Zakat on Venture Investments

Zakat is not merely a financial obligation—it is an act of worship. As a pillar of Islam, it deserves careful consideration and understanding, particularly when it comes to investments. At Wahed, we aim to empower our investors by ensuring that zakat is approached with both knowledge and sincerity.

In this guide, we want to offer guidance on how zakat should be considered for investments in Wahed Ventures, especially as many investors will receive annual zakat statements from Wahed or may be in the process of calculating what you owe.

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‍What is Wahed Ventures?

Wahed Ventures focuses on investing in early-stage startups—companies that are either newly established or in the process of fundraising. These businesses typically differ from traditional ones with steady income and established operations. As such, their zakatable (zakat-eligible) assets can be more complex to determine.

Isn’t Zakat just 2.5%

While it might seem simple to apply the standard 2.5% rate to your total investment, the matter isn't quite so straightforward. Zakat calculation is not a tick-box exercise—it is an act of worship, and the precision involved in calculating it is itself rewarded by Allah (SWT).

This is why, instead of issuing a flat figure, we've made a conscious decision to help our investors understand the different scholarly opinions and their underlying reasoning.

Here, we will cover the following opinions or methods:

1. No Zakat due (0%)
2. Zakat is due
   
   1. When financial statements are available (2.5775%)
   2. When financial statements are not available
      
      1. Zakat on the Investment Amount (2.5%)
      2. The Proxy Approach (0.075%)

1. No Zakat Due

Some scholars argue that if the investment:

• Doesn’t currently produce any dividends or returns
• Is meant to be held until the company is sold or exits

Then no zakat is due for the time being. This view sees the investment akin to an illiquid asset not currently yielding any benefit.

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2. Zakat Is Due

2.1 When Financial Statements Are Available

For startups that provide annual financial statements—including a balance sheet and income statement—we take guidance from our Shariah Board. The process involves:

• Identifying Zakat Base, determined by subtracting any deductible liabilities (usually short term debt) from Zakatable assets like cash and current assets.
  
  
• Applying a rate of 2.5775% instead of 2.5%. This slight increase accounts for the difference between the solar year (365 days) used in most financial accounting and the lunar year (354 days) used in Islamic calculations.
  
  

This approach is precise and just, aligning with Islamic legal principles, especially for those who may not have excess wealth and need accurate figures to fulfil their religious obligations.

2.2 When Financial Statements Are Not Available

If financial statements aren’t accessible, there are several alternative approaches, all grounded in scholarly opinion:

2.2.1 Zakat on the Investment Amount (100%)

You may assume the cash you invested is still within the business and pay 2.5% on the full investment amount. This is a prudent position which also aligns with our Shariah Board guidance, especially if there’s reasonable belief the funds haven't yet been deployed.

2.2.2 The Proxy Approach (30%)

This method mirrors what is often used for public equities. Scholars have advised that 30% of a company’s value can be used as a proxy for zakatable assets. In this case, you would pay 2.5% on 30% of your total investment (0.75%).

While originally developed for listed equities and ETFs—where reviewing hundreds of balance sheets isn't feasible—this method is increasingly used for startups as well, due to its practicality.

Precision and Justice in Zakat

Some may feel that giving a little extra zakat “just to be safe” is admirable. While well-intentioned, this approach may not be appropriate for everyone—particularly for those with limited financial means. Islam is a religion of justice, and precision is a virtue when it comes to fulfilling your religious duties.

As with other acts of worship, there are differing but valid opinions in zakat calculation, and what's most important is that one exercises sincerity and diligence.

Our Commitment at Wahed

It would be easy for us to issue a simple number and move on. But this is not a tax return, nor a donation—this is your worship. Our role is not only to serve you as investors, but also to support you as servants of Allah. That is why we invest time, research, and Shariah guidance to provide you with multiple perspectives—so you can make the most informed, intentional decision for your situation.

If there is any confusion, or if you have follow-up questions, please do not hesitate to reach out.

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Disclaimer:

The Zakat value provided is an indicative amount based on your portfolio value at a specified date, calculated using the methodology approved by our Shariah Supervisory Committee. There are other fiqh-based (Islamic jurisprudential) approaches you may prefer to follow, that may impact your Zakat obligation, such as the completion of one lunar calendar (Hawl) for the respective funds, personal financial circumstances, personal Nisab threshold, or alternative Zakat methodologies. Therefore, while we provide this indicative amount, we strongly recommend that you review and understand our calculation methodology and apply it according to your circumstances. You may also seek guidance from a qualified Islamic scholar or professional to determine the most suitable method for your Zakat calculation.