Category: Real Estate Transaction Tax

Before the mechanics, it helps to see how many exemptions carry a continuing condition. The pattern repeats across the regime:

Every row in that table is a future date on which the exemption could be tested. The exemption is granted on day one, but it is not final until the condition has run its course.

This is the mechanism that gives the conditions their bite. When a continuing condition is breached, the exemption is revoked and the RETT that was originally relieved becomes due — calculated by reference to the original transaction date, not the date the breach occurred. The transaction is treated, retrospectively, as if it had always been taxable.

The same retrospective logic appears throughout the regime. In Example 46, an early exit from a merged group inside five years made both the original merger transfer and the shareholder’s later transfer taxable. In Example 29, a gifted property that left the qualifying family circle within three years caused the original gift’s exemption — SAR 200,000 of RETT — to be revoked and charged on the first transaction. The breach is in the future; the tax reaches into the past.

ZATCA generally has a window — typically three years — within which it can assess a transaction. Taxpayers sometimes assume that once that window passes, a transaction is closed for good. For conditional exemptions, that assumption is dangerous.

The ordinary assessment period runs from the transaction, but a breach of a continuing condition is a fresh trigger. When the condition is broken — which can be four or five years after the original deal — the liability crystallises at that point, and the assessment relates to the revoked exemption. The standard three-year clock measured from the original transaction does not shelter a five-year condition that is broken in year four.

Once a condition is breached and the exemption is revoked, the regime imposes a tight settlement timeline. The transaction becomes a taxable real estate transaction, and the RETT must be declared and paid. The obligation is not optional and not indefinite — there is a defined period (generally 30 days) to settle the tax that has become due.

• The liability is dated to the original transaction — but the duty to pay arises when the breach occurs.
• Settlement is due within the prescribed period after the triggering event, through ZATCA’s platform.
• Late settlement exposes the taxpayer to penalties and delay fines on top of the tax itself.

The party that benefited from the exemption is the party on the hook. In a gift that breaches the three-year condition, in a contribution that breaches the five-year hold, in a merger where a shareholder exits early — the revoked exemption lands on the transaction that was originally relieved.

The regime is not purely punitive. It provides routes to fix errors and to come forward voluntarily — and using them is almost always better than waiting to be found.

Correction of a declaration

Where a real estate transaction declaration contains an error, there is a mechanism to request a correction within a defined period. If you declared an exemption on a basis that turns out to be wrong — or need to amend transaction details — the correction route is the proper channel rather than leaving an inaccurate record in place.

Voluntary disclosure

Where tax should have been paid and was not — including where a condition has been breached and the clawback applies — a voluntary disclosure allows the taxpayer to come forward and settle. Disclosing before ZATCA identifies the issue is the responsible course and is generally treated more favourably than a liability uncovered on audit.

The instinct to assume a breach will go unnoticed is misplaced. Real estate transactions are registered, notarized, and recorded, and ZATCA operates within a connected information environment — with visibility into property records and the registries that document ownership and transfers. A share sale that breaks a five-year retention, a re-gift that pushes property outside the family circle, a property that leaves an endowment’s company — these movements leave records.

Because every transaction (even exempt ones) must be declared and registered, the original exemption claim is already on file, complete with its date and conditions. When the property or shares move again, the later movement is also recorded. The two records together are exactly what reveals a breach. The system is designed so that conditional exemptions can be tested years later against the trail the transactions themselves create.

Property can pass on death or by testamentary instrument in three connected ways, and the Regulations exempt all of them at the point of transfer to the beneficiaries:

• Inheritance. Property passing to heirs under the rules of Islamic succession.
• Division of the estate. Heirs dividing inherited property among themselves according to their lawful shares.
• Notarized will (bequest). Property passing under a lawful, notarized will to the named beneficiary.

The unifying principle is that these are successions, not commercial transactions. No one is buying or selling — property is devolving according to law or a lawful will. That is why the transfer is exempt. The complications all arise when, after the succession, an heir does something that looks like a deal.

A transfer of real estate made under a lawful, notarized will is exempt from RETT. The two qualifiers matter: the will must be lawful (within the limits Sharia places on bequests) and it must be notarized — documented through the proper channel rather than asserted informally.

Contrast this with a lifetime gift to a relative, which is governed by a different exemption with its own three-year clawback condition. A bequest takes effect on death under a will; a gift takes effect during life. They are different instruments with different rules — see the article on gifts to spouses and relatives for the lifetime-gift regime.

When several heirs inherit property jointly, dividing it among themselves according to their lawful shares is part of the exempt succession. The estate is simply being allocated to those already entitled to it.

But Example 16 also marks two boundaries that are easy to cross without realising it.

Boundary one — an heir taking more than their share

If one heir takes property worth more than their lawful share and compensates the other heirs for the difference, that compensated excess is no longer pure succession. To the extent the heir is effectively buying out the others’ entitlement, the difference is treated as a taxable real estate transaction. The exempt part is the heir’s own lawful share; the taxable part is the additional value acquired for consideration.

