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Saudi Arabia: Real Estate Transaction Tax amendment

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In brief

On 3 May 2024, a new amendment to the Saudi Real Estate Transaction Tax (RETT) Regulations was published in Umm Al Qura pursuant to Ministerial Resolution No. (1-88-1445) dated 02/09/1455 AH.

Key observations

On 3 May 2024, the Zakat, Tax and Customs Authority (ZATCA) published the newly amended Real Estate Transaction Tax Executive Regulations. The main amendments are as follows:

Article III(a)(14): The addition of exemptions for the transfer of ownership of a person’s real estate to a company in which they hold shares for the purpose of changing ownership. However, such property must have been included in the company’s assets before the date of entry into force of the regulations and the individual must have been a shareholder in the company on the date the property was included in the company’s assets. This exclusion is contingent on the fact that the person must be able to provide audited financial statements from a licensed Chartered Accountant which evidences that the property was included in the company’s assets before the RETT Executive Regulations became effective.

Article III(a)(15): The scope of the RETT exemption has been broadened by providing an exemption for individuals who offer their property as a contribution in kind in exchange for investment units in a real estate investment fund which has been established in accordance with the rules and regulations of the Capital Market Authority (CMA). The exemption applies to all types of real estate investment funds, regardless of their purpose. This exemption is contingent on the fact that the units of the real estate investment fund which has been issued in exchange for the in-kind contribution not sold within five years of its acquisition or the liquidation of the fund, whichever comes earlier.

Article III(a)-deficit: Inclusion that the change in the percentage of ownership in the real estate investment fund or company, which must not be changed for certain periods after the application of the exemption through the public offering of the company’s shares or fund units, is not considered to be a violation of the condition not to dispose of the shares or units corresponding to the exempted real estate. Consequently, the exemption will continue to apply in such cases to encourage the public offering of the company’s shares and fund units.

Article IV: A change in due dates for build, own, operate, and transfer (BOOT) projects. The new due dates will be the date of transfer of ownership or actual possession to the purchaser to whom these projects are transferred under previous contracts. The tax for these contracts must be paid within 30 days of the date of transfer of ownership or actual possession to the purchaser.

The key message is that the RETT exemption net has been revised and broadened to include individuals who transfer their personal property to companies in which they hold ownership, or real estate investment funds in exchange for units. The RETT amendments also clarify the date of supply and RETT payment due date for BOOT projects, allowing contractors who engage in such arrangements to correctly account for RETT on its supplies. With the additional changes to the RETT Executive Regulations, it is important for real estate owners to carefully consider all exemptions available when selling or transferring their property in KSA.

The amendments are effective as of the date of their publication in Umm Al Qura, 3 May 2024.

To speak with us about any of the proposed changes to KSA RETT, or any tax matters or issues more generally, please contact one of the team members above.
 

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Tina is a partner in the Firm's Dubai office. She advises leading corporations and public entities on VAT and transaction taxes (such as Real Estate Transaction Tax). Tina works across all sectors however she has deep experience in advising indirect taxes relating to financial services, property and construction, energy and government sectors. In addition to advisory work, Tina assists clients with tax authority audits, disputes, applications for clarifications. She also represents industry associations before the central banks and tax authorities.

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Reggie Mezu is a Senior Special Counsel in Baker McKenzie’s Dubai office. He focuses on corporate tax and has practiced tax for nearly 30 years, including in the UAE for 15 years. He has multi-jurisdictional and multi-disciplinary professional qualifications in law, accountancy and taxation.

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Trusha is an experienced senior associate in the Firm's Dubai office. She advises leading corporations and public entities on VAT and transaction taxes (such as real estate transaction tax).
Trusha is an emerging markets focused VAT executive. She has 11 years of experience in advisory, including a decade across Southern Africa and the Middle East, working on numerous cross-border tax transactions. Through her work advising sovereign entities, financial institutions and private investors, she has supported several IPOs, acquisitions, and the launch of next generation startups.
Trusha works across all sectors, and has deep experience in advising on indirect taxes relating to financial services, capital projects and service-based sectors. In addition to advisory work, Trusha’s focus remains on preparing clients to effectively communicate and manage tax affairs with the relevant authorities by way of tax clarification assistance, audit reviews and industry focused white-paper submissions. This allows her to effectively represent industry associations before the GCC central banks and tax authorities.

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