WHAT IS PROPERTY
TRANSFER TAX
IN SAUDI ARABIA?

Our Property Transfer Tax services in Saudi Arabia are part of our tax consultancy services in Saudi Arabia.

The Property Transfer Tax, also known as the Real Estate Transactions Tax, was established by Royal Decree No. (A/84) on 14 Safar 1442 A.H. (2020). This tax aims to support citizens and licensed real estate developers.

Effective from Sunday, 17 Safar 1442 A.H., the sale of real estate is exempt from the 15% Value-Added Tax (VAT).  Instead, a Real Estate Transactions Tax of 5% is imposed on the value of the property.

KEY DETAILS:

  • Royal Decree: No. (A/84)
  • Date Established: 14 Safar 1442 A.H. (2020)
  • Effective Date: Sunday, 17 Safar 1442 A.H.
  • VAT Exemption: Sale of real estate is exempt from 15% VAT.
  • Tax Rate: 5% Real Estate Transactions Tax on property value.

IMPORTANCE OF PROPERTY TRANSFER TAX IN SAUDI ARABIA

Understanding the meaning of Property Transfer Tax (PTT), also known as Real Estate Transactions Tax (RETT), in Saudi Arabia is key for both individuals and businesses involved in property transactions. Here is why Property Transfer Tax matters:

  • Promoting Home Ownership: The Kingdom aims to increase the percentage of Saudi citizens’ home ownership. Property Transfer Tax contributes to this goal by making housing more accessible and facilitating house ownership.
  • Enhanced Transparency: Property Transfer Tax encourages the formalization of property transactions, leading to greater transparency in the real estate market. This increased transparency benefits buyers, sellers, and regulators alike.
  • Price Sensitivity Consideration: Businesses operating in the real estate sector take Property Transfer Tax into account when determining sale prices. This consideration influences property valuations, ensuring that prices align with market dynamics and tax obligations.
  • Impact on Investment Patterns: Property Transfer Tax can influence investment patterns by directing investors toward specific property types or market segments. Exemptions and prevailing market conditions drive investment decisions, shaping overall investment trends.

Understanding the implications of Property Transfer Tax is vital for understanding the real estate market in Saudi Arabia effectively. By staying informed about tax regulations and their impact, individuals and businesses can make informed decisions regarding property transactions.

 

 EFFECTS OF PROPERTY TRANSFER TAX IN SAUDI ARABIA

Understanding the effects of Property Transfer Tax (PTT), also known as Real Estate Transactions Tax (RETT), is crucial for managing the real estate market in Saudi Arabia. Here are some key effects to consider:

  • Impact on property prices: PTT can influence property prices by adding an additional cost burden on buyers. The introduction of RETT in October 2020, levied at 5%, has replaced the previous Value-Added Tax (VAT) rate of 15%. While the apparent tax rate seems reduced, the inability of taxpayers to adjust input tax on purchases may lead to an increase in housing costs. However, this also provides opportunities for better tax planning.
  • Effects on real estate investment: The implementation of RETT has significant implications for real estate investment in Saudi Arabia. Investors need to consider the impact of the tax on investment decisions and property valuations. Certain exemptions, such as the Saudi government’s initiative to bear the tax burden on the first SAR 1 million of Saudi Nationals’ first home purchase, may mitigate the overall impact.

The real estate sector plays a vital role in the Saudi economy and is a key focus area of the Saudi Vision 2030 initiative. Understanding the effects of PTT is essential for stakeholders in the real estate industry to make informed decisions and mange regulatory changes effectively.

 

WHAT ARE THE LEGAL REQUIREMENTS FOR PROPERTY TRANSFER TAX IN SAUDI ARABIA?