Boundary two — a later sale between heirs

Once the estate has been divided and each heir owns their share outright, a subsequent sale of property from one heir to another is an ordinary taxable transaction. The succession is complete; what follows is commerce.

This is the single most important practical point in the whole area. The exemption covers the devolution of the estate to the heirs. It does not blanket every future dealing in the inherited property.

• An heir who later sells their inherited share — to a co-heir or to a third party — enters a taxable transaction. RETT applies to that sale on its own terms.
• An heir who takes more than their share and pays the others is taxed on the compensated excess, as above.
• An heir who later gifts the inherited property to a relative is then in the lifetime-gift regime, with its notarization requirement and three-year clawback condition.

Even though these successions are exempt, the transfers still need to be properly documented and registered. For a bequest, the will must be notarized for the exemption to apply — an informal or unnotarized will does not meet the condition. For inheritance and estate division, the transfer to the heirs is recorded through the proper channels, and the exemption is reflected there.

Keeping the paperwork clean has a forward-looking benefit too. If an heir later sells, the authorities will look at the chain: when the property was inherited, what each heir’s share was, and whether any compensated excess was already taxed at division. A well-documented succession makes the later, taxable transactions straightforward to assess — and prevents the heir from being taxed twice on the same value.

In Sharia-compliant financing, the legal title to a property often has to move — sometimes more than once — to make the structure work. In an Ijara (lease-to-own) arrangement, a financier may take title and lease the asset back to the customer. In a security arrangement, title or a registered interest moves to the lender as collateral for a loan. None of these movements represents a genuine economic sale; they are mechanics of financing.

The Regulations recognise this. A temporary transfer of real estate as a guarantee for financing or credit, carried out by an entity licensed to provide such financing, is exempt from RETT. The key words are temporary and licensed.

The straightforward application: a borrower’s property is transferred to a licensed financier as security for a financing facility, on the basis that title returns once the obligation is discharged.

This is the backbone of property-secured lending in the Kingdom. Without it, taking a mortgage would itself be a 5% taxable event — an absurd result that the exemption deliberately prevents.

The exemption is built on the assumption that the security transfer is temporary. If that assumption fails — most commonly when the borrower defaults and the financier ends up keeping the property — the transfer is no longer temporary. It has become a permanent acquisition, and the exemption no longer protects it.

This is the defining boundary of the exemption. It protects the financing use of a title transfer, not the financier’s eventual ownership of the asset when a loan goes bad. Once the property is permanently absorbed, the regime treats it as a real estate transfer subject to tax.

Financing is not static. Customers refinance; facilities are transferred between financiers; an Ijara book may move from one institution to another. The exemption is designed to keep these movements tax-neutral, because they remain part of the financing arrangement rather than a genuine onward sale of the property.

The thread running through Examples 33 and 34 is continuity of purpose. As long as the property continues to function as financing collateral held by a licensed entity, moving it between financiers does not create a taxable sale.

Financing structures often require two title movements in quick succession — for example, a financier acquiring a property and immediately transferring it on to the customer under a Murabaha or Ijara arrangement, sometimes captured in a single deed. Taxing each leg separately would double the charge on what is, economically, one acquisition by the end customer.

The Regulations address this directly: where a financing transaction involves two transfers of the same property to give effect to a single financing (such as a Murabaha purchase or an Ijara), RETT is applied only once.

When the RETT regime came into force, financing structures already in flight needed a bridge. The Regulations include a transitional rule for the completion of Ijara and finance-lease arrangements entered into before the law’s effective date — allowing the final transfer that completes such a pre-existing arrangement to be treated consistently rather than caught as a fresh taxable event.

If you are completing a financing arrangement that pre-dates the regime, the timing and origin of the structure matter — keep the original documentation, because it determines how the completing transfer is treated.

The single most important thing to grasp is that the RETT treatment of a government-related transaction depends on which way the property is moving.

Get the direction clear first; everything else follows from it.

Real estate transferred to a public entity or a body serving the public interest is exempt from RETT, and — importantly — the exemption does not depend on why the entity is acquiring the property. Whether the land is for a school, a road, an administrative building, or simply added to a portfolio, the transfer in is exempt.

Note how different this is from the endowment rule, where consideration destroys the exemption. Here, even a purchase at full market price is exempt because the recipient is a public entity. The exemption is recipient-driven, not consideration-driven. Example 22 reinforces the same principle on different facts: a transfer to a public-interest body is exempt regardless of the body’s intended use of the property.

The reverse direction is where care is needed. A transfer of real estate by a public entity is exempt only where the entity is acting in its capacity as a public authority — not as a market participant. The Regulations frame this through three cumulative conditions:

1. Statutory basis. The transfer is carried out under a statutory instrument or in exercise of the entity’s governmental powers — not as an ordinary commercial dealing.
2. Non-economic, non-commercial purpose. The transfer is not made for an economic or commercial objective. The entity is performing a public function, not running a business.
3. No competition with the private sector. The activity does not compete with the private sector. If the entity is doing something a private developer or trader could equally do, the exemption is not available.

