By: Khairul Anam Bin Dahalan
In the world of modern finance, intangible assets have become increasingly significant. These non-physical assets, such as patents, trademarks, copyrights, and goodwill, often constitute a substantial portion of a company’s value. However, when it comes to Shariah-compliant finance, there are specific principles and guidelines that must be followed. This article explores Shariah’s view on intangible assets related to waqf, zakat and wills and it provides insights for modern Islamic finance.
INTANGIBLE ASSETS FROM SHARIAH PERSPECTIVES
Quran: In Surah Al-Baqarah (2:275), says trading is allowed but forbids harmful interest (riba). This shows Allah’s wisdom and the importance of ethical conduct. Islamic finance follows these principles, allowing businesses with intangible assets like patents and copyrights, provided they follow ethical guidelines. This is because intangible assets contribute positively to the economy. Islamic finance values fairness, transparency, and the absence of harmful interest, adapting to modern economic realities while staying Sharia-compliant and ethical.
Legal Maxims: Classical Muslim jurists believed that if something was commonly seen as property by people, it should be considered property in Shariah law. This aligns with the idea that “Custom is an arbiter” and “The decision of the ruler ends legal controversy.” Today, many governments and laws recognize intangible assets like business names, trademarks, copyrights, and patents as property and provide legal protection for them. The Islamic Fiqh Academy of the Organization of Islamic Cooperation (IFA-OIC) emphasizes this recognition, stating that these intangible assets have financial value and are accepted by Shariah. In short, intangible assets are considered property in Shariah law and deserve legal protection. Usually, it’s acceptable to exchange them for something valuable, as supported by modern Shariah research and Islamic institutions.
JURISTS VIEWS ON INTANGIBLE ASSETS
Hanafi: Mal is what human instinct inclines to, and which is capable of being stored/hoarded for the time of necessity
Shafie (Al-Zarkshi): Mal is anything that provides benefit (either in the form of usufructs or material items), such as material items and domestic animals. Solid inorganic materials are usually not considered mal.
Hanbali (Al-Kharqi and Al-Buhuti): Mal is something that has a lawfully permissible benefit, not necessarily an urgent need. Al-Buhuti explains that certain things are not considered mal, like insects, or items with forbidden benefits, such as wine. Additionally, owning a dog or consuming a carcass is only considered mal when it’s necessary for survival or in dire circumstances.
Maliki School (Al-Shatibi): Mal is the thing that confers ownership and, once assumed, precludes others from interfering. This definition confirms that the object of ownership is mal. It further clarifies that the relationship that exists between an object and its owner is the foundation of property rights.
In summary, the Hanafi school of thought doesn’t classify intangible assets like patents, trademarks, copyrights, and goodwill as property (mal). They focus on tangible assets. Other Islamic juristic schools, like Shafie, Hanbali, and Maliki, have broader views, considering intangible assets as property. This shows different opinions on handling intangible assets in Islamic finance, with Hanafi differing from others.
CONTEMPORARY ISSUES OF INTANGIBLE ASSETS IN WAQF, ZAKAT & WILLS
Waqf (Issues on shariah ruling & legality in Malaysia): The Quranic verse (Al-Imran:92) underscores the promotion of charitable giving and the act of waqf within Islamic principles. Another important aspect is that AAOIFI Shariah Standards explicitly recognize intangible assets, notably intellectual property, as distinct rights with inherent economic value, emphasizing the imperative of safeguarding these rights. The consensus among scholars from the Maliki, Shafi’i, and Hanbali schools of thought further solidifies the notion that copyrights pertaining to valuable creations hold legal validity under Islamic jurisprudence. Notably, reproducing a work without the author’s consent is deemed a religious transgression; moreover, it is considered a religious transgression irrespective of the presence of a copyright statement, as it infringes upon the author’s rights. Additionally, the Waqf Enactment of Selangor 2015 provides a legal framework that allows for the endowment of both tangible and intangible assets, including intellectual property, as long as they meet specific criteria related to ownership, transferability, and capacity to yield benefits.
