Zakat on an investment portfolio

Zakat on wealth made up of gold is calculated by weight, and we have dealt with it separately in our guide to zakat on gold. An investment portfolio raises other questions: securities whose value changes every day, funds whose contents you do not hold directly, cryptocurrencies whose very nature is debated, and cash spread over several accounts. This article covers that remainder of the portfolio — shares, ETFs, cryptocurrencies and cash — and how to put a figure on it in Swiss francs.

What is zakat due on within a portfolio?

Zakat is a compulsory annual levy on certain categories of wealth, paid to designated beneficiaries. It does not bear on a year's income but on assets held: that is the first distinction to take on board, because it separates zakat radically from the logic of an income tax. A portfolio that has earned nothing may be liable to it; a portfolio that has earned a great deal but was liquidated before the due date may not be, in the same form.

The starting point is therefore an inventory, not a performance statement. It means listing what you hold at a given date, in full ownership, and valuing it. The table below places the main categories of a portfolio in relation to that base.

Category of assets	Treatment in the zakatable base
Cash in accounts In the base	Current accounts, savings accounts, uninvested balances held with a securities provider, whatever the currency. Valued at their amount on the due date.
Shares held for resale In the base	Treated as goods held for trade: it is the market value on the due date that is used, not the price paid.
Shares held for the long term Depends on the position taken	Several treatments coexist, from the simplest — full market value — to the finer one, which retains only the zakatable share of the company's assets. The schools differ.
ETFs and funds Depends on the contents	You do not look at the wrapper but at what it holds: an equity fund comes back to the treatment of shares, a gold-backed fund to the treatment of gold.
Cryptocurrencies Position to be settled	Contemporary opinions do not converge on how they should be characterised. The practical question remains that of full ownership and of value on the due date.
Assets not held in full ownership Outside the base	An asset you do not own outright does not meet the condition of holding, whatever value a statement may show for it.

Gold, monetary metals and metal-backed vehicles fall under a calculation by weight, distinct from this one; it is set out in our guide to halal gold and in the article devoted to zakat on gold.

Nisab and hawl: the two conditions of liability

Two conditions must be met before there is any question of a rate. The first is a threshold, the nisab: below it, nothing is due. The second is a duration, the hawl: the assets must have remained in your possession for a full lunar year, and be held in full ownership.

Nisab reference	Weight used
Gold nisab — AAOIFI standards	85 grams of fine gold. The reference of the AAOIFI standards and of the Maliki, Shafi'i and Hanbali schools.
Gold nisab — Hanafi school	87.48 grams of fine gold. A distinct historical reference, and not a different rounding of the same figure.
Silver nisab	595 grams of silver. A markedly lower threshold once converted, used by certain charitable organisations so that a greater number of estates becomes liable.

The threshold is therefore defined by a weight of metal, never by an amount in francs. It is the weight that should be kept as the reference, and the conversion that should be redone at each due date, at the price of the day. The choice between the two reference metals is not neutral for a modest portfolio: on its own, it decides whether zakat is due. That choice is a religious position, and we set it out without settling it — the AAOIFI standards on one side, the practice of several collecting organisations on the other.

The hawl condition deserves a practical remark for an active portfolio. It bears on the continuous existence of wealth reaching the threshold, not on the identity of the individual lines that make it up: selling one position to buy another does not reset the clock. What counts is that the whole has stayed above the nisab through the year.

Shares and ETFs: two treatments according to the intention behind holding

This is the most discussed point, and the one on which precision matters most. The distinction does not turn on the type of security but on what the holder expects from it.

First case, securities held with a view to resale. They are treated like goods held for trade: their market value on the due date enters the base in full. The purchase price plays no part at any moment — neither to raise the base in the event of a loss, nor to lower it in the event of a rise. It is the simplest treatment to apply, and the most demanding financially.

Second case, securities held for the long term, for the share of profit they produce rather than to be resold. The reasoning changes in nature: to hold a share is to hold a fraction of a real company, with its machinery, its buildings and its contracts, which are not zakatable assets, but also its cash, its receivables and its stock, which are. Part of the references draw the conclusion that only that zakatable fraction of the company's assets should be taken into account. Others keep the full market value, for the sake of simplicity and caution. This difference is long-standing and documented on both sides; it is not for a training organisation to settle it.

For an ETF, the reasoning is identical, one level further up. You do not look at the wrapper, you look at what it holds: an equity fund comes back to the treatment of shares, a metal-backed fund to the treatment of the metal. The fund documentation states the composition to be used. The prior question, by contrast, does not change: a fund whose compliance has not been checked raises that question first, and it is covered in our guide to halal ETFs.

One last confusion to set aside: purification is not zakat. Purification removes from an income stream the non-compliant share that has slipped into it; zakat takes a fraction of wealth held, under conditions of its own. The two operations may fall in the same year, on the same lines, and remain independent of each other.

Cryptocurrencies and cash

Cash is the simplest part of the calculation. Current accounts, savings accounts, balances awaiting investment: everything available on the due date enters the base at its nominal value, with no distinction of intention and no distinction of currency, foreign-currency holdings being converted into francs at the price of the day. One useful point: any interest credited to such accounts raises a question of compliance first, covered in our guide to investing without riba, before it raises the question of zakat.

