Tax Alert: Draft RETT Implementing Regulations for publ

5 min read

On 15 February 2025, The Zakat, Tax, and Customs Authority (ZATCA) published the draft Implementing Regulations for real estate transaction tax (RETT) for public consultation. The due date to submit feedback on the draft regulations through the public consultation platform (Istitlaa) is 15 March 2025.

The draft regulations have been issued in pursuance to the RETT Law that was officially published in the Official Gazette on 11 October 2024 and is set to take effect within 180 days from its publication, i.e., 9 April 2025. According to the law, the board of directors of ZATCA shall issue the regulations within 180 days of the date of issuance of the law, and these should be effective from the date of the law’s entry into force.

The proposed draft can be accessed on Istitlaa through this link.

Summary of key provisions in the draft regulations is provided below:

1) Definition of real estate company

ZATCA included the definition of real estate companies by limiting it to the companies owning real estate directly or indirectly with the aim of generating income from the sale or renting of the real estate properties. Furthermore, to qualify as a real estate company, the market value of these properties shall not be less than 50% of the total fair market value of the company's assets at any time on or before 365 days of the date of transfer.

2) Relatives up to third degree

ZATCA updated the definition of relatives up to third degree to include as follows:
a.     First degree: Father, mother, son, daughter.
b.     Second degree: Brother, sister, grandfather, grandmother, grandchildren.
c.     Third degree: Uncles, aunts, nephews, and nieces.

3) Real estate transaction in case of transfer of shares

A real estate transaction shall arise if a person or a group of persons, acting in agreement among themselves, dispose of a total share of 10% or more of the shares of a real estate company through one or more related transactions during any period of 3 years starting from or after the date on which the percentage held by that person or persons reaches 10% or more of the shares of that real estate company.

4) Real estate transactions not subject to RETT

Owning new shares in a real estate company by increasing the capital of the real estate company shall not be considered as real estate transaction in following scenarios:

a. The current shareholders own the shares resulting from the increase in the capital of the real estate company, provided that their shareholding percentages in that company do not change from their shareholding percentages in it before the increase.

b. New shareholders own the shares resulting from the increase in the capital of the real estate company, provided that the current shareholders in the real estate company retain the shares owned by them before the increase and do not dispose of those shares for a period of 5 years from the date of the capital increase.

5) Exemptions

a. Real estate transactions without consideration, whether in cash or in kind to or from a legally licensed charitable association engaged in activities that serve public interest are exempt (subject to other conditions).

b. Trading of units of unlisted real estate investment (meeting the definition of real estate company) shall not be subject to RETT except if person or group of persons transferring more than 50% of units through related transactions from the date on which percentage held by the person or group of person exceeds 50% or more of the fund.

c. Real estate transactions carried out in implementation of a forced sale order issued by a competent court shall be exempted in cases of liquidation and administrative liquidation in accordance with the Bankruptcy Law and its Implementing Regulations.

d. Real estate transaction resulting from merger shall be exempt subject to following conditions:

i. The consideration for the merger is limited to shares in the merging entity or the entity formed as a result of the merger, excluding any cash or in-kind consideration, in accordance with the Companies Law, where applicable.

ii. The shares obtained by the owners of the merged legal entity must be proportional to their ownership stake prior to the merger.

iii. The shares in the merging entity or the resulting entity must be held, directly or indirectly, by the same partners or shareholders for a minimum of 5 years following the merger, unless disposed of as part of a subsequent merger.

e. Real estate transaction resulting from acquisition shall be exempt subject to following conditions:

i.     The consideration for the acquisition must be exclusively shares in the acquiring entity, without any inclusion of cash or in-kind consideration.
ii.     The owners of the acquired person shall retain their shares that they obtained in exchange for the acquisition process in the acquiring person for a period of no less than 5 years from the date of registration or ownership of those shares.
iii.     The acquisition process shall be completed through a single transaction.

f. Purchase of its own shares by a joint stock company listed in a licensed financial market in the Kingdom shall be exempt, provided that it complies with the applicable regulations in the Kingdom.

6) Real estate transaction date

a. The real estate disposal date for the transfer of shares shall be the earlier of:

i. The date of transfer of the shares, or
ii. The date on which an unconditional agreement to transfer the shares concluded.

b. For off-plan sales, the real estate disposal date shall be the date on which the off-plan agreement is concluded.

7) Offsetting of refunds

ZATCA may deduct or withhold the refund amount in the event of other taxes, Zakat, fines or any other amounts due from the transferor and not paid to ZATCA, provided that ZATCA notifies the applicant regarding how to settle his credit balance.

Recommendation
We encourage taxpayers to review the draft regulations and submit their valuable feedback via the public consultation platform by the deadline of 15 March 2025.

For a detailed assessment of how the draft regulations may impact your business, please contact our Tax team.