On 9 April 2025, the Zakat, Tax, and Customs Authority (ZATCA) published the Implementing Regulations for the Real Estate Transaction Tax (RETT) in the Official Gazette.
These regulations were issued pursuant to the RETT Law, which was officially published in the Official Gazette on 11 October 2024, with an effective date set from 180 days of publication. Accordingly, both the RETT Law and its implementing regulations came into effect on 9 April 2025.
The implementing regulations can be accessed through this .
A summary of key provisions and highlights from the updated regulations are provided below:
1) Definition of real estate company
ZATCA included the definition of real estate companies by limiting it to the companies owning real estate directly or indirectly with the aim of generating income from the sale or renting of the real estate properties. Furthermore, to qualify as a real estate company, the market value of these properties shall not be less than 50% of the total fair market value of the company's assets on the date of the share transfer in the company or at any time within the 365 days immediately preceding the date of such transfer.
2) Definition of real estate
The definition of real estate has been revised to include any movable property that is placed in a real estate and is intended for the permanent service or exploitation of the real estate, even if it is not permanently affixed to it.
3) Relatives up to third degree
ZATCA updated the definition of relatives up to third degree to include as follows:
a. First degree: Father, mother, son, daughter.
b. Second degree: Brother, sister, grandfather, grandmother, grandchildren.
c. Third degree: Uncles, aunts, nephews, and nieces.
4) Real estate transaction in case of transfer of shares
A real estate transaction shall arise if a person or a group of persons, acting in agreement among themselves, dispose of a total share of 30% or more of the shares of a real estate company through one or more related transactions during any period of 3 years starting from or after the date on which the percentage held by that person or persons reaches 30% or more of the shares of that real estate company.
5) Valuation of real estate in case of right of use for more than 50 years
In the case of a real estate transaction that results in the granting of rights of use for a period of more than 50 years, the RETT to be imposed shall be based on the present value of the fair market value of usage rights on the date of transaction, or the current value of the total consideration agreed to be paid, whichever is higher.
6) Real estate transactions not subject to RETT
Owning new shares in a real estate company by increasing the capital of the real estate company shall not be considered as real estate transaction in following scenarios:
a. The current shareholders own the shares resulting from the increase in the capital of the real estate company, provided that their shareholding percentages in that company do not change from their shareholding percentages in it before the increase.
b. New shareholders own the shares resulting from the increase in the capital of the real estate company, provided that the current shareholders in the real estate company retain the shares owned by them before the increase and do not dispose of those shares for a period of 5 years from the date of the capital increase.
7) Exemptions
a. Real estate transactions without consideration, whether in cash or in kind to or from a legally licensed charitable association engaged in activities that serve public interest are exempt (subject to other conditions).
b. Trading of units of unlisted real estate investment fund(meeting the definition of real estate company) shall not be subject to RETT except if person or group of persons acting together sells 50% or more of the fund's units through related transactions within three years of reaching or exceeding a 50% share.
c. Real estate transactions carried out in implementation of a forced sale order issued by a competent court shall be exempted in cases of liquidation and administrative liquidation in accordance with the Bankruptcy Law and its Implementing Regulations.
d. Real estate transaction resulting from merger shall be exempt subject to following conditions:
i. The consideration for the merger is limited to shares in the merging entity or the entity formed as a result of the merger, excluding any cash or in-kind consideration, in accordance with the Companies Law, where applicable.
ii. The shares obtained by the owners of the merged legal entity must be proportional to their ownership stake prior to the merger.
iii. The shares in the merging entity or the resulting entity must be held, directly or indirectly, by the same partners or shareholders for a minimum of 5 years following the merger, unless disposed of as part of a subsequent merger.
e. Real estate transaction resulting from acquisition shall be exempt subject to following conditions:
i. The consideration for the acquisition must be exclusively shares in the acquiring entity, without any inclusion of cash or in-kind consideration.
ii. The owners of the acquired person shall retain their shares that they obtained in exchange for the acquisition process in the acquiring person for a period of no less than 5 years from the date of registration or ownership of those shares, unless the shares have been disposed of as a part of a subsequent merger or acquisition while fulfilling the criteria contained in the article.
iii. The acquisition process shall be completed through a single transaction.
f. Purchase of its own shares by a joint stock company listed in a licensed financial market in the Kingdom shall be exempt, provided that it complies with the applicable regulations in the Kingdom.
8) Real estate transaction date
a. The real estate transaction date in case of granting of rights to use the real estate for a period of more than 50 years shall be the date of granting the rights to use, unless the granting of rights of use is cancelled within 30 days.
b. The real estate transaction date for the transfer of shares shall be the earlier of:
i. The date of transfer of the shares, or
ii. The date on which an unconditional agreement to transfer the shares is concluded
c. For off-plan sales, the real estate disposal date shall be the date on which the ownership transfer was notarized with the notary public or accredited notary.
9) RETT payment date
a. The due date for payment of RETT in case of transfer of shares of a real estate company shall be no later than 30 days on which shares are transferred, or an unconditional agreement is concluded to transfer the shares, whichever is earlier.
b. In cases where the real estate transaction is subject to RETT, after having been exempt, on account of no longer fulfilling one or more of the conditions set out in Article 3 of the RETT Law and Article 3 of the RETT Implementing Regulations, the tax must be paid within 30 days of the breach of the relevant conditions related to exemption.
Recommendation
For a detailed assessment of how the RETT Law and RETT Implementing Regulations may impact your business, please contact our Tax team.
Riyadh Office
Tareq Al Sunaid Head of Tax 鈥� Saudi Arabia |
Salam Eido Partner, Head of Tax - Riyadh
|
Sadia Nazir Partner, Head of Transfer Pricing and International Tax |
Ali Sainudheen Partner, Domestic Tax
|
Jigna Sampath Partner, Transfer Pricing/ Tax Leader, Financial Sector |
Ajay Garg Partner, Indirect Tax |
Waqas Memon Principal, Domestic Tax |
Amr Alsaleh Director, Domestic Tax |
Asadullah Azmat Director, Indirect Tax |
Qasim Malik Director, Domestic Tax
|
Bilal Mansoor Director, Transfer Pricing
|
|
Jeddah Office
Anan Sijini Partner, Domestic Tax |
Jawad Inam Director, Indirect Tax |
Khobar Office
Mohammad Kamran Sial Partner, Head of Tax - Khobar |
Mohamed Gouda Director, Domestic Tax
|
Ankur Agarwal Director, Indirect Tax |