Educational content only. We analyze equity compensation
using the principles of
Ijarah (Payment) and Shirkat (Partnership).
This is not financial, legal, or religious advice. Please consult a qualified
scholar or professional for your specific situation. We do not issue fatwas.
For many tech workers and executives, the "salary" is just for paying bills. The real wealth comes from Equity—shares in the company. But receiving ownership in a business is legally and spiritually different from receiving cash. You become a part-owner. Are you ready for the responsibility that entails?
Scholarly consensus overview
Receiving shares as compensation is generally Permissible. It is simply being paid in "assets" rather than currency.
The permissibility hinges on the business activity of the company. If you work for a company whose primary business is Halal (e.g. Software, Retail), claiming ownership in it is Halal. If you work for a Bank or Casino, ownership is Haram.
RSUs vs Options: The Difference
Companies use confusing acronyms. From a Shariah perspective, the distinction matters for Zakat and ownership dates.
Tool 1: Equity Decoder
What exactly is in your offer letter?
Vesting: When do you actually own it?
Most equity comes with a "Vesting Schedule" (usually 4 years). This is designed to keep you at the company ("Golden Handcuffs").
Crucial Ruling: You do NOT own unvested shares. They are a promise, not a possession. Therefore, no Zakat is due on unvested shares. You only become the owner (and liable for Zakat) the moment they vest.
Tool 2: Vesting Visualizer
See exactly when the liability shifts to you.
Purification: Cleaning the Income
Most modern companies are "Mixed". They are Halal businesses (e.g., selling software) but they may hold cash in interest-bearing accounts, meaning a small % of their revenue is Haram (Interest).
When you receive dividends or sell the stock for a profit, you must "purify" this portion. You calculate the % of Haram revenue (usually found in the Annual Report) and donate that % of your gain to charity.
Tool 3: Purification Calculator
Calculate how much you need to donate to cleanse your earnings.
The Red Line
Where do scholars draw the line?
- 1Core Business must be Halal:
You cannot accept equity in a company whose main business is prohibited (e.g., An alcohol brewery, a conventional bank, an insurance firm). Owning even 0.0001% of a Haram business is sinful.
- 2Financial Ratios (The 33% Rule):
For Public companies, most scholars follow the AAOIFI standards: carefully check if the company's debt exceeds 33% of its market cap. If it is highly leveraged with Riba debt, it may be non-compliant to own.
Summary & Practical Guidance
- Know your Ownership: Understand strictly when vesting happens. That is the Tax and Zakat point.
- Purify Gains: Always assume a small % of "Mixed" company income is impurified by interest. Donating 3-5% of your profit is a safe precaution if you cannot find exact figures.
- Sell Immediately?: Some pious employees choose to sell shares immediately upon vesting to avoid the hassle of tracking ongoing compliance/purification.
Methodology
Analyzing Employee Equity
We applied the AAOIFI Shariah Standards on Stock Trading and the definitions of Milk Tamm (Complete Ownership) to determines when Zakat becomes liable on RSUs and Options.
- AAOIFI Standard No. 21: Financial Paper (Shares and Bonds).
- Mufti Faraz Adam (Amanah Advisors): "Zakat on RSUs and Share Options".
- Joe Bradford: "Simple Zakat Guide for Investments".