Tax alert: Publication of the Real Estate Transaction

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The Real Estate Transaction Tax (RETT) Law, under Ministerial Resolution No. 84, dated 22 September 2024, has been officially published. The law is set to take effect 180 days from the date of publication in the Official Gazette (11 October 2024). The Zakat, Tax, and Customs Authority (ZATCA) shall moreover be issuing the updated RETT Implementing Regulations. A summary of the law is provided below.

1. Undocumented transactions

Persons shall be granted a period of one (1) Hijri year from the effective date of the law to document any real estate transaction that was conducted prior to the implementation of RETT (i.e., prior to 4 October 2020), and to do so as per the relevant statutory provisions. This period of one year may be extended through a resolution from the Council of Ministers.
Any shareholder in a company shall be granted a period of one (1) Hijri year from the effective date of the law to document any previously undocumented real estate transfer that was made in the name of the company, and to provide ZATCA of proof thereof. This period of one year may be extended through a resolution from the Council of Ministers. Exemption from RETT shall be predicated on whether the real estate that was subject to transaction is reported within the company's assets before the implementation of RETT, provided that additional requirements are met.

2. Definition of real estate company (Article 1)

The law has narrowed down the definition of a real estate company:

“Any company, fund or entity - regardless of the purpose of establishment - that directly or indirectly owns real estate within KSA with the aim of generating revenues by selling or renting it, provided that the fair market value of such real estate exceeds a certain percentage of the total fair market value of its assets, in accordance with what is determined by the Regulations and not less than (50%) of the value of such assets.”

3. Responsibility for payment of RETT (Article 7)

As per the law, the primary responsibility shall be with the transferor to fulfill the payment of RETT. The transferee shall be held jointly responsible for the payment of the tax in cases where it is made evident to ZATCA that they (the transferee) were reason for not paying the tax due.

4. RETT exemption (Article 3)

The law has broadened the scope of full exemption from RETT to include:

Real estate transaction without consideration to a public, private, or joint endowment (Article 3(a)(2)).
Real estate transaction to or from a legally licensed charitable association (Article 3(a)(3)).
Real estate transaction in cases of initial public offering, trading of listed shares, and trading of investment fund units (Article 3(a)(9)).
Real estate transaction in implementation of a forced sale order issued by a competent court (Article 3(a)(15)).
Real estate transaction resulting from mergers and acquisitions between legal persons (Article 3(a)(16)).

5. Time limit for assessment by ZATCA (Article 8)

Scenario	Time limit
Disclosed real estate transaction	Three (3) years from the date of transaction.
Undocumented or undisclosed real estate transaction	Three (3) years from the date of ZATCA’s knowledge of transaction.
Where there is breach in time limits set for RETT exemptions	No time limit.

6. Change in penalty provision (Article 15)

Scenario	Penalty
Tax evasion	Fines of up to three times the value of the evaded tax.
Delay in payment of tax	2% penalty for each month or part thereof, on any unpaid tax, capping at 50% of the unpaid amount, which shall be calculated following the expiry of the specified period for due tax payment.
Due amount amended by ZATCA	Additional penalty of 1% of the unpaid tax value for each month or part thereof, which shall be calculated 30 days from the date of notification of the amendment of the tax value.
Any other violation to the law and regulations	Fine not exceeding the due tax, or the amount of SAR50,000, whichever is more.

The RETT Implementing Regulations, which will be updated by ZATCA, are expected to offer additional details for the practical implementation of the RETT Law and to provide more clarity for taxpayers. Consequently, the law will need to be revisited in light of the implementing regulations once they are published. In the meantime, our tax professionals are prepared to assist you in navigating the new law and RETT updates.