All three must hold. The test is essentially: is the State acting as a sovereign, or as a seller?

Now the contrast that defines the rule:

Example 24 is the case everyone needs to internalise. The seller being a “government agency” is not, by itself, an exemption. When a public body steps into the market and sells real estate commercially, it is taxed like any other vendor.

Closely connected to the public-authority logic is the treatment of expropriation (compulsory acquisition for public benefit) and temporary seizure. Where the State takes private property for a public purpose against compensation, the affected owner is not treated as having entered into a taxable real estate transaction.

The principle is consistent with the public-authority test: the transfer flows from the exercise of governmental power for a public purpose, not from commerce, so it falls outside the charge.

RETT is, by default, the liability arising on the transaction — and in a standard sale the parties settle it as part of the deal. When a public body sells commercially (as in Example 24), the transaction is taxable and the tax must be declared and paid through ZATCA’s platform on the standard timeline before the transfer is documented.

A practical warning for private buyers dealing with government-linked sellers: do not assume the “government” label on the other side removes RETT. If the entity is selling commercially, the transaction is taxable, and the commercial reality — not the identity of the seller — controls. Confirm the basis of the transfer before you treat it as exempt.

Article 3 of the Implementing Regulations lists the dedication of real estate to an endowment among the transactions exempt from RETT. The relief is real, but it carries three built-in limits that decide every case:

• No consideration. The dedication must be gratuitous. If the endowment pays for the property, the transaction is a sale and the exemption does not apply.
• Properly constituted and supervised. The endowment must be established and registered in line with the rules governing endowments in the Kingdom, under the supervision of the competent authority.
• The first transfer only. The exemption attaches to the act of dedicating the property into the waqf. It does not automatically follow the property through every subsequent dealing.

Hold those three limits in mind and the examples below stop being surprising. Each one is simply the law applying a single principle: charity is exempt, commerce is not.

The core case is the cleanest. An owner takes property they hold outright and dedicates it to a registered endowment, receiving nothing in return. That transfer is exempt.

Now change one fact — introduce a price — and the analysis flips entirely.

The lesson is blunt: the exemption protects the gift of property to a waqf, not the act of an endowment buying property on the open market. An endowment is a buyer like any other when it pays.

A separate but closely related exemption covers real estate transferred to or from a licensed charitable body, again provided there is no consideration. This is broader than the waqf rule in one respect — it works in both directions — but it carries the same gratuitous-transfer DNA.

But watch what happens when the charity later monetises the property. The exemption that covered the gift into the charity does not immunise what the charity then does with it for value.

This is the single most common trap with charitable property: the first leg in is exempt, but a paid disposal — a sale, a long lease, a usufruct for rent — is a fresh, taxable transaction on its own terms.

Modern endowments are often structured through companies or investment funds that the waqf owns. The Regulations accommodate this with a further exemption: transferring real estate, without consideration, to a company or fund wholly owned by an endowment is exempt — subject to a continuing-ownership condition.

As with every conditional exemption in the RETT regime, the five-year requirement has teeth. If the endowment’s ownership of the vehicle is broken inside that window, the exemption is revoked and the tax becomes due — calculated by reference to the original transfer date. We deal with how that clawback mechanism operates across all conditional exemptions in the article on conditions that revoke an exemption.

A point that catches many endowment trustees off guard: an exempt transfer still has to be registered. The Regulations require every real estate transaction — taxable or exempt — to be documented through ZATCA’s platform before it is notarised or recorded. The exemption removes the 5% charge; it does not remove the filing obligation.

In practice this means the dedication is declared, the exemption is claimed on the platform, and ZATCA records the basis for it. That record matters later: if a conditional exemption (like the five-year endowment-company rule) is ever tested, the original declaration is the document that anchors the date and terms of the transfer.

When you face a waqf or charity transaction, three questions decide the outcome in order:

1. Is anything being paid? If there is consideration in any form — cash, rent, a usufruct fee, an exchange of value — you are almost certainly outside the exemption and looking at a taxable transaction.
2. Is the recipient a properly constituted, supervised endowment or a licensed charity? The vehicle has to be the real thing, established and registered under the applicable rules.
3. Is this the dedication itself, or a later dealing? The exemption protects the act of endowing or donating. Subsequent paid disposals out of the waqf or charity stand on their own and are taxed on their own facts.

Run those three questions and the worked examples line up perfectly: Example 17 (gift in — exempt), Example 18 (sale in — taxable), Example 19 (gift to charity — exempt), Example 20 (paid usufruct out — taxable), Example 56 (gift into endowment company — exempt, subject to five-year hold).

Real estate moves in an M&A deal in one of two ways. In an asset deal, the property itself is transferred — a straightforward, taxable RETT event at 5%. In a share deal, the shares of a property-holding company change hands; if that company is a real estate company (real estate is 50% or more of its asset value), transferring 30% or more of its shares within a three-year window is itself a taxable RETT transaction under the look-through rule.

