Lunar or solar year: 2.5% or 2.577%?
Pay on a Hijri date at 2.5%, or on your financial year end at 2.577%.
Zakat is due once a lunar year, but most businesses close their books on a Gregorian date. Can you use your financial year end, and what rate applies then?
The hawl is a lunar year
A lunar year has about 354 days (AAOIFI 3/2/4), and the rate for a lunar year is 2.5%. A Hijri date, such as 1 Ramadan or 1 Muharram, fixes the zakat date in the lunar calendar.
Using a solar year
AAOIFI and NZF both allow a business to use a solar year, such as its financial year end, as long as the rate makes up for the extra 11 days: 2.577% instead of 2.5%. AAOIFI gives 2.5775% for a leap year. NZF gives 2.577% and advises using the lunar year where you can.
2.5% × 365.25 days ÷ 354.37 days ≈ 2.577%
Which one suits you?
- A Hijri date stays closest to the hawl itself. You take balances on that day, which is rarely a month end, so you may need to export a trial balance for a date in the middle of a month.
- Your financial year end uses balances you have anyway, often checked by your accountant. The rate is a little higher to make up for the longer year.
Moon sighting
The app uses the Umm al-Qura calendar for Hijri dates. Where you live, a month may start a day earlier or later, depending on when the new moon is sighted. A day’s difference rarely changes the balances, and you can pick the date your community follows.
Switching between the two
If you move from a solar to a lunar date, or the other way round, make sure no days are left out: the first year after the switch can be a little longer or shorter than a year. When in doubt, pay a little more rather than less.