Saudi Arabia's Real Estate Transaction Tax is a game-changer
Real Estate Transaction Tax will help young Saudis own homes - and more
Dubai: Saudi Arabia’s new tax rules on real estate transactions have taken effect, offering a significant boost to property ownership among its citizens.
At the same time, the full benefits of the update Real Estate Transaction Tax will extend across all layers of deal-making in the sector, according to industry sources.
The RETT brings in a flat 5% tax on most real estate transactions, ‘including sales, transfers, and other property-related dealings, regardless of whether the parties are individuals or businesses’. The updated RETT came into effect Wednesday (April 9).
When it comes to individual investors, there are specific exemptions, according to Naveen Sharma, Chairman of the Taxation Society.
Family-related transfers: Transactions such as gifts between close relatives (up to the third degree), inheritance divisions, and spousal transfers are exempt from the 5% tax obligation.
First-time homebuyers: Saudi citizens purchasing their first residential property are exempt from tax on properties valued up to SR1 million, with the government covering the tax for qualifying transactions2.
Other exemptions: Transfers to charitable organizations, endowments, or under certain governmental housing initiatives are also RETT-exempt.
“While individuals are subject to the RETT on property transactions, these exemptions significantly reduce the tax burden for specific scenarios, particularly for Saudi nationals and family-related transfers,” said Sharma.
Saudi Arabia has brought in a wave of reforms across its property market, the latest being measures taken to speed up availability of land for development and stabilize rentals in Riyadh. Then, there has also been the opening of freehold rights to foreign investors, the gains from which are starting to show up.
These moves to open up the property market are backed by newly updated and transparent tax laws, which is what the RETT is all about.
“The new RETT marks a transformative step in Saudi Arabia’s real estate market,” said Sharma.
“By expanding exemptions, enhancing compliance measures, and introducing clearer definitions, the law creates a more transparent and investor-friendly environment. This ensures fairness for both businesses and individual investors."
What the RETT states
The tax applies to the sale or transfer of property, including share transfers in real estate companies where real estate assets exceed 50% of total assets.
“This makes it particularly relevant for real estate developers, institutional investors, and companies engaged in Build-Operate-Transfer (BOOT) projects or similar large-scale transactions,” said Sharma.
From 15% to 5%
Saudi Arabia stopped charging the 15% VAT on real estate deals on October 4, 2020. This change was implemented through a Royal Decree issued on October 1, 2020, which introduced the 5% Real Estate Transaction Tax (RETT) to replace VAT on real estate transactions.
The SR1 million upper limit
The changes should have a telling impact on home ownership among young Saudi nationals. Property values have been rising even as the government takes steps to push through more ways and means for affordable housing to be built and bought.
The RETT thus sets the upper limit of SR1 million before any tax comes into effect for Saudi citizens purchasing their first residential property.
This exemption was introduced in October 2020 to replace the previous VAT relief threshold of SR850,000 and remains in effect under the updated RETT framework.
“This exemption aims to reduce the financial burden on Saudi nationals and encourage homeownership, aligning with Saudi Arabia's Vision 2030 goals,” said Sharma.
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