The Real Estate Transactions Tax (RETT) in Saudi Arabia is a tax imposed at a rate of 5% on all real estate transactions. Below are the key legal requirements:

ASPECTDETAILS


APPLICABLE TRANSACTIONS
Sale: Any sale of real estate.
Bequest: Transferring property through a will.
Financial Leasing: Leasing arrangements with a purchase option.
Lease-to-Own Process: Contracts where the property is leased with an option to own.
Long-term Usufruct Contracts: Agreements lasting more than 50 years.
CALCULATION OF RETTRETT is calculated based on the price agreed upon between the seller and the buyer.
The tax amount should not be less than the fair market value of the property at the time of the transaction.
PAYMENT OBLIGATIONSThe seller is responsible for paying RETT before or during the conveyance process.

SCOPE OF APPLICATION
All types of real estate are subject to RETT, regardless of their status, nature, or usage at the time of disposal.
This includes lands and any constructions or buildings on them, whether developed or not.
The tax applies to the full or partial transfer of subdivided, common, residential units, or other types of real estate.

The RETT regulations ensure that all real estate transactions are formalized and that the tax is calculated fairly, based on market values. These requirements are essential for ensuring transparency and compliance in the real estate market.

 

CALCULATION & PAYMENT OF PROPERTY TRANSFER TAX IN SAUDI ARABIA

Understanding property transfer tax in Saudi Arabia is necessary for anyone involved in real estate transactions. Here is a detailed look at the factors influencing the calculation of this tax and how it is imposed.

FACTORS INFLUENCING THE CALCULATION OF PROPERTY TRANSFER TAX

Several factors determine the calculation of property transfer tax:

  • Nature of Transaction: Different rules apply based on whether the transaction is a gift, endowment, residential sale, commercial sale, or lease finance.
  • Location of Property: The property’s location can affect the tax calculation.
  • Residency Status: Whether you are a resident or non-resident can influence tax obligations.
  • Government Burden Sharing Scheme: Eligibility for the Saudi government burden-sharing scheme for Saudi nationals’ first homes impacts tax calculations.
  • Sale Price: The agreed sale price between buyer and seller and its compliance with reasonable value are critical factors.
  • Fair Market Value: The sale price’s linkage to the fair market value is essential for accurate tax assessment.

 

CALCULATION OF THE TAX RATE FOR DIFFERENT TYPES OF PROPERTY TRANSFERS

The Real Estate Transaction Tax (RETT) is imposed at a rate of 5% on the total sale price for each disposal. Here are the details:

TYPE OF DISPOSALTAX RATEDETAILS
RESIDENTIAL SALE5%Applies to the sale price unless exempted under specific conditions.
COMMERCIAL SALE5%Imposed on the total sale price for each disposal, unless exempted.
LEASE FINANCE5%The tax applies to the sale price of the property under lease finance arrangements.
GIFT OR ENDOWMENT5%Calculated on the transfer value, unless exempted according to RETT Implementing Regulation.
REPEATED DISPOSAL ON THE SAME PROPERTY5% per saleEach subsequent sale of the same property is subject to RETT at 5% of the sale price, unless exempted.
GOVERNMENT BURDEN SHARING SCHEMEVariableThe Saudi government bears the tax on the first SAR 1 million of the purchase value for Saudi nationals’ first homes, reducing the effective tax rate for eligible individuals.

The tax is imposed on the occurrence of the event that generates the tax, which is the transfer of the property rights to others. This principle applies regardless of whether the disposal is documented.

 

ARE THERE ANY EXEMPTIONS OR REDUCTIONS AVAILABLE FOR PROPERTY TRANSFER TAX IN SAUDI ARABIA?

