It is preferred to give Zakat locally for as long as the social phenomenon of Islam and Muslims exist in a particular area. Scripture points to it, intuition points to it – likewise our normative tradition demonstrates this over the 1,400 years.
The purpose of Zakat is for Islam to flourish as a commitment to Allah that inspires believers to strive for prosperity, harmony, and justice. The result will be a faithful, successful community of Muslims, contributing to society for the benefit of all.
Our responsibility is locally. Local distribution strengthens the sense of belonging to a community. Those within a society know best and most effective ways to cultivate the necessary socio-economic environment for Islam and Muslims to flourish.
The Prophet صلى الله عليه وسلم advised his companions to do so.
Abdullah Ibn`Abbas رضي الله عنه narrates (as part of a longer Hadith):
“The Prophet صلى الله عليه وسلم sent Muadh رضي الله عنه to Yemen and said,
“Invite the people to testify that none has the right to be worshipped but Allah ﷻ and I am Allah’s Messenger, and if they obey you to do so, then teach them that Allah ﷻ has enjoined on them five prayers in every day and night (in twenty-four hours), and if they obey you to do so, then teach them that Allah ﷻ has made it obligatory for them to pay the Zakat from their property and it is to be taken from the wealthy among them and given to the poor.”
The Companions understood Zakat to be local.
Umar b. al-Khattab رضي الله عنه admonished his governor in Yemen, Muadh b. Jabal رضي الله عنه after he had sent him one-third of the Zakat of Yemen:
“I have not sent you as a tax-collector, but to take from the rich and give to the poor.”
All 4 Madhabs agreed on local distribution.
The Hanbali school stipulates:
“It is preferred to disburse all of the Zakat to the poor in his area unless there are no valid recipients in the land, in which he distributes it in the land closest to him.” —(Al-Hajjawi, Zad al-Mustaqni’, p.78)
The Shafi’i school stipulates:
“If the categories of Zakat distribution are found in the place where Zakat is collected, it is prohibited and invalid to transfer the Zakat elsewhere.” —(Reliance of the Traveller, p.272)
The Maliki school stipulates:
“Transferring Zakat (outside the locality) is impermissible, expect if there is a pressing need to do so.” —(Tawdih al-Ahkam min Bulugh Al-Maram 3:27)
The Hanafi school stipulates:
“It is disapproved to transfer the Zakat of one land to another; unless he transfers it to his poor relatives, or to a people needier than his own.” —(Al-Zayla’i, Nasab al-Rayah 2:423)
Reference: National Zakat Foundation