Saudi Arabia Releases Draft Real Estate Transaction Tax (RETT) Regulations

Saudi Arabia introduced a new regulatory framework for real estate transactions with the publication of RETT draft regulations by ZATCA, clarifying the application of the 5 percent RETT, exemptions, compliance obligations, and enforcement mechanisms. 

By Sudhanshu Singh

Saudi Arabia has introduced a new regulatory framework for real estate transactions with the publication of the draft Implementing Regulations for the Real Estate Transaction Tax (RETT) by the Zakat, Tax and Customs Authority (ZATCA). These draft regulations aim to clarify the application of the 5 percent Real Estate Transaction Tax, exemptions, compliance obligations, and enforcement mechanisms.

The regulations were released for public consultation on February 15, 2025, through the National Competitiveness Center’s Istitlaa platform, inviting feedback from stakeholders by March 15, 2025. The RETT Law, enacted under Royal Decree No. M/84 (September 22, 2024), will come into effect on April 9, 2025, replacing the existing framework.

This article provides an in-depth analysis of the draft regulations, covering key provisions, tax calculation mechanisms, exemptions, compliance requirements, and penalties.

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Provisions of the draft RETT Implementing Regulations

The draft RETT regulations has brought major changes to the taxation of real estate transactions in Saudi Arabia. Below are the key articles and their implications:

Definition of key terms (Article 1)

The draft regulations introduce precise definitions to prevent tax evasion and ensure clarity in tax liability. The concept of “linked transactions” is defined as multiple share transfers within a real estate company that forms part of a single agreement or chain of disposals. Similarly, “acting in concert” refers to coordinated efforts by two or more parties, whether formal or informal, to dispose of shares in a real estate entity.

Application of RETT and taxable transactions (Article 2)

A 5 percent tax on real estate transactions is imposed on various disposals, including the direct sale of properties, the transfer of shares in real estate companies where real estate forms at least 50 percent of the company’s total assets, and transactions under long-term usufruct rights exceeding 50 years. The tax also extends to Build-Operate-Transfer (BOOT) real estate projects. The tax base is determined based on the fair market value (FMV) of the property at the time of the transaction. The RETT liability applies irrespective of whether the transaction involves monetary consideration or occurs as part of a corporate restructuring or reorganization.

Exemptions and tax relief (Article 3)

Certain transactions will be exempt from the RETT, provided specific conditions are met. Mergers and acquisitions (M&A) involving real estate companies will be exempt if they meet ownership and structural conditions. Also, real estate transfers involving publicly listed securities, investment funds, and off-plan sales by licensed developers will not attract the tax.

The exemption framework aims to promote strategic business consolidations, institutional real estate investment, and housing development under government-approved projects. But the transactions that initially qualify for exemption but later violate exemption conditions will become taxable, requiring tax payment within 30 days of the exemption breach.

Determination of RETT due date (Article 4 & 5)

The tax due date varies based on transaction type and documentation status. For documented real estate transfers, the RETT must be paid at the time of transaction authentication. For share transfers in real estate companies, the tax is due within 30 days of exceeding the taxable ownership threshold.

If a previously exempt transaction becomes taxable due to an exemption condition breach, the tax must be settled within 30 days of the breach occurrence. For off-plan sales, the tax is payable when the transaction is notarized or registered with an authorized authenticator. In addition to this, ZATCA has the authority to demand immediate tax payment if it determines that a transfer was structured solely to delay tax liability.

Sham transactions and reassessments (Articles 6 & 8)

The regulations empower ZATCA to reassess transactions suspected of being structured to evade tax. If a transaction is identified as a sham disposal or an artificial restructuring aimed at avoiding RETT, ZATCA may reclassify it as a taxable event and impose tax liabilities accordingly.

Transferors or transferees can challenge the authority’s valuation by presenting a real estate assessment from an accredited valuator. Furthermore, ZATCA has up to three years to reassess transactions and impose additional tax liabilities if a disposal is found to be misreported or undervalued.

Obligations of taxpayers (Articles 7 & 11)

The draft regulations place the primary tax liability on the transferor (seller). However, if the buyer is found to have played a role in avoiding tax payment, they may be held jointly liable for the tax due. To ensure compliance, taxpayers must register their real estate transactions, maintain transaction records, and submit tax filings within the prescribed deadlines. Failure to comply with documentation requirements could result in penalties, additional tax assessments, and disqualification from exemptions.

Appeals and dispute resolution (Article 13)

Taxpayers have the right to appeal tax assessments through the Zakat, Tax, and Customs Committees. ZATCA reserves the right to demand a financial guarantee equivalent to the disputed tax amount if it determines that the taxpayer may attempt to avoid payment. This provision ensures that disputed amounts remain recoverable while allowing taxpayers a formal mechanism for resolving disputes.

Transitional provisions and implementation timelines

Handling of pre-existing transactions (Article 14)

For real estate disposals that occur before April 9, 2025, implementation date, the following rules apply:

• If the tax was reported at a lower than FMV, ZATCA may recalculate the tax within three years;
• If the transaction is not reported, ZATCA has three years from discovery to reassess the tax; and
• Exempt transactions that later become taxable (due to a breach of exemption conditions) must pay RETT within 30 days.

Penalties for non-payment

A 2 percent monthly penalty will apply to any unpaid RETT, with a cap set at 50 percent of the total unpaid tax. If ZATCA adjusts the tax due before the law takes effect, an additional 1 percent penalty will be imposed. Taxpayers seeking refunds for overpaid tax or previously exempt transactions must submit claims within 12 months of the law’s implementation.

Implications for real estate investors and businesses

Impact on mergers and acquisitions

One of the most notable exemptions under the RETT law is for mergers and acquisitions (M&A). This provision encourages consolidation in the real estate sector by removing additional transaction costs.

For a merger to qualify for exemption, it must:

1. Be conducted solely through share exchanges, with no cash or in-kind payments; and
2. Maintain ownership continuity for five years post-merger.

Acquisitions follow similar rules, but the entire transaction must be completed in one step to qualify for exemption.

Increased compliance burden on real estate companies

The regulations introduce new compliance and reporting requirements for real estate companies, developers, and institutional investors. Market participants must establish robust valuation methodologies, maintain transaction records, and monitor exemption conditions to avoid unexpected tax liabilities. Given the potential for reassessment within three years, companies will need rigorous documentation practices to substantiate their transaction values.

Broader implications for Saudi Arabia’s real estate market

The regulations introduce new compliance and reporting requirements for real estate companies, developers, and institutional investors. Market participants must establish robust valuation methodologies, maintain transaction records, and monitor exemption conditions to avoid unexpected tax liabilities. Given the potential for reassessment within three years, companies will need rigorous documentation practices to substantiate their transaction values.

Takeaway

The draft RETT Implementing Regulations mark a major shift in real estate taxation in Saudi Arabia. While the 5 percent tax on real estate disposals aims to streamline transactions, the new exemptions for M&As, investment funds, and licensed developers provide strategic relief. However, businesses must carefully navigate compliance requirements, particularly valuation methodologies, exemption conditions, and reporting obligations.

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