Zakat (obligations & method of measurement): Regarding the zakat obligations on intangible assets, there are three opinions among Muslim jurists. The first opinion, held by scholars like al-Buti and al-Shadhli, suggests that zakat isn’t required on intangible assets since they may not have the potential to grow in value as needed for zakat, drawing a parallel to the exemption of zakat on slaves and horses.
The second opinion, supported by scholars including Abd al-Wahhab Khalaf, Abu Zahrah, and al-Qaradawi, argues for the annual payment of zakat on intangible assets, citing Quranic verses emphasizing zakat on wealth without specifying its use.
The third opinion, favored by contemporary scholars, acknowledges the financial value of intangible assets and their potential for trade. This opinion distinguishes between intangible assets within a company’s overall assets and those intended for trading. If they are part of a company and not for trading, zakat is due on dividends distributed to shareholders. If they are separable and meant for trade, zakat is paid upon their sale. This practical approach is supported by scholars like al-Ashqar, al-Qurah Daghi, and Yasin, considering the nature and potential use of intangible assets.
Regarding the measurement of zakat for intangible assets, the third opinion prevails, stating that zakat is required if the intention is to trade these assets. However, there’s a debate among scholars on how to calculate the zakat amount for such assets.
The first view suggests calculating zakat based on the cost value of the intangible asset, considering it as its true value at the outset. This approach avoids fluctuations in market prices and takes into account the owner’s intention to sell.
The second view advocates for zakat to be based on the market value of the intangible asset. This is deemed fair as it reflects the asset’s known market value and its potential for value appreciation.
The third view distinguishes between traders of intangible assets and companies involved in their development or design. Traders pay zakat based on the market price, while companies pay based on the cost price.
Wills (shariah ruling & legality in Malaysia): The Hadiths of Sa’d ibn Abi Waqqas and Abdullah ibn Umar do not explicitly mention intellectual property (IP) assets in wills, as IP concepts were not present during their time. However, Islamic jurisprudence permits Muslims to include IP assets in their wills, as long as these bequests follow the guidelines of not exceeding one-third of the total estate value and not harming the rightful heirs’ shares, as outlined in the Quran (Surah An-Nisa, 4:12). While there isn’t a direct Hadith on this topic, Islamic principles allow for the inclusion of IP assets in wills while ensuring compliance with Shariah law and respecting heirs’ rights. Consulting an Islamic scholar or legal expert for personalized guidance is advisable due to potential variations in interpretation and application of these principles.
Under the Islamic Wills Enactment for Muslims (Selangor) 1999, Section 9, items included in a bequest must be inheritable or contractually valid during the testator’s lifetime, possess value, be transferable after death, and owned by the testator. Intellectual property qualifies as it holds intrinsic value despite lacking physical presence. Additionally, the Wills Enactment of Pahang, Section 10, mandates that bequeathed property must exist, be fully owned, and be permissible (halal) in Islamic law, excluding forbidden activities like usury or uncertainty. Intellectual property can be included in a bequest if it meets these criteria, including having
value, being determinable through registration or documentation, and not being associated with prohibited actions.
CONCLUSION
In Islamic finance, intangible assets such as intellectual property are recognized as possessions and receive legal protection under Islamic law. When it comes to charitable endowments (waqf), intangible assets, including intellectual property, are in line with Islamic principles and have enactments that support waqf using intellectual property. Regarding zakat obligations, there are different opinions, but practically, the financial value of intangible assets is considered, with specific rules for various situations. In terms of wills, while there are no direct Hadiths addressing intellectual property, Islamic law allows their inclusion under certain conditions. The laws in Selangor and Pahang acknowledge intellectual property in wills and follow distinct guidelines.
To summarize, Islamic finance and intangible assets like intellectual property can coexist within the framework of Islamic principles and legal regulations, providing guidance for contemporary financial practices.
