I understand that we need to pay zakah on "physical" gold and silver after a certain threshold has been reached and is available for a whole lunar year.
What is the fiqh with respect to gold exchange-traded fund (ETFs)? Do we pay zakah on that too?
Islam Stack Exchange is a question and answer site for Muslims, experts in Islam, and those interested in learning more about Islam. It only takes a minute to sign up.Sign up to join this community
When you buy Gold ETFs, you essentially own some gold (the gold belongs to you), but do not have physical possession of it (its locked up in some vault somewhere), but you do have control over it (you can choose to sell your units at any time, any day during trading hours).
For Zakat to be applicable, one must have ownership and possession of the wealth. Possession is defined in fiqh as the ability to freely transact with it, i.e. having control over it.
Since you do have ownership and control of the gold, you are liable to pay Zakat on it, the ruling is similar to how you are liable to pay Zakat on cash deposits in a bank account, even though you do not have physical possession of the cash.
Below I'll quoted the Shafi and Hanafi ruling on Zakat on debts due to a person. Debts are similar to ETFs in that there is ownership and control, but no physical possession:
From Shafi school's, Minhaj Al Talibin:
(Zakat is levied on:)
4.Property in another town. The assessment on this is due immediately, if there is full power to dispose of it ; otherwise it is treated as in 2.
5.Debts due to one. A debt relating to a certain quantity of cattle, and a debt which cannot be exacted, such as that due to a master from a slave undergoing gradual enfranchisement, are not subject to assessment. In his first period Shafii extended this principle to all debts due to a person, whether relating to goods or money ; but during his Egyptian period he drew a distinction in this respect between a debt which can be immediatoly exacted and one which is due only at a fixed date. The tax on the former is due at once, except when the debt cannot be recovered owing to the insolvency of the debtor, etc. ; otherwise it is regarded as coming under the second category ; though some authors think the assessment is due even before the debtor has satisfied his obligation.
From the Hanafi school's Hidayah:
If the debt is claimed from a financially well off person, who acknowledges it, or one who is in financial straits, zakat is imposed due to the possibility of accessing it either initially or through protracted means.
You need to pay Zakah for money, gold or any other belongings that you own for commerce, only if the total value has exceeded specific threshold of gold, not necessary to be gold
ex: if you have a car or more that you use for yourself, a home or more than you use and your family use, then no zakaah here.
But if you have a car that you rent, or a home that you rent, or a farm, in this case you should pay zakah for the revenue generated from these items if this revenue compared to what you own for a lunar year exceeded the threshold