Final Real Estate Transaction Tax Law Published in Saudi Arabia
On 11 October 2024, the Real Estate Transaction Tax (RETT) Law in Saudi Arabia (RETT Law) was published in the official gazette. The RETT Law will take effect in 180 days from the publication date. New implementing regulations are also expected to be issued within this timeframe to replace the existing implementing regulations.
The RETT Law provides the primary legal basis for RETT, which the implementing regulations will complement. The new implementing regulations are expected to align with the amendments that the RETT Law introduces to the existing rules.
Background and scope of RETT
RETT was introduced in Saudi Arabia in October 2020, through implementing regulations and applies on the sale or transfer of real estate property in the Kingdom of Saudi Arabia (KSA) at the rate of 5%. Notwithstanding applicable exemptions, all real estate property transfers, including indirect transfers, should fall within the scope of RETT, regardless of the form or use of the real estate property.
The RETT Law broadly adopts a similar set of exemptions as those in the existing implementing regulations but also introduces new, important ones. These include exemptions for real estate transfers related to merger and acquisition transactions between judicial persons,real estate transfers related to initial public offerings, trading of listed securities, and investment fund units as well as transfers arising from forced sales as per court order. The new implementing regulations are expected to set out the conditions for applying these exemptions.
Liability to RETT
Under the RETT Law, the transferor is primarily liable for remitting RETT to the Zakat, Tax and Customs Authority (ZATCA). However, the transferee will be jointly liable if it is proven to the ZATCA that the transferee was responsible for the non-payment of RETT due. This condition appears to narrow the extent to which the transferee may be held jointly liable compared to the existing implementing regulations, which do not explicitly cover instances where the transferee may be liable.
Penalties
The RETT Law includes provisions for penalties in cases of general non-compliance, untimely settlement of due liability and tax evasion.
The penalties are generally computed in proportion to the principal tax amount. For non-settlement of the due liability, the penalty rate has been reduced to 1 % or 2% (as opposed to a flat 5% under the existing implementing regulations) of the unpaid tax amount for each month of delay. The lower rate (1%) applies if the additional liability arises from an assessment by ZATCA. In either case, the penalties should not exceed 50% of the principal amount.
Assessment and objection/appeal procedures
The ZATCA may inspect and issue assessments related to RETT within three years from the date of the real estate transfer. Taxpayers can object to these assessments by following the standard objection and appeal procedures. Initially, they can file an objection to the ZATCA and if the matter has not been resolved to the taxpayer's satisfaction, they can appeal to the Tax Violations and Dispute Resolution Committee (TVDRC) and the Tax Violations and Dispute Appellate Committee (TVDAC) of the General Secretariat of Tax and Zakat Committees (GSTZC) within the prescribed timelines.
Conclusion
Individuals and entities engaged in real estate transactions in KSA should carefully consider the impact of the revised RETT regulations in planning their arrangements.
