Zatca is out with executive regulations on the Real Estate Transaction Tax (Rett) law(pdf), which will be up for public consultation on Istitlaa until Saturday, 15 March. The proposed regulations aim to clarify tax scope and mechanisms for tax payment and collection, while also outlining exemptions criteria, procedures for tax refunds, as well as Zatca’s authority to re-evaluate tax obligations.

The details: All real estate transactions will be subject to a 5% tax, regardless of the transacted property’s status, form, or use at the time of transfer under the draft law. It applies whether the transaction involves the entire property or a portion of it, whether the property is individually owned or jointly owned, and whether the property is completed, under construction, or off-plan. The 5% tax also applies when real estate transactions are settled via share swaps.

The new regs also lay out mechanisms for taxation in usufruct agreements that extend past 50 years, whereby taxes will be calculated in terms of fair market value, or the agreed-upon consideration — whichever is higher. Taxes will also apply to transactions relating to build-own-operate-transfer (BOT) projects, with calculations based on the market value of the project on the ownership transfer date.

Tax exemptions can be dished out based on the following criteria:

  • Inheritance distributions carried out under Islamic law;
  • Property transfers to registered endowments or authorized charitable organizations;
  • Documented gifts between spouses and relatives (up to the third degree). However, the exemption does not apply if the property is subsequently transferred again by its new owner before a 3-year period;
  • Government expropriation for public use or temporary state requisition;
  • Real estate disposals resulting from M&As, subject to the condition that company shares will not be sold for a five-year period;
  • Property transfers between entities entirely owned by the same individual;
  • Transfers to a certified real estate developer in compliance with off-plan sales regulations.

The seller or their representative could apply for a tax refund in the event of overpayment, erroneous payment, incomplete transactions, or cancelled transactions. For incomplete transactions, any received payment must be refunded, and the authority must be notified within a designated time period. Refund requests can be submitted within 12 months of payment or 60 days from a final court ruling or settlement with the authority, through Zatca’s website.

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