A grace period given to those who conducted illegal real estate transactions prior to the tax's implementation date on Safar 14, 1442 AH, equal to October 1, 2020 is one of the law's most prominent clauses. From the date the law was passed, this grace period lasts one Hijri year and lets people correct their circumstances by recording past real estate transactions in line with relevant legal criteria. Recommendations from the Chairman of the Board of Directors of the Zakat, Tax and Customs Authority allow the Council of Ministers to prolong this grace period.

The RETT covers all kinds of transfers, including purchases, sales, gifts, and inheritances, whenever real estate is moved inside Saudi Arabia . Right now, the tax rate is fixed at five percent of the sale value for the property. Before completing the documentation with pertinent authorities, all real estate transactions also have to be recorded on the real estate transaction site run by the Zakat, Tax and Customs Authority, including the information about the property and the kind of sale.

The new law names twenty-one certain circumstances whereby real estate transactions are free from the RETT. Notable exemptions include gifts to relatives up to the third degree, estate division transactions, and charitable foundation and endowments related transactions. In cases of manipulation or the presentation of false information, the law also imposes fines that can exceed three times the amount of the owing tax, therefore preventing tax evasion.

The Cabinet underlined that before the appropriate authorities, evidence of the transaction date has to be proven. Moreover, the Minister of Justice and the Chairman of the Zakat, Tax and Customs Authority Board of Directors have to decide on the regulations for implementing the grace period and have to document any required activities connected to this process.

Among the specified exemptions, the law makes clear that real estate transactions carried out under lease-to--own agreements and finance leasing contracts signed prior to the effective date are free from the tax. As long as the documentation takes place following the RETT law, this exemption also covers transactions liable to value-added tax before their documentation. Furthermore exempt from value-added tax are real estate products liable to the RETT.

Additional exemptions covers mergers and acquisitions between corporate entities, forced sales, real estate transfers between firms whereby one entity entirely owns the shares of the other. Similar exemptions apply to transactions between firms or investment funds whereby all shares, stocks, or units are under the same ownership. Ownership must be kept for a designated term, not more than five years, if these exemptions are to stay valid.

Provided the land is intended for a permitted off-plan project, further exemptions also cover the sale or leasing of property to licensed real estate developers. Included also are transactions without charge to a firm or investment fund founded in Saudi Arabia. Furthermore, the transaction will be excluded if all of the shares or units of a corporation or fund are general or joint endowments and the ownership proportion remains unaltered over the designated period—not to exceed five years.

Subject to cancelation, the law also allows the return of a disposed property to its original owner should mutual consent within 90 days from the date of the documents voids.

The rules will specify the particular requirements and conditions for complete exemption from the RETT for every one of the described situations, therefore guaranteeing fair and open handling of all transactions. This new law offers required relief in particular situations and marks a major progress toward improving the regulatory structure controlling real estate transactions in Saudi Arabia.

Saudi Arabia announces Real Estate Tax exemption in these cases

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