The Real Estate Transaction Tax (RETT) Implementing Regulation includes several exceptions to ensure fairness and support various social and economic goals. These exemptions are designed to help citizens and prevent the same transaction from being taxed multiple times or being subject to both RETT and VAT. Here are some key exemptions:

EXEMPTION TYPEDETAILS
INHERITANCE DIVISION OR DISTRIBUTIONProperty disposals as part of dividing or distributing inheritance are exempt from RETT.
NON-PROFIT ORGANIZATIONS AND ENDOWMENTSProperty disposed of free of charge to licensed non-profit organizations and endowments is exempt.
GOVERNMENT AND PUBLIC BENEFIT ENTITIESProperty disposed of to a government entity, public legal person, or public benefit entities and projects is exempt from RETT.
GOVERNMENT DISPOSALS OUTSIDE ECONOMIC ACTIVITYDisposals by government entities acting as a public authority, outside the scope of economic, investment, or commercial activity, are exempt from RETT.
LEGAL WILL TRANSACTIONSReal estate transactions conducted according to a documented legal will are exempt from RETT.
OTHER SPECIFIC CASES AS DETERMINED BY AUTHORITYAdditional exemptions may apply based on partial assessments by the authority, considering the social or economic impact.

PROPERTY TRANSFER TAX FAQs

The introduction of Property Transfer Tax (RETT) has made real estate transactions more transparent. However, its impact varies depending on the specifics of the transaction:

  • Cost Implication: In some cases, the 5% tax becomes a financial burden, increasing the overall cost of the transaction.
  • Tax Minimization Tool: In other cases, it can function as a tax minimization tool, particularly if the transaction meets certain criteria set by the RETT law.
  • Transaction Nature and Location: The effect of the tax depends on the nature of the transaction (e.g., residential vs. commercial), the location of the property, and the terms and conditions agreed upon by the buyer and seller.
  • Status of Parties: The tax impact also varies based on the status of the parties involved (e.g., resident vs. non-resident) in relation to RETT regulations.

The relevant government agency responsible for implementing the Property Transfer Tax (RETT) in Saudi Arabia is the Zakat, Tax and Customs Authority (ZATCA).

Yes, the Property Transfer Tax (RETT) has been implemented uniformly across the Kingdom of Saudi Arabia.

Property Transfer Tax (RETT) is imposed on all categories of individuals, institutions, companies, and governmental establishments involved in real estate transactions. Therefore, all persons selling property are required to pay the transfer tax, except for transactions that fall under exemptions and exclusions. For assistance and advice regarding property transfer tax reach out to our tax experts at [email protected]. 

No, you cannot deduct Property Transfer Tax from your income tax return. Property Transfer Tax is an indirect tax, while income tax is a direct tax. These two types of taxes cannot be adjusted against each other.

To transfer the real estate title, the following steps must be completed prior to conveyance at the Ministry of Justice or other notaries:

  1. Register the Real Estate Transaction: 
    • Register any real estate transaction on the Real Estate Transaction Tax (RETT) Platform.
  2. Provide Accurate Data: 
    • Ensure accurate data of the relevant real estate is indicated.
  3. Identify the Transaction Status:
    • Taxable Transactions: Issue a tax invoice and pay the due tax.
    • Tax-Exempt Transactions: Submit the request without any tax charge.
  4. Complete Conveyance: 
    • Finalize the conveyance at the Ministry of Justice.

In 2021, the Saudi government issued a directive allowing non-Saudis to buy property in Saudi Arabia. However, this is subject to certain restrictions and procedures that must be followed. Foreign investors are required to pay the Real Estate Transaction Tax (RETT) unless specific exemptions apply.

All kinds of real estate transactions in which ownership of the property is transferred are subject to the Real Estate Transaction Tax (RETT), except those that fall under the exclusions mentioned in the FAQ related to exemptions.

This is not the case for all expatriates. Double taxation depends on individual circumstances and the specific tax treaties in place between Saudi Arabia and the expatriate’s home country.

If you need personalized advice on your real estate transactions in Saudi Arabia, Contact us today via email at [email protected] for tax expert guidance and support.

Yes, there are stringent penalties under the law for non-compliance or evasion of the Real Estate Transfer Tax (RETT).

If you need assistance with understanding and complying with RETT obligations, contact us for expert tax advice and support at [email protected].

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