RETT on Transfers in Real Estate Companies: The 30% Threshold Explained

The ability to sell a company rather than directly sell the underlying property is a well-known structuring consideration in real estate. In Saudi Arabia, the RETT Law closes this avenue for significant disposals of real-estate-heavy entities. Under the look-through regime established by Article 2 of the Implementing Regulations, transferring shares or interests in a Real Estate Company can be a taxable RETT event — assessed not on the share value, but on the underlying real estate.

This is commercially material. A company holding SAR 100 million in Saudi real estate and SAR 20 million in cash would be a Real Estate Company. A disposal of 35% of its shares would trigger RETT of SAR 5,250,000 (5% × SAR 100 million × 35%). M&A advisors, PE fund managers, family offices, and legal counsel structuring Saudi real estate transactions must build this analysis in at the outset of any deal.

The first question is whether the entity in question qualifies as a “Real Estate Company” for RETT purposes. The definition applies to any company, fund, or entity (regardless of its legal form or stated purpose) that:

• Directly or indirectly owns real estate situated in the Kingdom of Saudi Arabia
• With the aim of generating revenue from that real estate by selling or leasing it
• Where the total fair market value of such real estate is not less than 50% of the total fair market value of the entity’s assets — assessed on the date of the interest transfer, or at any time during the 365 days preceding that date

The 365-day lookback is intentional anti-avoidance. A company cannot temporarily shift its asset mix below the 50% threshold immediately before a planned disposal and then revert. If the threshold was crossed at any point in the preceding year, the entity qualifies as a Real Estate Company for that transaction.

Even if an entity qualifies as a Real Estate Company, not every share transfer triggers RETT. A taxable event arises when a person, or a group of persons acting in agreement, dispose of a total of 30% or more of the company’s interests, through one or more related transactions, within any three-year rolling period.

The three-year window starts from or after the date on which the cumulative holding of the person (or concert group) reaches 30% or more. Transfers below 30% that do not, in aggregate, push the cumulative disposal over the threshold in any three-year window are not taxable RETT events.

The “concert” or “agreed disposal” concept extends the aggregation beyond a single person. Related persons are deemed to act in concert unless proven otherwise. If multiple shareholders coordinate their sales — even informally — their combined disposals are aggregated for the 30% threshold test.

Once the two-part test is met, RETT is calculated on the fair market value of all real estate owned directly or indirectly by the company at the time of the transaction — multiplied by the percentage of interests transferred. If the value agreed between the parties and allocated to the real estate is higher than the FMV-based figure, RETT is assessed on that higher value.

The transfer of shares, interests, or units listed on a licensed Saudi capital market in a Real Estate Company is expressly exempt from RETT under Article 3 of the RETT Law and Implementing Regulations. This covers public offerings, secondary market trading, share buybacks by listed companies, and the trading of unlisted investment fund units — subject to one exception.

For unlisted investment fund units: if a person or concert group disposes of 50% or more of the fund’s units in a three-year window, the exemption falls away and RETT applies. This is a higher threshold (50%, not 30%) that reflects the unique structure of unlisted real estate investment funds.