If you own a business, certain assets are subject to Zakat, but not all of them. Here's how to determine what counts and how to value it.
Zakat on Business Assets
If you own a business, certain business assets are subject to Zakat. Only zakatable business assets are included, not fixed assets like equipment or real estate used in operations.
All schools agree that trade goods (inventory) and business cash are zakatable. Fixed assets used in the business (buildings, machinery, vehicles) are not zakatable. The key principle is: assets held for trade or that represent liquid wealth are subject to Zakat. How receivables are treated depends on the school of thought you follow.
Business Cash
Business cash is zakatable just like personal cash. Include all business bank accounts, operating cash, and petty cash.
There is no distinction between personal and business cash for Zakat purposes if you are a sole proprietor. For partnerships, calculate based on your ownership share.
Inventory & Trade Goods
Inventory and trade goods represent wealth intended for sale and profit. They are always zakatable at their current market value. This includes raw materials, work-in-progress, and finished goods intended for sale.
The classical schools disagree on how to value trade goods. Al-Qaffāl al-Shāshī documents the ikhtilāf in Ḥilyat al-ʿUlamāʾ (vol. 3, p. 104):
| Position | Scholar(s) | Valuation Method |
|---|---|---|
| 1 | Shāfiʿī (aṣaḥḥ) | Value in local currency (naqd al-balad) — i.e., what you could sell it for on the open market |
| 2 | Abū Yūsuf | Purchase price — what you originally paid |
| 3 | Abū Ḥanīfa + Aḥmad | Whichever is most beneficial for the poor (al-aḥaẓẓ lil-masākīn) — in practice, the higher value |
| 4 | Some Mālikī views | Owner chooses which currency to value in |
Modern fiqh boards have largely settled on the Shāfiʿī position: "تُقَوَّم عروض التجارة بسعر السوق يوم أداء الزكاة" — "Trade goods are valued at market price on the day zakat is paid." In practice, this means the price you could sell the item for (retail/market), not your cost.
Two modern institutions offer practical guidance:
- Retail value: value inventory at the current sale price. This is the position of the National Zakat Foundation (UK).
- Wholesale value: value inventory at replacement cost or purchase price. The National Zakat Foundation (Canada) holds that this is sufficient.
Both positions are valid. The calculator supports both approaches.
Accounts Receivable
When customers owe money to your business, that money is part of your wealth. But unlike cash sitting in a bank account, you cannot spend it, invest it, or benefit from it until the customer actually pays. This tension between legal ownership and practical access is the same one that scholars have debated for centuries in the context of personal loans and other debts owed to you.
Business AR is a specific type of dayn (debt receivable) in Islamic law. For a detailed look at how the schools handle personal loans, outstanding mahr, and the broader concept of money owed to you, see our article on Money Owed to You. This section focuses on the aspects unique to business receivables.
What Makes Business AR Different
Two questions determine how the schools treat your outstanding invoices:
- Where did the debt come from? Was it from goods you sold, or services you rendered? The Hanafi school cares about this distinction. The other schools do not.
- Can you actually collect it? Is the customer solvent and willing to pay? Most schools (and the Fiqh Academy) focus on this instead.
The Hanafi School: It Depends on What You Sold
The Hanafi school classifies all debts into three tiers based on their origin. This classification, documented by Al-Kasani in Badai' al-Sanai' and Al-Sarakhsi in Al-Mabsut, directly affects when and whether Zakat is due.
AR from goods sold falls into the strongest category (dayn qawi). Because the money owed to you originated from selling trade goods, the Hanafi school considers this essentially equivalent to holding trade inventory. Zakat is obligatory for every year the debt remains outstanding, though payment can be deferred until you begin receiving money back. Once you collect even a small amount (classical texts mention 40 dirhams, roughly a fraction of the nisab), you begin settling the accumulated Zakat from previous years.
AR from services rendered is different. Under the Hanafi framework, revenue from services (fees, consulting, professional work) is a substitute for a benefit (manfa'ah), not for a tangible trade asset. This places it in a weaker debt category. It is not exempt from Zakat entirely, but the threshold for payment is significantly higher: you must collect a full nisab amount before Zakat on the debt becomes payable.
This is the only school that draws a meaningful line between goods-based and services-based receivables. If you follow the Hanafi school, the distinction matters for how aggressively Zakat applies to your outstanding invoices.
The Shafi'i School: All AR Is Zakatable
The Shafi'i school takes the broadest approach. Their classification is not based on the source of the debt but on whether the debt is stable (mustaqirr) or unstable. Since a business invoice for goods or services becomes a stable debt once the work is done and the bill is sent, all business AR is treated the same way.
If the customer is solvent and willing to pay, the debt is treated like cash in your account. Zakat is due annually. If the customer is insolvent or delaying, Zakat still accrues for every year, but payment is deferred until you collect. Upon collection, you owe Zakat for all the years the money was outstanding.
This position is documented in Majallat al-Buhuth al-Islamiyyah (Vol. 39, p. 313), which notes that the Shafi'is are the school most clearly requiring Zakat on settled debts even before collection.
The Hanbali School: It Depends on the Customer
The Hanbalis focus on a single practical question: can you actually get this money back?
If the customer is solvent and acknowledges the debt, Zakat is due for every year the debt has been outstanding, with payment deferred until collection. In this scenario, the Hanbali view is essentially the same as the Shafi'i view.
If the customer is insolvent, denying the debt, or stalling, the school offers a range of positions. Some Hanbali scholars hold that Zakat accrues for all years retroactively upon collection. Others, including Sheikh Ibn Baz and Sheikh Ibn Uthaymeen, favor paying one year's Zakat upon receipt, which aligns with the Maliki position.