Whether debts falling due may be deducted is one of the points on which the references do not agree. It is settled with a religious authority, not with a spreadsheet — we flag it here so that it is not discovered at the moment of the calculation.

Cryptocurrencies call for more caution. Contemporary opinions do not converge on how they should be characterised, and it would be dishonest to present as settled something that is not. What can be said without settling it is that the question raised is the same as for any other asset: what exactly do you own, and what value does that represent on your due date. An asset held in full ownership, whose access you control and which has an observable market value, meets the material conditions of the reasoning; an asset that is locked, lent out, or of which you hold only a claim raises the same difficulty as it would anywhere else. The compliance question that comes before this one is covered in our dossier on cryptocurrencies.

Calculating your zakat in Swiss francs

Here is the central practical argument of this article, and it is specific to Switzerland. Calculating zakat almost always runs into the same obstacle: reconstructing the value of a portfolio at a precise date, line by line, in a single currency. A Swiss taxpayer already does that work, every year, for another reason.

Securities held by a private individual are declared at their tax value on 31 December, published in the ICTax price list of the Federal Tax Administration. That list gives, for each security, a dated value denominated in francs, established by the administration rather than by the investor. The most tedious part of the valuation work is therefore already done, and it is already in your hands when you fill in your tax return.

The method that follows comes in four steps. First step: take the inventory of securities and cash as it appears in the tax return, adding what does not figure there in that form, such as holdings in cryptocurrencies. Second step: set aside the assets that do not meet the condition of full ownership, and apply to the shares the treatment chosen according to the intention behind holding them. Third step: compare the total with the nisab, converted at the price on the due date. Fourth step: apply the rate, if the threshold is reached and the hawl is complete.

That leaves the question of the rate, and it follows directly from that fixed due date. The rate of zakat is 2.5% over a lunar year. A lunar year is shorter than a solar year: anyone who adopts a fixed due date at 31 December mechanically lets about ten days slip each year. The National Zakat Foundation states an adjusted rate of 2.577% to represent the same annual volume on a solar basis. Both approaches can be defended; what cannot be defended is taking the civil calendar for its convenience and the lunar rate for its amount.

Zakat and wealth tax: two distinct obligations

The closeness of the two exercises creates a confusion that needs to be cleared up plainly. Wealth tax is a tax, owed to a public authority according to a scale and a calendar fixed by law. Zakat is an act of worship, owed to designated beneficiaries, according to a threshold, a duration and a rate that do not come from Swiss law. One does not replace the other, one is not deducted from the other, and settling one says nothing about the other.

What is shared is not the obligation: it is the data. The tax value at 31 December is a neutral piece of information, produced once and usable twice. Seeing it that way avoids the twin symmetrical mistakes — believing that Swiss tax stands in for zakat, or redoing from scratch a valuation exercise already completed.

Two practical differences remain. The due dates do not coincide, one being fixed and the other sliding by about ten days each year. And the perimeters do not overlap: certain assets enter the zakatable base without being treated in the same way by tax law, and the other way round. Keeping an annual record of both, on a single page, saves redoing the whole reasoning the following year. To place this exercise within the wider framework, our guide to the principles of Islamic finance takes the logic from the beginning.

The most common mistakes

Recurring errors rarely come from the arithmetic itself. They come from the base used, from the calendar, or from a confusion between two neighbouring operations.

Calculating on the purchase price

This is the most frequent error on a portfolio. Zakat bears on what you hold on the due date, not on what you paid. A security bought five years ago is valued at the price used on the day, whether that is up or down, and the acquisition price plays no part.

Confusing purification with zakat

Removing from a dividend the share of non-compliant income is an act of purification. Taking 2.5% of wealth held is zakat. Both may fall in the same year on the same line of the portfolio without either dispensing with the other.

Forgetting the gap between calendars

Fixing your due date at 31 December for convenience while applying the lunar rate of 2.5% means calculating over a period longer than the one that rate corresponds to. The adjusted solar rate exists precisely to deal with that case.

Treating wealth tax as zakat already paid

The two obligations are different in nature, with different beneficiaries. Neither is set off against the other. Only the valuation data is common to both.

Settling a difference between schools on your own

The treatment of securities held for the long term, the nisab reference and the characterisation of cryptocurrencies are points on which the schools and the institutions do not agree. Choosing the most convenient position without turning to a qualified authority amounts to issuing a ruling on yourself.

Waiting for the due date to discover the amount

Zakat is paid in cash, out of wealth that may be entirely invested. Knowing the order of magnitude in advance makes it possible to provide for it without selling in a hurry. That is the only part of the exercise that belongs to organisation rather than to the rule.

Calculating zakat on a portfolio is therefore nothing insurmountable: a dated inventory, a settled position on the two or three points of difference, a rate, and the same operation repeated each year. From Switzerland, half the work is already done by the time you fill in your tax return. To check beforehand the compliance of the positions that make up that portfolio, our compliance check lets you screen them yourself against the AAOIFI criteria.

This content is provided for educational purposes by a private training organisation. It constitutes neither a fatwa nor a financial service within the meaning of the LSFin. ALG Club has no sharia board: on the points of difference flagged here, it is for each person to refer to a competent religious authority for their own situation.

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 a recommendation to buy or sell.