The M&A exemption sits on top of this. Where the real estate transfer results from a qualifying merger or acquisition between legal persons, it is exempt — provided the deal meets the specific conditions for its category. Get the structure right and the property moves tax-free; get a condition wrong and the full RETT charge reappears.

A merger, for RETT purposes, is the merging of one or more existing legal persons into another, or the combination of two or more to form a new legal person, under the laws regulating mergers in the Kingdom. The property transfer it produces is exempt only if all four of the following hold.

1. Consideration limited to shares

The merger consideration must consist only of shares/interests in the surviving or newly formed entity — no cash and no in-kind consideration (where applicable under the Companies Law). Add a cash component and you break the condition.

2. Proportionality of interests

The shares each owner receives must be proportional to their ownership rights before the merger. Any change in relative ownership is treated as a breach.

3. Five-year retention

The interests in the surviving/resulting entity must remain owned — directly or indirectly — by the same partners or shareholders for at least five years from the merger, unless disposed of as part of a further qualifying merger.

4. No relief for the objecting partner’s payout

The exemption does not extend to other consideration — cash or in-kind — received by a partner who objects to the merger. As Example 47 shows, where a dissenting shareholder is paid out to exit, that payout is treated as a taxable real estate transaction, not part of the exempt merger.

An acquisition, for RETT purposes, is a transaction carried out through the exchange of shares (including securities) resulting in the acquisition of the entire shares of a real estate company, where both the transferor and transferee are legal persons. The property/interest transfer it produces is exempt only if all three conditions are met.

• Shares-only consideration. The consideration must be limited to interests in the acquiring person — no cash or in-kind component.
• Five-year retention. The owners of the acquired person must retain the interests they received for at least five years from registration or ownership.
• Single transaction. The acquisition must be completed in one transaction — not staged.

The single-transaction condition is the one most likely to surprise deal teams, who often phase closings for commercial or regulatory reasons. For RETT exemption purposes, the acquisition must land in one step.

The choice between an asset deal and a share deal has always been driven by liability, warranties, and tax. RETT adds another dimension.

The practical lesson: if a target holds significant Saudi real estate, the way the deal is papered can be the difference between a clean exemption and a seven-figure RETT charge. This needs to be modelled at the structuring stage, not discovered at completion.

Both the merger and acquisition exemptions impose a five-year hold on the resulting interests. The Regulations build in one important relief: transferring those interests as part of a subsequent merger or acquisition that itself meets the same conditions is not a breach. The retention requirement effectively carries forward into the new structure.

This is what allows a group to keep consolidating — merger followed by acquisition followed by intragroup tidy-up — without resetting its RETT exposure at every step. The discipline is that each step must independently satisfy its own conditions; one non-qualifying link in the chain breaks the relief for that transfer and can reach back to earlier ones.

RETT is a tax on the transfer of real estate, not on profit or gain. That makes it indifferent to whether the transfer is a genuine sale or a paper reshuffle inside a group. Without relief, every contribution of property to a subsidiary, every consolidation of assets into a holding entity, and every conversion of a sole proprietorship into a company would trigger 5%.

ZATCA is explicit about the policy: these exemptions exist to encourage businesses to restructure without incurring financial burdens. The trade-off is that the State wants to be sure the restructuring is real — that economic ownership genuinely stays where it was. That is what the five-year retention conditions are for.

Several distinct exemptions sit under the “restructuring” heading. They cover different shapes of transaction but share the same DNA: economic ownership must not really change for five years.

Mergers and acquisitions sit alongside these but have their own additional gates; we cover them in the dedicated M&A article. The four above are the workhorses of ordinary group restructuring.

This is the classic case: a person contributes real estate to a company’s capital and receives shares of equal value in return. It is exempt — provided two conditions hold for five years:

• The shares or interests corresponding to the contribution are not disposed of for five years from the date of ownership.
• The company maintains audited financial statements from a certified external auditor throughout that five-year period.

The audited-financials condition is easy to overlook and just as capable of voiding the exemption as an early share sale. It is there to prevent abuse — to make sure the company receiving the property is a real, accountable entity.

Where a natural person transfers property to a company or investment fund they own 100% — directly or indirectly — the transfer is exempt, provided their ownership percentage does not change for at least five years from the transaction date.

ZATCA’s Examples 49 and 50 confirm that indirect ownership counts. In Example 50, an individual (Ahmed) transfers property to Company B, which is 100% owned by Company A, which is in turn 100% owned by Ahmed. His indirect 100% ownership of Company B is what matters, and as long as it does not change for five years, the transfer is exempt.

This is the exemption that makes it painless for a sole owner to move personal property into a corporate wrapper — a common first step in formalising a family business or preparing for investment.

This exemption covers property moving between entities under common 100% ownership. It applies to three patterns:

• Between two companies where one wholly owns the other (parent–subsidiary).
• Between a company and an investment fund where the company wholly owns the fund’s units.
• Between companies or funds whose shares/units are wholly owned — directly or indirectly — by the same person (sister entities).

