The Real Estate Transaction Tax (RETT) Law, which was approved by the Council of Ministers on Sept. 17, 2024, includes 21 cases in which exemptions will be granted. The law, as revealed in the Umm Al-Qura newspaper, provides a grace period of one Hijri year for those who have made any undocumented real estate transactions before Oct. 1, 2020, to correct their status and document their transactions as per the regulatory provisions. The law aims to combat tax evasion and requires all real estate transactions to be registered on the real estate transaction portal of the Zakat, Tax and Customs Authority, before documentation with competent authorities can take place.
The current RETT rate is 5 percent and is applied whenever there is a transfer of real estate within Saudi Arabia, including buying, selling, gifting, or inheriting properties. The law offers specific exemptions from the tax, such as real estate transactions related to the division of estates, gifts to relatives up to the third degree, transactions for endowments, and charitable associations. To prevent tax evasion, fines of up to three times the tax due may be imposed in cases of manipulation or inaccurate information.
Exemptions from the real estate transaction tax also apply to transactions carried out in implementation of lease-to-own contracts and finance lease contracts concluded before Oct. 1, 2020, as well as transactions subject to value-added tax before documentation, if the documentation was carried out after the enactment of the real estate transactions tax law. Other exemption cases include transactions resulting from mergers and acquisitions, real estate transactions between companies or investment funds owned by the same person, and disposal of property to a licensed real estate developer for off-plan sales projects.
The law also includes exemptions for disposing of property to a company or investment fund established in the Kingdom, owned by a general or joint endowment, and returning a disposed property to its previous owner within a specified timeframe. The regulations under the law will determine the criteria and controls for total exemption from tax for each of the mentioned cases. 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 the grace period, as per the Cabinet decision issued in this regard.
Overall, the Real Estate Transaction Tax Law in Saudi Arabia aims to regulate real estate transactions, combat tax evasion, and ensure compliance with regulatory provisions. The law provides exemptions for specific cases to facilitate the correction of undocumented transactions and reduce the burden on taxpayers. By granting a grace period and outlining specific criteria for exemptions, the law aims to promote transparency and accountability in real estate transactions within the Kingdom.
