RETT on Gifts of Real Estate in Saudi Arabia: What Triggers the Tax and What Exempts It

A gift (Hibah) of real estate is a taxable event under the RETT Law. The absence of cash consideration does not take a transaction outside the scope of RETT — what matters is that ownership transfers. Saudi families and business owners regularly transfer real estate as gifts, and a misplaced assumption of automatic exemption is one of the most common — and costly — RETT compliance mistakes.

The RETT Law does contain a specific exemption for gifts to close family members. But that exemption comes with precise conditions, a post-gift monitoring obligation, and a three-year clawback mechanism. Understanding what qualifies — and what does not — is essential before documenting any gift of Saudi property.

Under Article 3(7) of the RETT Implementing Regulations, a real estate gift is exempt from RETT where it is: (a) a notarized gift (Hibah), and (b) made to a spouse or a relative up to the third degree.

The Implementing Regulations define relatives up to the third degree explicitly:

Cousins are not within the third-degree circle. A gift to a cousin is fully taxable at 5% of fair market value. This is consistently confirmed in ZATCA’s Detailed Guideline (Example 27): a gift of land valued at SAR 1,000,000 to a cousin is subject to RETT at 5% — SAR 50,000 — even though it is a gift made without consideration.

The gift must also be notarized for the exemption to apply. A documented but unnotarized gift of property to a qualifying relative does not automatically benefit from the exemption. The notarization requirement is a procedural condition, not merely a formality.

The gift exemption is not permanent. It is subject to a three-year non-disposal condition: if the donee (recipient) transfers the property within three years of the gift, and the transfer is to a person who would not have qualified for the exemption if the original donor had gifted directly — the exemption is revoked retroactively. RETT becomes payable from the date of the original gift, with late-payment fines accruing from that date.

This clawback rule is designed to prevent “gift chains” that route property to a non-qualifying recipient (such as a cousin, a business partner, or a third party) through an intermediate qualifying relative. ZATCA is explicit about this: it does not matter whether the intermediate re-transfer appears independent. If the sequence results in the property ending up with someone who would not have qualified, the original exemption falls away.

The three-year window runs from the date of notarization of the original gift. Transfers within this window that go to qualifying relatives of the donee (not the original donor) — for example, the donee’s own child — may still preserve the exemption, but each step must be analysed against who would have qualified had the original donor given directly.

The following gift transactions are taxable at 5% of FMV with no available exemption under the gift provision:

• Gifts to cousins — outside the third-degree circle defined in the Regulations.
• Gifts to non-relatives — friends, business partners, employees, third parties.
• Gifts for consideration — a transaction described as a “gift” but where any cash or in-kind consideration passes is not a true gift and does not qualify for the gift exemption. ZATCA will treat it as a sale (Example 28 from the Guideline: a person “sells” land to his father for SAR 1,000,000 — described as a family transfer but executed for value — is a fully taxable transaction).
• Unnotarized gifts — the exemption specifically requires notarization. An informal or undocumented gift is a taxable event if ZATCA discovers the transfer.

Real estate transferred without consideration to a public, private, or joint Waqf (endowment) registered with the relevant endowment authorities is exempt from RETT — but only the first transfer (from the owner to the Waqf). Once the Waqf holds the property, any subsequent disposal from the Waqf that involves consideration is taxable.

Similarly, real estate gifted without consideration to or from a licensed charitable association (whose activities aim to achieve public interest, as confirmed by the competent authority) is exempt. Again, the key condition is “without consideration.” If the Waqf or charity pays any amount — in cash or in kind — for the property, the transaction is taxable.

The practical implication: when transferring property to a family Waqf as part of an estate planning structure, ensure no side payment is associated with the transfer. Even a nominal compensation to beneficiaries can collapse the exemption.