The condition: all the shares or units of the recipient entity must remain owned — directly or indirectly — by the same person for at least five years from the transfer.

ZATCA’s Examples 51–54 walk through each pattern, including the sister-company case (Example 54): Company B transfers property to Company C, both 100% owned by Company A. Because common ownership through A is unchanged for five years, the transfer is exempt. The thread running through every example is the same — 100% common ownership, held for five years.

Every restructuring exemption here is conditional and continuing. The relief is not granted and forgotten; it is held open for five years against the retention condition. If that condition fails, Article 4 of the Regulations dates the tax back to the original transfer, and Article 5 gives 30 days from the breach to pay.

This has a planning consequence that is easy to miss: a restructuring exemption you claim today constrains what you can do with the group for the next five years. If there is any realistic prospect of bringing in an investor, listing, or selling a subsidiary inside that window, the exemption may not be the right tool — or the timing needs to be planned around it.

The Regulations deliberately protect three situations so that ordinary corporate life does not accidentally trigger a clawback. None of the following counts as a breach of a retention condition:

• IPO dilution. A change in ownership percentage caused by a public offering of the recipient company’s shares or the fund’s units, conducted under the Capital Market Law, is not a breach. Example 60 confirms a company can take its wholly-owned entity to IPO within the five-year window without losing the exemption.
• Court forced sale. A transfer compelled by a competent court’s forced-sale order (liquidation/bankruptcy) does not breach the condition.
• Subsequent qualifying merger or acquisition. Rolling the shares into a further merger or acquisition is not a breach — provided the resulting shares are then retained for the period needed to complete the relevant exemption periods. The five-year clock effectively carries over into the new structure.

That third point is the mechanism that lets groups keep reorganising without resetting their RETT exposure every time — as long as each step independently meets its conditions.

Separately from the exemptions, Article 2 of the Regulations tells us that acquiring new shares in a real estate company through a capital increase is not a real estate transaction in two situations:

• Existing shareholders take up the new shares pro rata, so their percentages do not change.
• New shareholders take up the new shares, provided the existing shareholders keep their pre-increase shares and do not dispose of them for five years from the capital increase.

This matters for restructurings funded by injecting capital rather than transferring assets. A proportional rights issue is simply outside RETT; bringing in new equity is fine too, as long as the incumbents hold their existing stakes for five years.

A transfer without consideration to a company or fund whose shares/units are wholly owned — directly or indirectly — by a registered public, private, or joint endowment is exempt, provided the endowment’s ownership does not change for five years (Example 56). This bridges the Waqf and restructuring regimes: it lets endowments hold real estate through corporate vehicles without a RETT charge on the way in, subject to the same five-year discipline.

The restructuring exemptions are built for genuine reorganisations, not for shuffling assets to dodge tax on what is really a sale. Two features keep them honest.

First, Article 6 (deceptive or hidden transactions): where parties create documents that give a different form to the real transaction — concealing what is actually happening — ZATCA calculates the tax on the real transaction. A “restructuring” that is in substance a disguised third-party sale will be taxed as a sale.

Second, the five-year retention conditions themselves are the main anti-avoidance tool. They make it expensive to use an exemption as a way-station to a quick onward sale, because the early disposal reinstates the original tax.

Under Article 3 of the RETT Law and Regulations (and Section 5.1.7 of ZATCA’s Guideline), a real estate transfer by way of a notarized gift (Hibah) to a spouse or a relative up to the third degree is exempt from RETT.

Two words in that sentence carry all the weight: notarized and gift.

• Notarized. The gift must be documented before a notary. An informal family arrangement does not qualify.
• Gift. It must be a genuine transfer without consideration. The moment money changes hands, it is a sale — and a sale to a relative, however close, is fully taxable.

Get either wrong and the exemption simply does not exist. There is no partial credit.

The Regulations define “relatives up to the third degree” precisely. This is not a matter of how close you feel to someone; it is a fixed list. A spouse is included separately. Beyond that:

The exemption is for gifts, not for transfers to relatives generally. ZATCA’s Examples 26 and 28 sit side by side to make the point.

The relationship was not the problem in Example 28. The consideration was. The exemption protects gratuitous family transfers, not intra-family sales.

Here is the condition that catches people. For the gift exemption to stay valid, the donee must not, within three years of the gift’s notarization, transfer the gifted property to a person who would not have qualified for the exemption had the original donor gifted to them directly.

Read that twice, because the test is anchored to the original donor — not to the current holder. The question is always: “If the first donor had given this property straight to the eventual recipient, would that have been exempt?” If the answer is no, the re-disposal within three years breaks the condition.

When the condition breaks, the exemption on the first gift is revoked and RETT becomes due on that original transaction — backdated, with fines accruing from the original date.

This is the example every advisor should be able to explain on demand, because it shows the trap operating in real time.

