Real Estate Transaction Tax in Saudi Arabia

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Saudi Arabia levies a Real Estate Transaction Tax (RETT) at a standard rate of 5% on the total real estate disposal value. In this write-up, we have explained different aspects of RETT, viz. applicability, exceptions, compliances etc.

Applicability

RETT is applicable on various transactions of disposal of real estate. For instance, it includes:

- Transfer of ownership, sale, barter;

- Inheritance, gifts, donation;

- Financial leasing, long term contracts;

- Transfer of shares in a real estate company, etc.

RETT applies regardless of the condition of the property, its shape, use at the time of the disposal, or whether the disposal is authenticated or not.

Valuation of real estate

For the purpose of RETT, the real estate value is the value of land and the structures built on it during a property disposal. The tax is calculated based on the entire property value, considering different types of real estate, such as communal areas, detachments, residential units, and others.

Exceptions to RETT

To encourage first time buyers, government bears the tax due on the first SAR 1 million of the purchase value of a Saudi national’s first home. Further, many other transactions of disposal of real estate are exempt from RETT, subject to the satisfaction of the specified conditions. The key exceptions include:

- Transfer of real estate by a natural person to a Saudi company where the person owns 100% of the shares or stocks of such company and there is no change in shareholding percentage for 5 years from the transfer date;

- Transfer of real estate between companies with 100% common shareholding, where one person (legal or natural) holds 100% shares of all concerned companies, provided there is no change in shareholding percentage for 5 years from the transfer date;

- Transfer of real estate by any person to a licensed real estate developer licensed;

- Disposal of real estate by a natural person to an investment fund in Saudi Arabia, where all units are owned directly or indirectly by the same person. One of the conditions for this exception is that there is no change in ownership percentage for a minimum of 5 years from the date of real estate disposal;

- Transactions of disposal of real estate between a company and an investment fund, provided the shares or units must remain owned by the same individuals/companies (directly or indirectly) for a minimum of 5 years from the date of the real estate disposal;

- Disposal of real estate as an authenticated gift to the spouse or a relative, or disposal in cases of inheritance;

- Disposal of real estate by/to government entities.

Compliances

The primary responsibility for tax collection rests with the seller. However, in situation where the seller fails to remit the tax, the purchaser may assume liability. RETT becomes due on the date of disposal and must be settled within 30 days. The tax amount is determined based on the mutually agreed-upon value between the parties or the property's value, provided it is not less than the fair market value at the disposal date. The law also provides for refund of RETT in specified circumstances like cancellation or incomplete disposal of real estate.

Conclusion

In essence, RETT intends to tax the actual disposal of real estate transactions where the seller alienates himself of the property disposed of. No RETT is levied on disposal of property as a gift, inheritance or to relatives. Likewise, transfer of property into a company/fund where the shareholder intends to hold investment in the said company/fund is also exempt from RETT. Taxpayers are therefore advised to explore the exceptions and evaluate their eligibility for such exemptions.

Disclaimer : The content on this website is provided for general informational purposes only. It is not intended as professional advice and should not be construed as such. The information is based on the knowledge and experience available at the time of writing and is subject to change.