Dividend purification means giving away the part of your dividends that corresponds to the company's non-compliant income, most often interest on its cash. For a share: dividend received × the share of non-compliant income in the company's total income. For a halal ETF: the fund's dividends for your units × the purification ratio for the year, unless the fund purifies them itself. The money goes to a charity, and you receive nothing in return.
Halal shares and ETFs pass a screen, but that screen tolerates a small share of non-compliant income. Almost all large companies earn interest on their cash, and many have a marginal activity that would not pass the screen if it stood on its own. Scholars have allowed these investments on condition that the investor does not keep the part of the gain that comes from this income. That is the purpose of dividend purification.
This guide explains what has to be purified, how to do the calculation for a share and for a halal ETF, who should receive the money and how it all fits with tax in Switzerland.
Why purify dividends that are already screened?
Screening decides whether a company may be held. It does not make every franc the company earns lawful. AAOIFI Standard No. 21 on financial papers allows the purchase of shares in companies whose non-compliant income stays below 5% of the total, on condition that the corresponding part is set aside. Islamic indices follow the same logic: a halal stock may earn 1%, 3% or 4% of its income from interest, and the shareholder receives a fraction of that with the dividend.
Purification is therefore neither a penalty nor alms. It removes income that does not belong to you, in the same way that you would hand back money received by mistake. For this reason, most scholars ask that it should not be counted towards zakat and that no reward should be expected for it.
What exactly needs to be purified?
- Dividends. This is the main part of dividend purification: the part of each dividend that corresponds to the company's non-compliant income, every time you receive one.
- Interest received directly. Interest on a bank account or a securities account is purified in full, not in proportion. The method is explained in our guide to bank interest.
- Capital gains on a sale. Opinions differ. Some scholars require purification on dividends only, since the capital gain comes from a rise in the price and not from income received. Others recommend it on the gain as well, as a precaution. The simplest course is to follow the opinion of the scholar you consult and to stick to it from one year to the next.
How do you calculate purification for a share?
The most widely used method multiplies the dividend received by the share that non-compliant income represents in the company's income:
amount to purify = gross dividend received × (non-compliant income ÷ total income)
Both figures can be found in the annual report. Non-compliant income consists mainly of interest income, often labelled “finance income” or “interest income” in the income statement, plus the revenue from any excluded activity. Total income is revenue plus other income.
A fictitious example: a company has 20 billion in revenue and 300 million in interest income. The non-compliant share is 300 ÷ 20'300, or about 1.5%. You receive a gross dividend of 480 CHF, so you purify 480 × 1.5% = 7.20 CHF.
A second method calculates an amount per share (non-compliant income ÷ number of shares) and multiplies it by the number of shares held during the financial year. It gives a higher amount when the company pays out little in dividends, and it also works for companies that pay none at all. Whichever method you choose, keep to it from one year to the next.
How do you calculate purification for a halal ETF?
For a fund that holds hundreds of companies, redoing the calculation line by line is not realistic. Instead, you use a purification ratio calculated for the portfolio as a whole: a weighted average of the companies' shares of non-compliant income, based on each company's weight in the fund.
amount to purify = fund dividends attributable to your units × purification ratio
Before you calculate anything, check whether the fund already purifies its dividends itself. Since 2026, several issuers have been doing so:
| Issuer | Who purifies the dividends? |
|---|---|
| iShares (Islamic equity funds) | The fund, since 1 January 2026: the impure share of dividends, calculated by MSCI, is donated to charities approved by the fund's Sharia panel (iShares II plc prospectus, September 2026). |
| HSBC (Islamic Screened range) | The fund, once a year: the non-permissible income, calculated by the index provider, is donated to charities approved by HSBC's Sharia committee. |
| Invesco Dow Jones Islamic (accumulating class) | You: the fund supplement states that accumulated income is not purified within the fund. |
| Wahed (S&P 500 Shariah, Dow Jones Islamic World) | You: the manager publishes the amount to purify per share on its website every year. |
| Saturna Al-Kawthar (AMAL) | You: the fund calculates the amount to purify and states it in its annual report. |
For the Invesco MSCI ACWI Islamic M-Series and the HSBC and Xtrackers sukuk funds, the treatment could not be verified: ask the issuer.
If the fund already purifies, you have nothing to add on the dividends. If it does not, use the amount per unit or the ratio published by the issuer or by the index provider.
A fictitious example: 15'000 CHF in a distributing halal ETF that pays out 1.4% a year, i.e. 210 CHF. With a purification ratio of 2.5%, you give 5.25 CHF. For an accumulating fund, take the reinvested income per unit shown in the ICTax price list of the Swiss Federal Tax Administration and multiply it by the number of units you hold: it is the same income, simply not paid out. See also our guide to halal ETFs for how the indices work.
Who should receive the money, and when?
The purified amount goes to a charity or to a project in the public interest: help for people in need, healthcare, education. It must not come back to the person who purifies, directly or indirectly. Most scholars also rule out using it to pay your own taxes or bank charges.
The simplest rhythm is once a year. When the bank's tax statement arrives, add up the dividends for the year, apply the ratios and make a single payment. Our purification calculator does this calculation for each line of the portfolio. Purification does not replace zakat, which is calculated separately: see our guide to zakat on investments.
Dividend purification and Swiss tax
For the tax authorities, a purified dividend is still a dividend. You declare the gross amount received as income, and the 35% withholding tax deducted from Swiss dividends is reclaimed in the usual way through your tax return. Purification does not reduce your taxable income.
The donation itself may be deductible if it goes to an institution that is exempt from tax because of its public-interest purpose. Art. 33a of the Federal Act on Direct Federal Taxation allows such donations from 100 francs a year and up to 20% of net income, and the cantons have comparable rules. Some scholars consider that no benefit at all should be drawn from the purified amount, a tax benefit included; others see no objection to it. Here again, follow the opinion of the scholar you consult.
The most common mistakes
Purifying the net dividend instead of the gross
Non-compliant income relates to the dividend paid by the company, before any tax is withheld. Calculating on the net amount, after Swiss withholding tax or foreign withholding tax, underestimates the purification by 15 to 35%.
Forgetting accumulating funds
When the fund reinvests its dividends, nothing appears in your account. The income exists all the same, and it is even taxed, so the purification is still due.
Mixing up purification and zakat
Zakat is an obligation on lawful wealth; purification removes income that is not lawful. Counting one towards the other means paying less than is owed.
Changing method every year
Switching between the per-dividend method and the per-share method according to whichever gives the lower result makes the calculation meaningless. Choose one method and keep to it.
This content is provided for educational purposes and does not constitute a fatwa: as questions of compliance involve differences between schools of jurisprudence, it is for each person to refer to a competent religious authority for their own situation. Nor does it constitute tax advice or investment advice within the meaning of the LSFin.