Saudi Gazette report

RIYADH — There are at least 21 cases under which an exemption will be granted for Real Estate Transaction Tax (RETT), as per the RETT Law approved by the Council of Ministers on Sept. 17, 2024. The salient features of the law were revealed in the notification of the official gazette - the Umm Al-Qura newspaper.

The law grants those, who have made any undocumented real estate transaction before the effective date of the real estate transaction tax, on Safar 14, 1442 AH, corresponding to October1, 2020, a grace period of one Hijri year from the date of the law taking effect, to correct their status and document the real estate transactions they have made in accordance with the relevant regulatory provisions. The grace period may be extended by a decision of the Council of Ministers based on a proposal from the Chairman of the Board of Directors of the Zakat, Tax and Customs Authority.

RETT is a tax applied whenever there is a transfer of real estate within Saudi Arabia. Transfer includes buying, selling, gifting, or inheriting properties. The current RETT rate is 5 percent and is calculated based on the property’s sale value. Any real estate transaction must also be registered on the real estate transaction portal of the Zakat, Tax and Customs Authority, specifying the property data and specifying the type of real estate transaction, before the documentation is carried out with the competent authorities.

The law revealed 21 cases in which real estate transactions are completely exempt from the tax, as the law includes specific exemptions, such as: real estate transactions related to the division of estates or gifts to relatives up to the third degree, and transactions for the purposes of endowments and charitable associations. It aims to combat tax evasion by imposing fines of up to three times of the tax due in the event of manipulation or providing inaccurate information.

The Cabinet decision issued in this regard stressed that the date of the real estate transaction must be proven before the competent authority, and that the Minister of Justice and the Chairman of the Board of Directors of the Zakat, Tax and Customs Authority must agree on the controls for implementing this period, and they must submit what requires taking action in this regard.

The decision stipulated that the real estate transaction tax shall be exempted from real estate transactions carried out in implementation of lease-to-own contracts and finance lease contracts, concluded before the effective date of the real estate transactions tax on Oct. 1, 2020, as well as real estate transactions that were subject to value-added tax before their documentation, if the documentation was carried out after the provisions of the real estate transactions tax law coming into effect. The Council’s decision also exempted real estate supplies subject to real estate transactions tax from value-added tax.

Other cases for exemption from the real estate transaction tax included the following: real estate transaction in implementation of a forced sale order; the transaction resulting from mergers and acquisitions between legal persons; real estate transaction between a company and another established in the Kingdom, one of which owns all the shares or shares of the other company; real estate transaction between a company and an investment fund established in the Kingdom, and the company owns all the units of the fund; real estate transaction between companies or investment funds established in the Kingdom, all of whose shares, shares or units are owned by the same person, and it is required in all cases that all the shares the company to which the transaction is made or the units of the fund to which the transaction is made remain owned by the same person for the period specified by the regulation, not exceeding five years.

Among the exemptions are disposal of the property by any person to a real estate developer licensed to practice off-plan sales and rental activities, provided that the property is allocated to one of the off-plan sales projects and a licensing decision has been issued for it by the competent authority, and disposing without charge to a company or investment fund established in the Kingdom. The cases of exemptions also included all the company's shares or stocks or fund units owned by a general or joint endowment, provided that there is no change in the percentage of endowment ownership in the company or fund for the period specified by the regulation, not exceeding 5 years.

The exemption cases include returning the disposed property to its previous owner as a result of vacating the documented real estate disposition by mutual consent between its parties, within a period not exceeding 90 days from the date of the documentation subject to cancellation.

The law stipulated that its regulations will determine the criteria and controls for total exemption from tax for each of the aforementioned cases.