Zakah of partnership capital
Fatwa No: 340387

Question

Assalaamu Alaykum. I have a question and will be grateful if you could reply at your earliest convenience. I have formed a partnership in which others have invested cash money. My investment is the value of a piece of land at the time of investment, after a particular period, I reasses the value of the land and distribute appreciation (current land value - purchase price) among the partners according to the share of investment and then accordingly revise my share of the business according to the current value of the land. That is my business. My question is: Do I have to pay zakah on it; and if yes, then on which value, the current one or the original purchase price. May Allaah reward you.

Answer

All perfect praise be to Allah, The Lord of the worlds. I testify that there is none worthy of worship except Allah and that Muhammad, sallallahu ‘alayhi wa sallam, is His slave and Messenger.

The question is not clear, but if what is meant is that the value of the mentioned land is your share in the company's capital and that the other partners contributed with money, then this company is considered a partnership with trade commodities ('Uroodh), which has been declared permissible by some scholars.

Ibn Qaasim  may  Allaah  have  mercy  upon  him wrote, "It was narrated from him (i.e. Imaam Ahmad) that partnership with  trade commodities is valid, and this is the view chosen by Abu Bakr, Abu Al-Khattaab, and others. It was declared to be correct in Al-Insaaf and other books. It is also the view of (Imaam) Maalik and others, because the purpose of partnership is having both parties entitled to dispose of the capitals and share the profits; this is applicable to trade commodities just as it is applicable to cash..." [Haashiyat Ar-Rawdh]

Al-Muwaffaq  may  Allaah  have  mercy  upon  him wrote:

"Partnership and Mudhaarabah (profit-sharing arrangement) with trade commodities must be deemed valid, just like cash, and when the partnership is terminated, each partner is entitled to the value of his share according to the contract. Shaykh Muhammad ibn Abd Al-Wahhaab  may  Allaah  have  mercy  upon  him said, 'This is the correct view in this regard because the basic principle is that all financial transactions are lawful unless deemed prohibited by Allah or His Messenger. As for the first view (that partnership with trade commodities is invalid), they brought forth no supportive evidence from the Sharia, as far as we know.'"

In this case, the land is co-owned by all the partners and you are entitled to a share of it as one of them. Also, the invested money is co-owned by all the partners as well. Zakah is calculated after the passage of a lunar year from the ownership of the capital. You add the available cash to the value of the trade commodities that you have, including the land. The criterion is the value of the total wealth liable for zakah at the time when zakah becomes obligatory, and not at the time of purchase. Each of the partners should pay the zakah individually on their share if it reaches the Nisaab (minimum amount on which zakah is liable once a lunar year passes). He should add it to his other amounts of money or trading items that are subject to zakah and pay zakah on the total. The partner whose share does not amount to the Nisaab is not required to pay zakah unless he has other amounts of money or trading items that are subject to zakah and, together with his share, they reach the Nisaab.

Ibn Qudaamah  may  Allaah  have  mercy  upon  him wrote about the zakah of the partners:

"If items of wealth are co-owned by a number of partners, such as gold, silver, trade goods, crops and fruits or any other items of wealth other than Saa'imah (sheep or cattle which graze in open fields for the greater part of the year), then the partnership and co-ownership of the items of wealth liable for zakah do not affect the payment of zakah (i.e. do not make the partners share one Nisaab). Each of them should pay zakah on his share of the co-owned items of wealth. This is the scholarly view of most of the scholars. The most likely correct view is that the co-ownership of wealth does not affect the payment of zakah in other than the free-grazing sheep or cattle (where the partners share one Nisaab)..."

The Nisaab of present-day cash is the equivalent of 85 grams of gold or 595 grams of silver. The required amount of zakah is 2.5 %.

Allah knows best.

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