All About Real Estate Transaction Tax (RETT) in Saudi Arabia

Real estate is one of the popular investments in Saudi Arabia, and understanding the taxes levied on it is crucial for taxpayers. The Real Estate Transaction Tax (RETT) is a levy imposed on the transfer of real estate ownership in the Kingdom of Saudi Arabia.

This article explains all about RETT, from why, what, and how to calculate it and its impact on real estate businesses.

Why did ZATCA introduce RETT?

Saudi Arabia's taxation regime underwent significant changes in 2014 when the government introduced the Value Added Tax (VAT). Further, in 2020, they introduced RETT under the diversification strategy to generate non-oil revenue. RETT explicitly targets the real estate sector, a key contributor to Saudi Arabia's economic growth.

What is RETT?

RETT is a tax applied whenever there is a transfer of real estate within Saudi Arabia. Transfer includes buying, selling, gifting, or inheriting properties. The current RETT rate is 5% and is calculated based on the property's sale value.

What are the exemptions from RETT?

RETT applies to almost all real estate transactions except for the following:

• Inheritance between close relatives: Spouses, parents, children, and siblings are exempt from RETT when inheriting property.
• Government transfers: Properties transferred to or from the Saudi government are exempt.
• Public interest projects: Transfers for public good initiatives, such as mosques or public utilities, are exempt.
• Specific property types: Land allocated for agricultural purposes and undeveloped plots are currently exempt.

How to calculate RETT?

Buyers and sellers of real estate must understand how they should calculate RETT.

Let's assume the sale price of a property is SAR 1,000,000. Applying 5% RETT on this, the RETT payable would be SAR 50,000

Impact of RETT on businesses

The implementation of RETT has a clear impact on the real estate landscape in Saudi Arabia. Here's a glimpse of its effects:

• Enhanced transparency: RETT encourages formalizing property transactions, promoting a more transparent market.
• Price sensitivity: Businesses consider RETT while deciding on the sale prices that potentially affect the property value.
• Investment shift: The tax might nudge investors towards specific property types due to exemptions or market trends.