RETT on Long-Term Usufruct Rights Exceeding 50 Years in Saudi Arabia

A usufruct right is the right to use and benefit from real estate owned by another person. In Saudi Arabia’s commercial real estate landscape, usufruct arrangements are common for ground leases, hospitality concessions, and long-term development agreements. The RETT Law treats them carefully: short-term usufruct (50 years or less) is not a RETT event. But grant a usufruct right for more than 50 years, and you have a taxable real estate transaction.

The rationale is economic equivalence. A 60-year right to use and benefit from a piece of land is functionally similar to ownership. The RETT Law applies the same logic: if the economic effect approximates a transfer, tax it accordingly.

The trigger is the granting of the right to use. The tax due date is the date on which the usufruct right is granted — not the date the agreement is signed if those differ, and not the date the consideration is paid. ZATCA’s Guideline (Example 11) makes this clear: once a usufruct agreement for more than 50 years is concluded, the assignor must use the ZATCA portal to disclose the transaction and pay the tax within 30 days of granting the right.

The Implementing Regulations (Article 4(b)) provide a narrow but important safe harbour: if the grant of the usufruct right is cancelled within 30 days of its creation, the taxable event does not arise. This is designed for situations where a usufruct agreement is signed but quickly rescinded before the parties have had time to execute any aspect of the arrangement.

This is a tight window. If the arrangement runs beyond 30 days before being cancelled, RETT is fully due from the original grant date — including any late-payment fines that have accrued. Advisors structuring long-term usufruct arrangements should build this window into their deal timelines if there is any possibility the arrangement may not proceed.

This is where usufruct RETT gets technically complex. Unlike a standard sale where the tax base is simply the agreed price (or FMV if higher), the RETT base for a long-term usufruct right is calculated as the present value of the higher of:

• The fair market value of the right to use on the date of disposal; or
• The present value of the total consideration agreed to be paid over the entire usufruct period

This requires a discounted cash flow calculation on the total consideration stream. The discount rate is not specified in the Regulations — market convention and ZATCA’s approved real estate indices would inform the appropriate rate. If the agreed consideration for the right to use is amended after the original disposal date, the tax must be recalculated and a correction request submitted if the recalculation results in an increase or decrease.

Long-term usufruct structures are prevalent in Saudi Arabia’s infrastructure and development pipeline. Hotel operators entering ground leases on giga-project land, developers entering concession arrangements with government entities, and investors in special economic zones may all encounter long-term usufruct arrangements that trigger RETT.

Where the usufruct is granted from a public entity in its capacity as a public authority — and the transaction meets the conditions of the public entity exemption under Article 3(5) of the RETT Law — the RETT liability may be eliminated entirely. But this exemption must be verified against specific conditions; it cannot be assumed simply because a government entity is involved. The transaction must still be registered with ZATCA even if exempt.

For long-term ground leases under BOOT-style structures, note that the RETT due date rules are different: RETT on the ownership transfer in a BOOT project arises on the date of actual transfer of ownership, not on the date the concession contract is signed. See Article 2.11 for BOOT-specific analysis.