Saudi Arabia: Real Estate Transaction Tax (RETT)

As of 4 October 2020, a 5% Real-Estate Transaction Tax (RETT) was imposed on all real estate transactions that include the sale, Will, financial lease, lease ending with ownership, and long-term usufruct contracts with a period exceeding 50 years which are not deductible nor refundable. The real estate transaction tax is imposed on all individuals and organizations involved in real estate disposals and is paid by the seller (disposer).

As per the executive regulations of RETT issued by ZATCA, some transactions are exempted from RETT including:

•   Disposal of the real estate in cases of inheritance distribution, family endowment, charitable endowment, charity association, or as a gift between relatives up to the second degree.

•   Disposal of real estate for a government agency or public legal persons for the public benefit.

•   Disposal of real estate by a government agency as a public authority that is not related to investment, commercial or economic purpose.

•   Disposal of real estate in cases of expropriation for the public benefit or temporary seizure of real estate.

•   Disposal of real estate as part of a legitimate will.

•   Transfer of real estate temporarily for use as a financial or credit guarantee.

•   Disposing of real estate temporarily for the purpose of transferring it between a fund and a custodian or vice versa, or between custodians for the same fund.

•   Transfer of ownership of a real estate in implementation of lease contracts for the purpose of ownership and finance lease contracts entered into prior to imposing the RETT.

•  Provision of real estate as an in-kind share in the capital of joint-stock companies, limited liabilities, and partnerships or limited partnerships provided that the corresponding shares are not disposed of for a period of five years.

•   Real estate transactions in which one of the parties is a foreign government, an international organization, a diplomatic or military authority, or a member of the diplomatic, consular, or military corps accredited in the Kingdom on the condition of reciprocity.

•   Real estate disposal that was previously subject to VAT, provided that there is no change in the parties of the transaction or the value and terms of the contract.

•   Transfer of ownership of a real estate by a partner in a company to that company, provided that this real estate is recorded in the company’s assets before the RETT became effective.

The tax is generally due on the date of disposal of the real estate on the basis of the value of the real estate according to the value agreed upon between the buyer and the seller, provided that it is not less than the fair market value on the date of disposal. The Executive Regulations list different tax points for the different disposals.

The fine for late payment of RETT is 5% of the unpaid tax value for each month or part-month for which the tax has not been paid. The penalty for violating the rules of RETT is subject to a fine of no less than 10,000 Saudi Riyals and not more than the value of the tax due.

On 18th February 2022, ZATCA approved amendments to the RETT executive regulations taking effect on the same date. The main amendments are listed below:

•   Extending the exemption under Article 3 (A.6) which involves the disposal of real estate as a gift between relatives up to the third degree instead of the second provided that the disposer does not pre-dispose of the gift to a person who does not qualify as up to a third-degree relative of the disposer for a period of three years from the date of certification of the gift.

•   A joint venture exclusion statement has been added to Article 3 (A.10) which involves in-kind contributions of real estate.

•   Amendments to the definitions section in the executive regulations to include definitions of the first, second, and third-degree relatives.

•   Amendment to the date of payment of RETT in relation to the transactions carried out according to off-plan sales projects.