How do I calculate Zakat on my business?
For a business, all liquid assets are liable for Zakat. These include:
- Finished goods
- Work in progress
- Raw materials
- Accounts Receivable (strong debts), i.e. money owed to the business that is likely to be received.
Please note, National Zakat Foundation follows the opinion that Zakat is due upon the wholesale price of your inventory or goods for sale. What do we mean by wholesale price? If someone wanted to buy this inventory or your goods in bulk what price would you sell it to them for. This amount would be the liable portion of your Zakat. If you decide to pay Zakat on the retail price, then you are going above what is required and doing ihsaan (Excellence). Many scholars stated this because your Zakat will benefit more people as you are paying more.
After adding together all your assets, you must then deduct expenses and liabilities that you have within the business that are to be paid within the lunar year of your calculation (certainty has to exist in the liability). For example, this includes accounts payable, rental costs, bills, salaries and etc.
Business Assets = Cash + Value of Inventory + Value of Work in Progress + Value of Raw Materials + Accounts Receivable
Business Liabilities = Outstanding Rent, Bills, & Salaries + Value of outstanding short-term commercial loans + the next year’s non-interest portion of long-term business debt + total value of goods purchased on credit
Zakatable Amount = Business Assets - Business Liabilities
Zakat Due = Zakatable Amount x 2.5%