Executive summary

On 3 May 2024, Saudi Arabia's Zakat, Tax and Customs Authority (ZATCA) announced the approval of amendments to the Real Estate Transaction Tax (RETT) Implementing Regulations under Ministerial Resolution No. 1445-88-1, as published in the Official Gazette. The amendments are detailed in a table, also published in the Official Gazette. The amendments are effective from the date of publication of the Ministerial Resolution.

Further, the ZATCA also updated the Simplified RETT Guideline and the Detailed RETT Guideline. The new amendments have extended the scope of certain exemptions under the RETT Implementing Regulations. Additionally, the RETT due dates in relation to Build, Own, Operate and Transfer (BOOT) contracts have been revised in certain instances.

Detailed discussion

Background

On 4 October 2020, Saudi Arabia introduced RETT. Since then, the provisions of the RETT Implementing Regulations have been revised multiple times further to public consultations. The ZATCA published the proposed amendments on the public consultation platform on 5 December 2023, asking taxpayers to submit their feedback by 20 December 2023.

Following the December 2023 public consultation and collecting views from various stakeholders, the latest amendments have now been released.

Highlights of the amendments

• The transfer of property ownership by an individual to a company in which he or she currently owns or has owned shares, for the purpose of ownership modification, is now exempt, provided that such property has been registered in the company's assets before the effective date of the RETT Implementing Regulations, and provided the individual was a shareholder (partner) in the company on the date the property was recognized as part of its assets.
• The scope of exemptions to real estate transactions that involve an in-kind subscription for the capital of a real estate investment fund established in accordance with the rules and regulations of the Capital Market Authority (CMA) has been expanded. The expansion now includes all real estate fund types, and the exemption is limited not only to in-kind transactions that take place upon the initial establishment of such funds but also to subsequent in-kind transactions subject to holding the corresponding stocks for at least five years or until the fund's liquidation, whichever is earlier.
• The existing clawback provisions linked to a change in ownership of the stock or units corresponding to certain RETT exempt transactions within five years of the relevant transaction, will not apply where this change in ownership arises due to a public offering of the company's shares or fund units.
• The new RETT due dates on project contracts for BOOT transactions shall be the date of transfer of ownership or actual possession to the transferee to whom those projects are transferred pursuant to the contracts. RETT shall be paid for these contracts within 30 days from the date of transfer of ownership or actual transfer of the relevant property. Under the previous rules, where such a transaction was not notarized, the legislation suggested RETT might arise within 30 days of entering into the BOOT contract, regardless of the existence of the underlying asset at that point.

Implications

Taxpayers dealing with real estate — particularly those making supplies of residential and commercial real estate — should consider the potential implications of the amendments to the RETT Implementing Regulations.