Notice who pays. The tax lands on the first transaction — the Original Donor’s gift — even though it was the grandfather’s later decision that triggered it. The donee’s freedom to deal with the property is restricted for three years precisely because the original exemption depends on it.

To see how the anchoring-to-the-original-donor rule behaves, run a few variations.

Re-gift to a qualifying relative of the original donor

Suppose a father gifts a villa to his son (first degree — exempt). Within three years, the son gifts it to the father’s daughter (the son’s sister). Would the original donor — the father — have qualified gifting directly to his daughter? Yes; a daughter is first degree. So the re-gift does not breach the condition, and the original exemption holds.

Re-sale to an outsider

Same father-to-son gift. Within three years, the son sells the villa to an unrelated buyer. A sale to an outsider is plainly something that would not have been exempt for the father directly. The condition is breached, the original gift’s exemption is revoked, and RETT is backdated to the father’s gift. (The son’s own sale is, separately, a taxable transaction in its own right.)

Holding past three years

If the donee simply holds the property for more than three years from notarization, the condition is spent. After that point, the donee can deal with the property freely — though any onward sale is, of course, its own taxable event.

The first-home benefit is a State-borne support, not an Article 3 exemption. The distinction is not pedantic. The Article 3 exemptions say a transaction is exempt — no tax arises. The first-home mechanism works differently: RETT does arise on the transaction, but the State bears it up to a defined ceiling on behalf of eligible Saudi citizens buying their first home.

ZATCA and the Ministry of Municipalities and Housing (MoMRAH) set this out in a joint mechanism. The headline numbers are simple:

The policy sits squarely inside Vision 2030’s homeownership agenda. By absorbing the tax on the first million riyals of a first home, the State removes a meaningful cost from Saudi families entering the property market.

The benefit is aimed at Saudi citizens purchasing their first residential property. Eligibility is determined and verified through the Ministry of Municipalities and Housing, which issues the certificate that unlocks the support. ZATCA then re-checks eligibility when the transaction is processed through its portal.

Because eligibility is verified by a dedicated authority rather than self-declared, the practical questions that arise are usually about edge cases:

• Second homes: the benefit is for a first home. A buyer who already owns residential property is outside it.
• Joint purchases: where a property is bought jointly and one party already owns a home, eligibility can be partial or compromised — this is precisely the kind of fact ZATCA verifies.
• Non-residential property: the support is for a home. Commercial units, land held for investment, and buy-to-let purchases do not fit the policy.

The first-home support runs across two portals and two authorities. The sequence matters, because the certificate has to exist before the seller can process the support side of the transaction.

1. Buyer obtains the First Home certificate. The eligible buyer logs into the MoMRAH portal (housing.gov.sa) and obtains a “First Home” certificate confirming their entitlement to the State-borne support.
2. Buyer provides the certificate to the seller. Because the seller (assignor) is the party legally responsible to ZATCA for RETT, the certificate has to reach them.
3. Seller registers the transaction on the ZATCA portal. The seller logs into zatca.gov.sa, selects the RETT service, then “Request to Register a Real Estate Transaction,” and enters the property and buyer data.
4. ZATCA verifies eligibility and applies the support. ZATCA confirms the buyer’s eligibility, exempts the tax on the first SAR 1,000,000, and imposes 5% on any amount above SAR 1,000,000.
5. Transfer completes at the notary. Through the electronic link with the Ministry of Justice, the notary completes the transfer once the RETT position is settled.

The first-home support is one of the smoother parts of the RETT system, but a few situations reliably cause problems.

• Off-plan timing. Where the home is purchased off-plan, the RETT due date and the timing of the certificate need to line up. Make sure the certificate is valid and presented at the point the transaction is processed.
• Joint ownership where one party already owns. Buying with a spouse or relative who already owns a home can reduce or remove the support on part of the purchase. Confirm before completion.
• Eligibility re-checked at ZATCA. The MoMRAH certificate is the gateway, but ZATCA independently verifies eligibility when it processes the transaction. A mismatch holds up the transfer.
• Joint liability risk. If ZATCA later establishes that eligibility conditions were not met on the transaction date, the buyer can be held jointly liable with the seller for the tax that should have been paid. The support is not a blank cheque.

RETT applies at 5% on the total value of any real estate transaction, regardless of the property’s status, form, or use, and whether or not it is notarized. That is the default. Everything in this guide is an exception to it.

The exemptions live across three sources, and you need all three to apply any of them correctly:

• The RETT Law (Royal Decree No. M/84): Article 3 sets out the categories of exempt transaction at the level of principle.
• The Implementing Regulations (Board Resolution No. 01-03-25, 24 March 2025): Article 3 of the Regulations supplies the criteria, controls, and conditions for each exemption — this is where the real work happens.
• The ZATCA Detailed RETT Guideline: Section 5 walks through each exemption with worked examples (Examples 16 to 62). ZATCA is bound by its own published guidance for periods after it is issued, which makes these examples unusually valuable.

