Property-backed financing is everywhere in the Saudi market — Ijara structures, Murabaha home purchases, and security transfers where title moves to a financier as collateral. If every one of these movements triggered the 5% RETT charge, the cost of mortgage and lease financing would be unworkable. The law solves this with a focused exemption: a temporary transfer of property as a financing or credit guarantee, made by a licensed entity, is exempt — provided it stays temporary. The moment a security transfer becomes permanent, the exemption falls away.
This article explains how the financing-guarantee exemption works, what happens on default, how bank-to-bank refinancing is treated, and how the regime ensures a financed property is ultimately taxed only once.
The Problem the Exemption Solves
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.
Temporary: the transfer is a security mechanism, expected to reverse once the financing is settled. Licensed: the financing party must be authorised to provide this kind of financing. Both anchors must hold for the exemption to apply.
The Core Case — A Temporary Security Transfer
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.
Property is transferred to a licensed financing entity as a guarantee for financing. Because the transfer is temporary and the financier is licensed, it is exempt from RETT. The transfer is collateral, not a sale.
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.
When Temporary Becomes Permanent — Default
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.
A borrower defaults, and the property that was transferred as security becomes permanently owned by the financier rather than returning to the borrower. Because the transfer is now permanent, it is no longer an exempt temporary security transfer — RETT becomes due on 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.
Refinancing and Bank-to-Bank Transfers
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.
Transfers of financed property between licensed financing entities — including refinancing arrangements and movements of property held under an Ijara structure from one financier to another — remain within the temporary-financing-guarantee exemption. The property is still serving as security within a licensed financing arrangement, so the transfer is exempt.
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.
The “Taxed Only Once” Principle
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.
In a financing arrangement where the property is first transferred to the financier and then to the end customer to complete a Murabaha or Ijara, the two transfers are treated as giving effect to a single financing — and RETT is charged only once, not on both legs.
A related point: the financier’s profit margin built into a Murabaha or Ijara — the financing cost — is not part of the RETT base. RETT attaches to the value of the property transfer, not to the embedded financing return.
A Transitional Note on Pre-Existing Leases
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.
An Ijara (finance lease) that began before the effective date reaches its final transfer of title to the customer after the law is in force. The transitional rule allows that completing transfer to be treated under the financing logic, so the pre-existing arrangement is honoured rather than penalised by the new regime.
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.
Frequently Asked Questions
No. A temporary transfer of property as security for financing, made by a licensed financing entity, is exempt. The transfer is collateral within a financing arrangement, not a sale (Example 31).
Then the security transfer is no longer temporary — it has become a permanent acquisition by the financier, and RETT becomes due on it (Example 32). The exemption only protects temporary security transfers.
No. Transfers of financed property between licensed financiers — including refinancing and movements under an Ijara structure — remain within the financing-guarantee exemption, because the property is still serving as collateral in a licensed arrangement (Examples 33 and 34).
No. Where two transfers give effect to a single financing, RETT is charged only once (Example 62). The financier’s profit margin is also outside the RETT base.
A transitional rule allows the completing transfer of a pre-effective-date Ijara or finance lease to be treated under the financing logic (Example 35). Keep the original lease documentation, as the start date and structure determine the treatment.
- A temporary transfer of property as security for financing or credit, made by a licensed financing entity, is exempt from RETT (Example 31).
- If the transfer becomes permanent — typically on default, when the financier keeps the property — the exemption is lost and RETT is due (Example 32).
- Refinancing and bank-to-bank transfers of financed property stay within the exemption, because the collateral function continues (Examples 33–34).
- Where two transfers complete a single financing (Murabaha/Ijara), RETT is charged only once, and the financing profit margin is outside the base (Example 62).
- A transitional rule preserves consistent treatment for the completion of finance leases entered into before the law’s effective date (Example 35).
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This article is based on the Real Estate Transaction Tax Law (Royal Decree No. M/84), its Implementing Regulations (Board Resolution No. 01-03-25 dated 24/09/1446H), and ZATCA’s Detailed Guideline for RETT. It is provided for general information only and does not constitute tax or legal advice. dariba.co is an independent platform with no consulting relationships.
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