Executive summary

On 24 March 2025, Saudi Arabia's Zakat, Tax and Customs Authority (ZATCA) published the Implementing Regulations for Real Estate Transaction Tax (RETT Implementing Regulations), under Board Resolution No. (01-03-25).

The RETT Implementing Regulations provide further details and clarifications on the scope of RETT and the conditions for exemptions outlined in the RETT Law, which was enacted through Royal Decree No. (M/84), dated 22 September 2024.

The RETT Law and the RETT Implementing Regulations are effective from 10 April 2025.

Detailed discussion

Background

On 22 September 2024, the Saudi Cabinet announced the approval of the Real Estate Transaction Tax Law through Royal Decree M/84, dated 19/3/1446H. The Law was published in the Official Gazette on 11 October 2024.

The RETT Implementing Regulations introduce detailed provisions regarding the taxation of real estate transactions. These include the definitions of key terms, such as real estate companies, representative, mergers, acquisitions and related persons.

Highlights of the RETT Implementing Regulations

The RETT Implementing Regulations update the definition of the term "related persons" for RETT purposes to be consistent with Article 64 of the Income Tax Law, as established by Royal Decree No. (M/1) dated 15/1/1425 H, and the Transfer Pricing Bylaws issued by Decision No. (6-1-19) dated 25/05/1440 H, along with any subsequent amendments.

The RETT Implementing Regulations also include definitions for the mergers and acquisitions relief outlined in Article 3 of the RETT Law.

Any movable property that its owner places in real property that is subject to monitoring for service or use on a permanent basis is considered to be real estate for RETT purposes — even if the movable property is not physically connected to the real property.

In a taxable disposal of real estate that results in the granting of usufruct of the property for a period exceeding 50 years, RETT shall be calculated on the higher of the current fair market value (FMV) of the usufruct on the date of disposal or the total agreed consideration. If the agreed consideration is amended after the disposal date, RETT must be recalculated, and a correction request should be submitted if this results in an increase or decrease in RETT due, in accordance with the procedures specified in the RETT Implementing Regulations.

With respect to taxable real estate disposal related to build, own, operate and transfer (BOOT) projects, RETT is calculated on the FMV on the date ownership is transferred.

The RETT Implementing Regulations provide clarity on the definition of a real estate company. A company, fund or entity that directly or indirectly owns real estate located in Saudi Arabia, with the intent of generating revenue through real estate sales or leasing, and where the total FMV of the real estate constitutes at least 50% of the total FMV of the company's assets on the date of share transfer or at any point within the 365 days preceding the share transfer, will be classified as a real estate company.

The RETT Implementing Regulations clarify which disposals of shares in a real estate company are subject to RETT. Specifically, if an individual or a group of individuals, acting under an agreement, dispose of 30% or more of a real estate company's shares through one or more related transactions within a three-year period from the date they first acquired at least 30% of those shares, the transaction falls within the scope of RETT.

The RETT Implementing Regulations provide increased clarity on the scope of exemptions for transfers involving government and public benefit entities. To qualify for this exemption, certain conditions must be met:

1. There must be a statutory instrument granting the government or public benefit entity authority to carry out activities typically associated with a public authority.
2. The real estate may not be disposed of based on economic or commercial standards.
3. The real estate transaction should not create competition with the private sector.

The trading of unlisted units in an investment fund established in Saudi Arabia, in accordance with the provisions of the Capital Market Law and the associated regulations and instructions, is exempt from RETT, if the fund qualifies as a real estate company. However, this exemption does not apply if an individual or group of individuals disposes of 50% or more of the fund's units through one or more related transactions within any three-year period, starting from the date on which the individual or individuals held 50% or more of the fund's units.

If RETT is due prior to the effective date of the RETT Law, the ZATCA may, within a period not exceeding three years from the effective date of the RETT Law, verify the value of the real estate transaction, recalculate RETT and demand payment if it determines that the reported value is less than the FMV. This applies specifically if the real estate transaction has been disclosed by registering it with the ZATCA.

Implications

Taxpayers should anticipate more precise tax assessments for usufruct agreements exceeding 50 years, potential reclassification of real estate companies affecting investments, and higher compliance demands due to tax recalculations. Taxpayers should review the new RETT Law and its Implementing Regulations to understand the potential effect on their real estate transactions and facilitate compliance.