Importantly, the Hanbalis do not distinguish between goods-based and services-based AR. Al-Lahim, in al-Mutli' 'ala Daqa'iq Zad al-Mustaqni', explicitly lists "fees and rent after the benefit is received" (al-ujrah ba'da istifa' al-manfa'ah) as a form of stable, zakatable debt, alongside sale prices, dower, and compensation for damaged property.
The Maliki School: Goods vs. Services
The Maliki school classifies business debt based on its origin. A key condition from Mayyara al-Maliki's al-Durr al-Thamin requires that the original asset behind the receivable must have been cash or trade goods (عين أو عرض تجارة) for it to be included in the annual Zakat assessment.
Goods-based AR (receivables from the sale of trade goods) meets this condition. For an active trader (tajir muddir), such AR from solvent customers is included in the annual Zakat calculation alongside inventory and cash, just like the Hanafi treatment of strong debt.
Services-based AR (receivables from services rendered) originates from a benefit (manfa'ah), not from trade goods or cash. It does not meet the Mayyara condition, so it falls back to the general Maliki rule for non-trade debts: one year's Zakat upon receipt. No Zakat accrues during the years the debt is outstanding.
This creates a clean, practical distinction: if your AR comes from selling goods, it's zakatable now. If it comes from providing services, you owe one payment when you get paid.
The IIFA: Collectible or Not?
The International Islamic Fiqh Academy (IIFA) adopted a simplified binary in its 1985 resolution. Their framework asks only one question: is the debt likely to be repaid?
- Collectible AR (customer is solvent and acknowledges the debt): Zakatable annually.
- Doubtful AR (customer is insolvent, denying, or stalling): Not zakatable until collected, then one year's Zakat on the amount received.
The IIFA framework makes no distinction between goods-based and services-based receivables. If the AR is collectible, it is zakatable, regardless of its source.
Comparing the Schools on Business AR
| Hanafi | Shafi'i | Hanbali | Maliki | IIFA | |
|---|---|---|---|---|---|
| Core question | What generated the debt? | Is the debt stable? | Can the customer pay? | What was the original asset? | Is the debt collectible? |
| Goods-based AR | Zakatable (strong debt) | Zakatable | Zakatable | Zakatable (meets al-Durr al-Thamin condition) | Zakatable if collectible |
| Services-based AR | Weaker category, higher threshold | Zakatable (no distinction) | Zakatable (explicitly included) | One year upon receipt | Zakatable if collectible |
| Doubtful AR | Based on debtor status | Zakatable, payment deferred | Range of positions | One year upon receipt | One year upon receipt |
How This Calculator Handles It
The calculator asks you to select a school or choose "I'm not sure" (which applies the IIFA recommendation). If you select Hanafi or Maliki, the calculator will ask whether your AR comes from goods, services, or both. For Hanafi, services AR is excluded entirely. For Maliki, services AR is tracked as a one-time obligation upon receipt, while goods AR is included in the current calculation. For Shafi'i/Hanbali and the IIFA, the calculator focuses on collectibility rather than origin. For a deeper look at the scholarly reasoning behind these positions, including the classical Arabic sources, see our article on Money Owed to You.
Business Deductions
Business debts follow similar principles to personal debts. Key deductible items include:
- Credit card balances, rent, utilities, and bank overdraft (short-term)
- Accounts payable to suppliers
- Payroll owed to employees
- Contractor invoices
- Taxes currently due
For long-term business debts (mortgages, equipment financing, investment loans), there are two approaches:
- Annual payment method: deduct the total loan payments due in the coming year. This is preferred by many scholars for business calculations.
- Monthly payment method: deduct only the current month's payment, with future payments addressed in future years.
Ownership Percentage
If you co-own a business, calculate Zakat based on your ownership percentage. For example, if you own 50% of a business, include 50% of the business's zakatable assets. There is no distinction between personal and business cash for sole proprietors. For partnerships, calculate based on your ownership share.
The calculator's business assets section handles inventory valuation methods, school-specific AR treatment, and ownership percentages automatically.
Sources and References
On Accounts Receivable
- Al-Kasani, Badai' al-Sanai' fi Tartib al-Shara'i' (vol. 2): Hanafi three-tier debt classification (strong, medium, weak), with goods-based AR classified as strong debt
- Al-Sarakhsi, Al-Mabsut (Vol. 2, p. 195): Hanafi framework for classifying debts by origin
- Majallat al-Buhuth al-Islamiyyah (Vol. 39, p. 313): Shafi'i position that zakat on stable debt is obligatory even without collection
- Al-Lahim, al-Mutli' 'ala Daqa'iq Zad al-Mustaqni' (Vol. 3, p. 102): Hanbali classification listing fees/rent as stable, zakatable debt
- Al-Dardir, Al-Sharh al-Kabir with Hashiyat al-Dusuqi (1.457-466): Maliki distinction between active trader (muddir) and passive holder (muhtakir)
- International Islamic Fiqh Academy (IIFA) Resolution on Zakah on Debts: 1985 resolution adopting a collectible vs. non-collectible framework
- Wahba al-Zuhayli, al-Fiqh al-Islami wa Adillatuhu (Vol. 7, pp. 5078-5079): Summary of the Fiqh Academy resolution and supporting evidence
- AAOIFI Sharia Standard No. 35: Treatment of receivables in institutional Zakat calculations
On Inventory Valuation
- Al-Qaffāl al-Shāshī, Ḥilyat al-ʿUlamāʾ (vol. 3, p. 104) — the classical ikhtilāf on trade goods valuation: market price (Shāfiʿī), purchase price (Abū Yūsuf), most beneficial for the poor (Abū Ḥanīfa + Aḥmad)
- National Zakat Foundation UK: Business Assets: supports retail value for inventory
- National Zakat Foundation Canada: Inventory Valuation: supports wholesale value