market value of the stock (share) or the portfolio, as well as the dividends.
  2. If you sell these stocks (shares) during the year, you will add the amount received from sale to your liquid assets and pay Zakat according to general rules of Zakat.

This is the method prescribed by the Fiqh Academy of the OIC and is generally prescribed by most scholars who are specialists in the field.