RETT Exemption for Charitable Associations: Article 3(a)(3) Explained

Saudi Arabia’s non-profit sector has grown quickly under Vision 2030, and real estate is often central to it: land for a clinic, a building for a training centre, housing units for families in need. Article 3(a)(3) makes sure RETT does not take 5% of those gifts.

It is a two-way exemption, which is unusual in the Regulations. It covers both gifts to an association and gifts by it. However, it applies only where no consideration changes hands, and the association has to meet two status tests.

The Provision: Exact Text

ZATCA’s Detailed RETT Guideline covers this exemption at section 5.1.3.

What It Means in Plain English

The charitable association RETT exemption means that no RETT is due when real estate is given to, or given by, a licensed charitable association, provided nothing is paid in return. The association must have public interest status from the competent authority. If the association is the one giving property away, its licence must allow it to deal in real estate.

Breaking Down the Provision

“Without consideration, whether in cash or in kind”

As with the endowment exemption, this condition does most of the work. No price, no assumption of debt, no swap of assets. A “donation” made on condition that the charity pays off the donor’s mortgage is a transfer for consideration.

“To or from”

The provision covers both directions:

• Inbound: a donor gives property to the association.
• Outbound: the association gives property away, for example housing units to beneficiary families, or land to another charity.

“Legally licensed charitable association”

The association must hold a valid licence under Saudi law. A foreign charity, an unlicensed community group, or a company with charitable aims is not a “licensed charitable association”.

“Public interest” status “granted by the competent authority”

A licence alone is not enough. The association’s charitable activities must aim at the public interest, and that status must be formally granted by the competent authority. Do not assume an association has it. Ask for the document.

The outbound condition: “its licensed activities must allow for … real estate transactions”

For gifts by the association, there is an extra test. Its licensed activities must permit real estate transactions. A charity licensed only for, say, educational programmes may not be able to give away property without first having its scope amended.

ZATCA’s Position

The Guideline stresses that the exemption is limited to transfers without consideration, to or from the association. Transfers either way that involve consideration are not covered.

• Example 19. A landowner gives land, for free, to a licensed charitable association. The transfer is exempt. ZATCA notes that both the gratuitous nature of the transfer and the association’s licence must be verified.
• Example 20. The association then grants a company a 70-year usufruct over the land for SAR 100,000 per year. That is taxable. Transactions by the association to manage or use the land commercially are outside the exemption unless another one applies.

Worked Examples

Example 1: Donated land for a clinic

A businessman donates a plot worth SAR 4,000,000 to a licensed health charity with public interest status. Nothing is paid.

Exempt under Article 3(a)(3). RETT that would otherwise have been due: SAR 200,000.

Example 2: The charity houses families

The same charity, whose licence covers social housing, transfers 20 apartments worth SAR 600,000 each to beneficiary families for free.

Exempt, because the outbound transfers are gratuitous and the charity’s licensed activities allow real estate transactions. Each transfer must be registered on ZATCA’s portal before notarization.

Example 3: The charity sells to fund its programmes

The charity sells a surplus building for SAR 5,000,000 to a private investor.

Taxable. RETT is SAR 250,000, and the charity, as transferor, is liable. Article 3(a)(3) does not apply to sales.

Example 4: Discounted sale to the charity

A developer sells a building worth SAR 6,000,000 to the charity for SAR 2,000,000.

Article 3(a)(3) does not apply, because there is consideration. However, Article 3(a)(4)(b) exempts transactions to “any association granted public interest status by the competent authority”, and it has no “without consideration” condition. ZATCA’s Guideline confirms that Article 3(a)(4) applies to purchases by such entities regardless of purpose. The sale can therefore be exempt under Article 3(a)(4). This is a point many advisers miss.

Grey Areas

Compliance Checklist

1. Obtain the association’s licence and its public interest status certificate.
2. For outgoing transfers, check that the licensed activities permit real estate transactions.
3. Confirm there is no consideration of any kind. If there is, consider Article 3(a)(4)(b) for incoming transfers.
4. Register on ZATCA’s RETT portal before notarization, selecting the correct exemption.
5. Keep the licence, status certificate, board resolutions and gift deed for at least five years.

Common Mistakes

• Relying on the licence alone. Public interest status is a separate, formal requirement.
• Treating all charity transactions as exempt. Sales and leases by charities are taxable.
• Overlooking Article 3(a)(4). Discounted sales to public-interest associations may be fully exempt under it.
• Ignoring the bylaws on outgoing gifts.

The Bottom Line

Article 3(a)(3) keeps RETT away from gifts in both directions between donors, charities and beneficiaries. The conditions are formal ones: a licence, public interest status, and for outgoing gifts, a licence scope that covers real estate. Check all three before the gift is made. For property coming in through a sale, look first at Article 3(a)(4), which may exempt it outright.