One framing point that saves a lot of confusion: an exemption removes the tax, not the obligation to register. Article 3 of the Regulations is explicit — every exempt transaction must still be registered with ZATCA under the same procedures as a taxable one. The notary cannot complete the transfer without ZATCA first confirming the exemption. No registration, no transfer.

This is the single most important idea in the entire exemption regime, and it is the one that costs people the most money. Many RETT exemptions are conditional and continuing. They depend on something that must remain true for a defined period after the transaction — a share that must not be sold, an ownership percentage that must not change, a property that must not be re-gifted.

When one of those conditions later fails, the exemption does not simply switch off going forward. It is treated as never having applied. Under Article 4 of the Regulations, the tax becomes due from the date of the original transaction — not from the date the condition broke. Article 5 then gives the taxpayer 30 days from the breach to pay.

ZATCA’s reach here is long. Under Article 8, it can demand the tax within three years of becoming aware of a transaction — but that three-year clock does not limit its right to chase tax where an exemption condition has been breached. In other words, the clawback risk effectively runs for as long as the underlying condition is meant to hold.

The Regulations and the ZATCA Guideline together set out more than twenty distinct exemption scenarios. They fall into recognisable families. The table below is your reference map; the sections that follow unpack each family in turn.

Three transitional exemptions also exist for transactions straddling the law change: pre-effective-date Ijara/finance-lease completions, transactions already subject to VAT before notarization, and a one-Hijri-year grace window for partners to notarize property already sitting in a company’s books. We cover these at the end of Section 09.

Three exemptions deal with property moving through a family — by death, by gift, and by will. They look similar and are constantly confused. They are not the same.

Inheritance (estate division)

The division and distribution of a deceased person’s estate is exempt — whether the property passes from the deceased to the heirs or is divided among the heirs themselves, within the limits of their legal shares per the inheritance certificate. The logic is that distributing an estate is not a sale.

The trap sits on the other side of the distribution. Once the estate is divided, any subsequent sale by an heir is fully taxable. And if the heirs sell the property before dividing it — to split the cash — that sale is taxable too. There is a subtler point in ZATCA’s Example 16: if one heir takes the house (worth more than their legal share) and compensates the other heirs in cash for the difference, that difference is treated as a taxable real estate transaction.

Notarized gift to a spouse or close relative

A notarized gift (Hibah) to a spouse or a relative up to the third degree is exempt — but it carries a three-year clawback that we devote an entire article to. The relative must genuinely be within the third degree (parents, children, siblings, grandparents, grandchildren, aunts, uncles, nieces, nephews). A cousin is not within the third degree, so a gift to a cousin is fully taxable (Example 27). And the transaction must be a true gift, not a sale dressed as one — selling to your father for SAR 1,000,000 is taxable, because it is a sale, not a Hibah (Example 28).

Notarized lawful will (bequest)

A transfer made in implementation of a notarized lawful will is exempt, provided the will is notarized. The distinction from a gift is timing: a gift takes effect in the donor’s lifetime; a bequest takes effect on death. Once the bequest is executed and the beneficiary later sells, that sale is taxable.

This family removes RETT where property serves the public good — but each carve-out has a precise boundary, and ZATCA polices the line between public-interest activity and ordinary commercial activity carefully.

Endowments (Waqf)

A transfer to a public, private, or joint endowment without consideration is exempt — provided the endowment is registered with the relevant authorities and under their supervision. Two limits matter. First, only the first transfer into the Waqf is covered; later dealings by the Waqf are not. Second, the transfer must be without consideration. Sell a building to an endowment for SAR 1,000,000 and it is fully taxable, because it is a sale (Example 18).

Licensed charitable organisations

Transfers to or from a legally licensed charitable organisation, again without consideration, are exempt. ZATCA’s Examples 19 and 20 draw the line cleanly: gifting land to a licensed charity is exempt, but when that charity then grants a 70-year usufruct over the land for SAR 100,000 a year, that onward transaction is taxable — the exemption only ever covered the first, gratuitous transfer.

Public entities and public-authority transfers

Transfers to a public entity, public legal person, or public-interest body are exempt regardless of the intended use of the property (Example 21). Transfers from a public entity are exempt only where the entity is acting in its capacity as a public authority — under a statutory mandate, not on commercial terms, and without competing with the private sector. Sell a villa through a public body’s investment programme and it is taxable at 5% (Example 24), because that is commercial activity, not public authority.

Expropriation

Where the State expropriates property for public benefit under the approved statutory procedure, the owner is exempt — even though compensation is paid. In Example 25, a property expropriated for road construction with SAR 800,000 compensation carries no RETT for the owner.

This is the most valuable family for businesses — and the most condition-heavy. The unifying theme is that the State will not tax property moving within a genuine corporate structure, provided the economic ownership does not really change for five years.

The exemptions here cover: an individual contributing property in-kind for shares (5-year retention plus audited financials); an individual transferring property to a company or fund they wholly own; transfers between commonly and wholly owned group entities; mergers; acquisitions; and transfers to a company wholly owned by an endowment. Every one of them carries a five-year retention condition — and breaching it triggers the backdated clawback from Section 02.

