Saudi Arabia has introduced the Real Estate Transactions Tax Law, offering specific exemptions and clarifications for various types of real estate transactions. Real estate taxpayers are advised to review the new law’s provisions to ensure compliance and take advantage of any applicable benefits.

Law Approval and Implementation

The Saudi Council of Ministers approved the Real Estate Transactions Tax Law on September 22, 2024, by Royal Decree M/84. This law, effective on April 9, 2025, will replace any conflicting provisions and authorize the issuance of new implementing regulations within 180 days to aid in its enforcement.

Background on Real Estate Transaction Tax (RETT)

Since October 2020, Saudi Arabia has applied a 5% tax on real estate sales and transfers under the RETT regulations. This tax is part of the nation’s Vision 2030 economic strategy to diversify income and stabilize the real estate sector. The law’s recent amendments clarify and expand exemptions, furthering efforts to support economic modernization.

Key Features of the New Real EstateTax Law

The new real estate tax law in Saudi Arabia brings several important changes that clarify tax responsibilities and introduce new exemptions for specific types of transactions. Key features include:

• Redefined Real Estate Company: The law refines the definition based on business intent and activities, offering a clearer scope of what qualifies as real estate.
• VAT Calculation: VAT is calculated on the transaction’s fair market value on the disposal date. Payment must be made on the transaction date or as specified in the upcoming regulations.
• Fair Market Value Verification: The Authority may verify declared values within three years of the transaction. If the declared value is lower than the market rate or if tax evasion is detected, VAT will be recalculated, and any due tax must be settled within three years.
• Expanded Exemptions: New exemptions include indirect real estate disposals through mergers, acquisitions, public trading of listed securities, and investment funds.
• Reduced Penalties: Penalties for late payments have decreased to 2% monthly (previously 5%), capped at 50% of the unpaid tax amount.

Compliance and Impact of the New Real Estate Transactions Tax Law

Real estate taxpayers in Saudi Arabia should assess the law’s requirements and available exemptions. Non-compliance may lead to penalties, making adherence essential for efficient real estate transactions in line with the new legal framework.

Is VAT imposed on residential lands in Saudi Arabia?

Value-added tax is imposed on a wide range of goods and services within the Kingdom, and the Saudi government’s decision includes real estate and land within the scope of this tax, as the Zakat and Tax Authority (ZATCA) explained that citizens are obligated to pay 5% tax value on real estate in general.

However, the General Authority of Zakat indicated that the application of this tax does not include residential lands, which are considered essentials that citizens need for housing. However, the tax is only imposed if the value of the land or property exceeds 900 thousand Saudi riyals.

In the event that the property or land does not exceed this specified ceiling, that is, when its value is estimated at less than 900 thousand riyals, such as the value that reaches 850 thousand Saudi riyals, the government contributes to bearing part of this tax based on the royal directive issued by the Custodian of the Two Holy Mosques, King Salman bin Abdulaziz Al Saud, which aims to support citizens in terms of their ownership of housing.

When will the application of value-added tax be canceled?

In some exceptional cases, the application of VAT on real estate is cancelled, including the following:

• The tax is not applied if the real estate is part of an inheritance that is distributed to the legal heirs.
• The tax is cancelled if the real estate is transferred to a relative, whether of the first or second degree, provided that this does not include any form of sale or purchase.
• If a parent relinquishes the real estate to his children or if the husband grants a real estate to his wife or vice versa, in this case no tax will be applied to the relinquished real estate.
• If the real estate is granted to charitable institutions such as charities or orphanages supervised by the state, such cases are exempt from the tax.

The cases mentioned above explain the situations in which the application of VAT on real estate is cancelled.

What is the Tax on Real Estate in Saudi Arabia?

In Saudi Arabia, real estate transactions are subject to a 5% Real Estate Transaction Tax (RETT) on the sale or transfer of property. This tax applies to most property transactions, with specific exemptions for qualifying cases such as mergers, public stock trades, and certain indirect disposals.

What is the Tax Rule in Saudi Arabia?

Saudi Arabia’s tax framework includes various tax types, such as the Real Estate Transaction Tax, Value Added Tax (VAT), and Zakat, which applies to Saudi-owned companies. The RETT applies specifically to real estate transactions, while VAT, set at 15%, applies to general goods and services. Each tax is governed by its own set of regulations issued by the Saudi Tax Authority.