Amendments to Real Estate Transaction Tax Executive Regulations
The Zakat, Tax and Customs Authority (ZATCA) published on May 3, 2024 the newly amended Real Estate Transaction Tax Executive Regulations (RETT) pursuant to the resolution of His Excellency the Minister of Finance, No. (1445-88-1) issued on 09/02/1445 AH, corresponding to 03/12/2024 AD. The amendments published in Umm Al-Qura newspaper, issue No. (5030) dated 10/24/1445 AH, corresponding to 03/05/2024 AD entered into force as if this date.
Main amendments summary
The amendments include the addition of a new paragraph to Article III and modifications to several paragraphs in Articles III and IV. The table listing all details is accessible through the following link:
https://uqn.gov.sa/details?p=24892
| Sequence | Para/Article | Original Text | Amended text |
| 1 | Article III(a)(14) | Disposal of the property by a partner in a company by transferring the property in the name of the company, provided that the property is included in the company’s assets before the effective date of the regulation, and that the disposer submits audited financial statements (or certified certificates) from a licensed public accountant proving the inclusion of the property in the company’s assets before the effective date. Regulations up to the date of action. | Disposal of real estate from any person to a company; Provided that this property is included in the company’s assets before the effective date of the regulations, and that that person is a partner in that company on the date the property is included in its assets, and that the disposer submits audited financial statements (or approved certificates) from a licensed public accountant proving the inclusion of the property among the company’s assets. Before the effective date of the regulation until the date of action. |
| 2 | Subparagraph (15) of Paragraph (A) of Article III | Disposing of real estate by offering it as a subscription in kind – by any person – to the capital of a real estate investment fund, when the fund is initially established in accordance with the rules and regulations of the Capital Market Authority. The exception does not include funds that are established for the purpose of renting real estate | A real estate transaction that provides an in-kind subscription to the capital of a real estate investment fund established in accordance with the rules and regulations of the Capital Market Authority, on the condition that the fund’s units or shares corresponding to the real estate transaction are not disposed of until the date of the fund’s termination or liquidation, or for a period of five years from the date of registration or ownership of the units or shares. , Which of the two comes first”. |
| 3 | A new addition to Paragraph (A) Article III | New paragraph | A change in the percentage of ownership through a public offering of the shares of the disposed company or the units of the disposed fund in accordance with the rules and regulations of the Capital Market Authority is not considered a violation of the condition of not disposing of the shares or shares corresponding to the excluded real estate disposal. |
| 4 | Article IV | The tax is due on the date of the disposal based on the value agreed upon between the two parties or parties or the value of the property, provided that it is not less than the fair market value on the date of the disposal – provided that the value of the property for the purposes of calculating the tax does not include the implicit profit margin in cases of financing from legally licensed entities – and it is imposed On real estate disposal, including completed, under-constructed, or off-plan real estate, the tax due thereon must be paid according to the following: | The tax is due on the date of disposal based on the value agreed upon between the two parties or parties or the value of the property, provided that it is not less than the fair market value on the date of disposal – provided that the value of the property for the purposes of calculating the tax does not include the implicit profit margin in cases of financing from legally licensed entities – and it is imposed On real estate disposal, including real estate completed, under construction, or off-plan. The date of disposal in relation to the project (build, own, operate and transfer) is the date of actual transfer of ownership or possession to the alienee, and the tax due must be paid according to the following: |
| 5 | Paragraph (b) of Article IV | The tax is paid in cases that are not included in the official documentation procedure with the competent administrative authority or the accredited notary – the transaction documented by unofficial documents – within (30) calendar days from the date of the contract or final agreement for the transaction incident. A fine for late payment is imposed if this period is exceeded, and it is permissible to proof of the date of disposal by all means and evidence indicating it. | The tax is paid in cases that are not included in the official documentation procedure with the competent administrative authority or the approved notary – the act documented in unofficial documents – within (30) calendar days from the date of the contract or final agreement, or the transfer of ownership or the actual transfer of possession in a project (build, own and operate and the transfer), and the fine for late payment is imposed if this period exceeds, and the date of the disposal may be proven by all means and evidence indicating it. |
Our interpretation: the amendments effect
1- Article III (a) (14): The paragraph has been revised to enhance clarity, and the exception has been elaborated to clarify that a partner may utilize it even after departing from the company. This means that the exemption does not hinge on the partner’s continued affiliation with the company at the time of disposal. Additionally, the scope of property disposal, owned by or formerly associated with the partner, has been broadened. This expansion includes the transfer of property to any company, irrespective of whether it is the company in which the disposer remains or once was a partner, or to any other company, thereby rendering the provision more accessible to the general public {The word company is used with an indefinite article}.
2- Article III (a) (15): This paragraph has been rewritten. The Authority confirmed the exception for real estate disposal by presenting it as an in-kind subscription to the capital of a real estate investment fund at any time and not only when the fund is initially established, on the condition that the fund’s units or shares corresponding to the real estate transaction are not disposed of until the date of the fund’s termination or liquidation, or for a period of five years from the date of registration or ownership of the units or shares, whichever comes first. The exception does not include funds that are established for the purpose of renting real estate.
3- New addition to Paragraph (A) of Article III in response to challenges in the interpretation of certain provisions regarding restrictions on altering ownership percentages, shares, or equivalent interests of disposed property within designated timeframes. An additional paragraph is introduced in order to clarify and supplement these provisions as following: A change in the percentage of ownership through a public offering of the shares of the disposed company or the units of the disposed fund in accordance with the rules and regulations of the Capital Market Authority is not considered a violation of the condition of not disposing of the shares or shares corresponding to the excluded real estate disposal.
4- Article IV: The Authority amended the article’s introduction excluding the disposal date for (build, own, operate, and transfer) projects. The tax is due on the actual transfer date of ownership or possession, not the disposal date.
5- Article IV (b): The Authority amended the date of the real estate tax payment aligning it for (build, own, operate, and transfer) projects with the actual transfer of ownership or possession.
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Muhammad Al-GharbawiSenior Zakat and Tax Advisor -
Saleh HindiIndirect Tax manager and trainer