RETT Exemption for Security and Guarantee Transfers in Saudi Arabia

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.

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.

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.

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.

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.

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.

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.