Mergers and acquisitions have their own additional gates — consideration must be shares only, ownership must be proportional, an acquisition must complete in a single transaction — which we examine in the dedicated M&A article. The key cross-cutting rule: a later transfer of those shares as part of a further qualifying merger or acquisition is not a breach, provided the chain keeps satisfying the same conditions.

Because interests in real estate companies and funds can themselves be taxable real estate transactions, the Regulations carve out genuine capital-market activity so that ordinary investing is not caught.

• IPO subscription to securities of a real estate company offered publicly.
• Trading of listed securities of a real estate company on a licensed Saudi market.
• Treasury shares — a listed joint-stock company buying back its own shares.
• Unlisted fund units, where the fund meets the real estate company definition — but only where the dealing represents less than 50% of the fund’s units. Cross 50% (alone or by concert) within any three-year window and the exemption falls away (Example 59 shows a 10% unit sale staying exempt).
• In-kind contribution to a REIT — exempt, but the corresponding units must be held until the fund terminates or for at least five years, whichever is earlier (Example 61).
• Fund–custodian transfers — temporary transfers between a fund and its custodian, common because funds often lack independent legal personality.

A useful relief built into the Regulations: a dilution of your holding purely because the company or fund went through an IPO does not count as a breach of a retention condition. Neither does a transfer compelled by a court forced-sale order, nor a transfer rolled into a further qualifying merger or acquisition.

Saudi real estate financing routinely moves legal title around without any real change of ownership. The Regulations recognise this.

A temporary transfer of property to a licensed financier as security or guarantee for financing or credit is exempt — provided ownership is not permanently transferred. The return leg, when the debt is repaid and title goes back to the owner, is also exempt. But if the borrower defaults and the financier keeps the property as recovery, the transfer becomes permanent and is taxable (Examples 31–32). The exemption even covers title moving between banks or to a refinancing company as part of debt-transfer operations under Ijara contracts (Examples 33–34).

Separately, the Regulations protect against double taxation: a single real estate transaction is taxed only once. This is what makes Murabaha and Ijara financing workable — the first transfer to the licensed financier is taxed, but the later transfer of the same property, same value, to the final beneficiary is not (Example 62). The implicit profit margin in the financing is never part of the RETT base.

A final set of exemptions deal with timing, developers, and the change-over from the old regime.

Cancellation within 90 days

If the parties cancel a notarized transaction by mutual consent within 90 days, return the property unchanged, and refund the full value, the restitution is exempt (Example 57). Tax already paid can be reclaimed under the refund procedure.

Transfers to a licensed off-plan developer

A transfer to a developer licensed for off-plan (Wafi) sales is exempt where the property is allocated to a licensed off-plan project. If the licensing decision is not yet issued at the transaction date, the transferor gets a 90-day window to produce it — but must pay the tax or post a cash/bank guarantee in the meantime. License arrives in time: refund or release the guarantee. It does not: ZATCA keeps the guarantee as the tax.

Transitional exemptions (legacy transactions)

• Pre-effective Ijara/finance leases: ownership transfers completing now under finance-lease contracts concluded before RETT took effect are exempt (Example 35).
• Already subject to VAT: a transaction subject to VAT before notarization, notarized after the RETT Law took effect, is exempt to avoid double taxation (Example 40).
• Partner property in company books: where a partner transferred property into a company’s books before the law but never notarized it, a one-Hijri-year grace window allows notarization without RETT, on proof from audited statements (Examples 41–42).

This is where precision matters. The widely cited “first home exemption” is not one of the Article 3 statutory exemptions. It is a separate State-borne support: under a joint mechanism between ZATCA and the Ministry of Municipalities and Housing, the State bears the RETT on the first SAR 1,000,000 of an eligible Saudi citizen’s first-home purchase. Any amount above SAR 1,000,000 is taxed at 5%.

The mechanics are also different. The buyer obtains a First Home certificate from the MoMRAH portal (housing.gov.sa) and gives it to the seller, who processes the transaction through the ZATCA portal. ZATCA verifies eligibility, exempts the first SAR 1,000,000, and charges 5% on the excess.

• Treating “for consideration” as exempt. The Waqf and charity exemptions only cover gratuitous transfers. A sale to an endowment or charity is fully taxable.
• Stretching the family circle. The gift exemption stops at the third degree. Cousins, in-laws, and friends do not qualify.
• Confusing a gift with a sale. The label on the contract does not save it — a sale to a first-degree relative is still a taxable sale.
• Forgetting the five-year clock. Restructuring, in-kind, and intra-group exemptions are conditional. Selling the shares early backdates the whole tax.
• Assuming the exemption covers downstream transfers. Public-interest and Waqf exemptions cover the first transfer only. What the recipient does next is its own transaction.
• Skipping registration. Exempt does not mean invisible. Unregistered exempt transactions cannot be notarized and leave you exposed on the burden of proof.