On 25 January 2025, Zakat, Tax and Customs Authority (ZATCA) issued guidelines to clarify the application of Real Estate Transaction Tax (RETT) in the case of build-own-operate-transfer (BOOT) contracts. A summary of the clarifications is provided below:
Certain categories of immovable assets
ZATCA has clarified that when immovable assets such as machinery, equipment and fittings where the concept of real estate may not apply, are part of a BOOT project and belong to the operator whose ownership will be transferred to the beneficiary at the end of the contract period, such immovable assets shall not be considered part of the Real Estate Asset for the purpose of application of RETT.
BOOT contracts in which the beneficiary is a government entity
In line with the Article 3(A)(3) of the RETT Implementing Regulations, ZATCA has clarified that any real estate disposal that may involve transfer of ownership of real estate property to a government entity or a public legal person in Saudi Arabia, shall be exempt from RETT.
BOOT contracts in which the beneficiary is a private sector
Any real estate disposal that may involve transfer of ownership of real estate property to a beneficiary in private sector, or an entity not covered by the definition of government entity, shall be subject to 5% RETT unless any exemption contained in Article 3(A) of the RETT Implementing Regulations is applicable to the disposal.
Payment of RETT
ZATCA clarified that RETT with respect to BOOT contracts shall be computed on the fair market value of the real estate on the actual date of the transfer of ownership or possession of the property to the beneficiary.
It is further noted that RETT shall be payable within 30 days from the date the tax becomes due. The prime responsibility for payment of RETT lies with the transferor. However, both the disposer and the transferee are considered jointly liable before ZATCA for any tax liabilities due under the RETT Implementing Regulations.