Annual To-Do: Revenue Purification and Zakat
Muslim stock investors must not only ensure that the imposed criteria for an Islam-compliant strategy are met when selecting stocks, but must also "pay off" certain amounts. These are, on the one hand, zakat, which should be known to everyone, and, on the other hand, the amounts from revenue purification.
I have now carried out both for the Public Depot. The Zakat is always due on a certain date in the year anyway. I do the revenue purification bundled by me at a time close to my zakat payment. In the following paragraphs there is for you a short summary with the most important information and refer to helpful sources/ old contributions of me!
You will find the links to the references mentioned in the text at the end of each section!
The revenue cleaning
One of the criteria for a company's shares to be classified as Sharia-compliant is that the proportion of impure sales is less than 5% (Explanation of the criteria: https://halal-investieren.de/aktien/regeln/). This impure portion must be purged from the revenue attributable to the Muslim investor. Such an adjustment is required whenever a share is in your custody account at the company's fiscal year end. Explanations of the calculation as well as a calculator for easy calculation can be found on my website.
Personally, I proceed in such a way that I carry out the adjustment of my overall portfolio retroactively on a reference date. The reason for this is that otherwise you would have to pay smaller amounts again and again, depending on the number of different positions in the portfolio and the different day of the fiscal year end. For the Public Depot I have provided an Excel document on Patreon, in which the most important information is queried directly in the columns and which can also be used for the personal portfolio. For those who still have difficulty doing that alone with the calculator on the website, I recommend this Excel document. In addition, I link below again an Instagram post, in which I have exemplarily shown where you get the required information.
For the Public Depot, an impure amount of 16,18€ has to be deducted. Based on the current investment value, the impure amount is therefore less than 0.4%. That is super! Here is still missing the adjustment of $7974 (-0,11 %) and $BOOT (+1,61 %) . The background to this is that the financial years have only recently ended and the business figures have not yet been published, from which the impure shares can be taken. However, experience shows that these are very low for the companies, so only a few cents should be added.
It is also interesting to mention that 78%, i.e. 12.77€ of the 16.18€ is due to one single share, namely $UFPI . In the mentioned Excel document, the reasons for this can also be clearly seen. From this observation, selection criteria can be formulated:
- 1. the self-explanatory criterion: if the impure share (in %) is high, the amount to be deducted is also higher.
- 2. not the self-explanatory one: If the revenue per share price is high, that drives up the impure amount. (Exact explanation on Patreon).
If both points apply to a stock, it probably makes rather no sense to invest in it. In the case of $UFPI, this means that the stock becomes uninteresting, as it has a hard time on its own to recoup the impure amounts annually. In the Patreon post I explained the correlations again in detail, so that you can also take them into account for your own investment decisions 😉 .
Website -Basic Theory & Calculator:
https://halal-investieren.de/aktien/einnahmen-bereinigen/
Instagram - Example:
https://www.instagram.com/p/CN9Qb7kBquf/
Patreon - Explanation for Public Depot + Excel template:
https://www.patreon.com/posts/81149755?utm_campaign=postshare_creator
The Zakat
Shares are also a type of property, which is why zakat must also be paid on them. The only question is how to determine the amount to be paid for these. For various investment products, including cryptocurrencies, real estate, etc., I have already explained the different handling for zakat in an Instagram post. In this one, it also comes to mention that for stocks, the calculation differs depending on the investment strategy. If one follows an "Active Trader" strategy (investment horziont <1 year), then the position value is used according to the share price. However, if you follow a "Buy & Hold" strategy, you will be considered as an actual shareholder of the company and have to calculate the Zakat as if it were your own company. The zakat for an owner-managed company is not calculated on the "market value" of the company, but on the current assets that are subject to zakat. The current assets can be taken from the balance sheet of a company. For investors who are overwhelmed by this, an empirical value of 25% of the market capitalization has been defined as current assets. Explanations for the handling of different strategies, as well as the empirical value of 25% can be found in another Instagram post.
Now there is recently another free service from Zoya, which facilitates the whole work and makes the approximation with 25% no longer necessary. Namely, in a calculator, the user can select his positions and indicate which strategy he follows with the stock. The zakat to be paid is calculated automatically.
For the Public Depot a Zakat of 24,80€ has been calculated. The approximation using 25%, which is no longer necessary, provides a very good value, which we have used here for verification. Here a value of 27,50€ results - one was and is with it already on the safe side!
There is also a detailed article on Patreon about Zakat, using the example of the Public Depot, which you are welcome to consult for a better understanding. You will find here (also in the article about Zakat last year) screenshots from the balance sheet, Calulator & Co. again, where the topic "Zakat for shares" is explained in more detail.
Instagram - Zakat for various investment products:
https://www.instagram.com/p/CNt3sBbBZQw/
Instagram - Backgrounds "Buy & Hold" Zakat + 25% value:
https://www.instagram.com/p/COHdkJEh3ON/
Zoya - Zakat Calculator:
https://app.zoya.finance/zakat
Patreon - Detailed explanation of Zakat using the example of Public Depot:
https://www.patreon.com/posts/81286416?utm_campaign=postshare_creator
Closing
In conclusion, I wish you much success with these obligatory to-dos! Under increase of the assistance this will represent surely no problem for you! In this sense, I wish you a blessed Ramadan! 🤗
