Debt and Az-Zakah

Does Debt prevent Az-Zakah

Question :

A man works at a business and he deals with foreign companies by buying on credit. Then a year passes on this credit and he is responsible for paying large sums of money. Therefore he asks that if he wishes, can he pay what he owes of these debts to these companies before they are due, and some days before a year expires on the debts, so that he can avoid the Žakah on these sums that he owes? The time to pay the debts will come some days after the completion of the year which requires Az-Zakah to be paid. Is he committing a sin with this intention?

Question :

How does he pay the Zakah of his wealth if the situation is as follows, for example:
1. The value of the existing merchandise in storage at the end of the year is 200,000 riyals.

2. The value of the debts that he owes is 300,000 riyals.

3. The value of the debts that he is owed is 200,000 riyals.

4. The cash and balance in his bank account is 100,000 riyals.

If the time for paying some of these sums comes and he delays in paying until a year passes, then he takes this money out of his account to pay it to its owner after calculating it, and he removes it from his collected wealth while subtracting it from the debts he owes, does this exempt him from paying its Zakah?

Answer:

If he who owes debts pays his debts before the completion of the year, there is no Zakah due on him, and there is no sin in that. 'Uthman bin 'Affan 4, the Rightly-Guided Caliph, used to command whoever owed a debt to pay his debt before the time of Az-Zakah. There is no harm if the person who is owed the debt remits some of the debt so that the remainder may be paid before the time expires according to the most correct opinion of the two views held by the scholars. This is due to what that contains of collective benefit for the people who are owed debts and those who owe the debts, along with it being far removed from Ar-Riba (usury, interest).

In reference to the value of the merchandise that is in the storage facilities, you must pay its Zakah when a year is completed. The same is the case with the balance that you have in the bank. Its Zakah must be paid upon the completion of a year. In reference to the debts that are owed to you by the people, it contains some classifying elaboration. Whatever of these debts is owed by wealthy people who can pay, then its Zakah must be paid upon the completion of a year, because it is like the balance that is in the bank and similar things. Concerning that which is owed by people in straitened circumstances, there is no Zakah on it according to the correct view from the views held by the scholars.

Some of the people of knowledge went with the view that its Zakah should be paid after it is collected, and only one year of Zakah should be paid on it. This is a good position and it a safe view. However, that is not obligatory according to what is most correct. This is because Az-Zakah is charity and it is not obligatory on wealth that one does not know whether it will be acquired or not, as it is with those who are having difficult times, those who delay paying and similar people. This is just like wealth that has been lost, lost animals and similar things.

In reference to the debt that you owe, it does not prevent Az- Zakah according to the most correct view from the views of the people of knowledge. Concerning that of your wealth which is due to be paid to people to whom you owe debts, and you have had it for a year before you repay it to the people to whom it is owed, its Zakah does not become nullified. Rather, you still must pay its Zakah as a year has passed on it and it is in your possession. And success is from Allâh.

Source:
Fatawa Islamiyah, Vol. 3 Pages 194-195-196