In brief
A temporary real estate transfer between an investment fund and its custodian, in either direction, or between custodians of the same fund, carried out under the Capital Market Law and CMA rules, is exempt from RETT. The exemption reflects the fact that these transfers change only the legal holder of title, not the fund's economic ownership.
Most institutional real estate in the Kingdom held through funds is not registered in the fund’s name. It is registered in the name of a custodian, usually a special-purpose company set up by the fund’s custodian bank or firm, because a CMA investment fund generally has no separate legal personality and cannot hold title itself.
Without a specific exemption, every movement of title within that arrangement would look like a real estate transaction. Article 3(a)(10) makes clear it is not.
The Provision: Exact Text
“Custodian” takes its meaning from the Capital Market Law and its regulations (Article 1). ZATCA’s Detailed RETT Guideline covers this exemption at section 5.1.11.
What It Means in Plain English
The RETT fund custodian exemption means that when title to a fund’s property moves between the fund and its custodian, or from one custodian to a replacement custodian for the same fund, no RETT is due. The fund’s investors own the same property before and after. Only the name on the title has changed.
Breaking Down the Provision
“Temporary”
This word sets the limit of the exemption. The transfer must be part of the custody arrangement, with title held for the fund, not a permanent change in who owns the property economically. A transfer that moves value out of the fund is not temporary in this sense.
“Between an investment fund and a custodian—or vice versa”
Both directions are covered: title moving into the custodian’s name for the fund, and back.
“Or between custodians of the same fund”
When a fund changes its custodian, title must move from the old custody entity to the new one. The words “of the same fund” are important. A transfer between custodians of different funds is a transfer between funds, and it is taxable unless another exemption applies.
“In accordance with the Capital Market Law and its related Regulations and Bylaws”
The custody arrangement must be the regulated one, under the CMA’s Investment Funds Regulations and Real Estate Investment Funds Regulations. Informal nominee arrangements outside that framework are not covered.
ZATCA’s Position
The Guideline explains the commercial background. Real estate investment funds usually do not own property directly because they lack independent legal personality, so a custody company is set up to hold title. When the custodian is replaced, the transfer of ownership “is not considered a permanent transaction for tax purposes” and is not subject to RETT, provided it follows the Capital Market Law and its regulations.
Worked Examples
Example 1: Fund acquisition through a custodian
A private real estate fund buys an office tower for SAR 300,000,000 from a developer. Title is registered directly in the custodian’s name for the fund.
- The developer’s sale is taxable. RETT of SAR 15,000,000 is payable by the developer, and the price usually reflects it.
- If the deal were structured so that title passes first to the fund’s sponsor and then to the custodian, the second step would not be a fund-custodian transfer. Keep acquisition chains simple.
Example 2: Change of custodian
The fund replaces Custodian A with Custodian B. Title to its five properties, worth SAR 900,000,000 in total, moves from A’s custody company to B’s.
Exempt under Article 3(a)(10). Each transfer should still be registered on ZATCA’s portal, citing the exemption, with the CMA-approved custodian change documents attached.
Example 3: Transfer between two funds with the same custodian
Custodian C acts for Fund X and Fund Y. Fund X sells a property to Fund Y, and title moves from C (for X) to C (for Y).
Taxable. This is a sale between two different funds. RETT is due on the price, within fair market value limits. ZATCA is likely to examine the value because the funds share a manager and a custodian (Article 8).
Example 4: Fund termination
On termination, the fund distributes a property in kind to its unitholders instead of selling it.
Article 3(a)(10) does not apply. Title leaves the custody arrangement permanently and passes to the investors. In our view this is a taxable real estate transaction unless another exemption applies.
Grey Areas
| Situation | Our view |
|---|---|
| Title held by the fund manager temporarily pending custodian setup | The manager is not the “custodian” under CMA rules. A ruling is advisable, or avoid this step altogether. |
| Transfer from a custodian into a fund’s own SPV company | SPV companies are separate legal persons. Assess under Article 3(a)(18) (group transfers) rather than Article 3(a)(10). |
| Fund restructuring into a REIT with the same custodian | The economic owners may change. Assess under Articles 3(a)(9), 3(a)(13) and 3(a)(16). This is not a custody transfer. |
Compliance Checklist
- Confirm the custodian is appointed under the CMA’s rules for the specific fund.
- Check that the transfer is purely a custody movement for the same fund, not a sale or distribution.
- Register the transfer on ZATCA’s RETT portal before notarization, citing Article 3(a)(10).
- Keep the custody agreement, CMA approvals and fund terms for at least five years.
Common Mistakes
- Treating every custodian-to-custodian transfer as exempt. It must be for the same fund.
- Assuming fund-level sales are covered because a custodian is involved.
- Overlooking distributions in kind on termination, which leave the custody structure.
The Bottom Line
Article 3(a)(10) is a technical provision, but an important one. It removes RETT from the mechanics of how Saudi funds hold property. It covers custody movements within one fund and nothing more, so any transfer that changes economic ownership should be assessed under the other provisions.
Key takeaways
- Article 3(a)(10) exempts temporary transfers of real estate between an investment fund and its custodian, in either direction, and between custodians of the same fund.
- ZATCA's Guideline explains that real estate funds typically have no independent legal personality, so title is registered in a custody company's name.
- Replacing one custodian with another for the same fund is expressly exempt.
- The exemption covers only the custody arrangement. Sales by the fund to third parties, and contributions of property into the fund, are separate transactions.
- Contributions of property in exchange for fund units fall under Article 3(a)(13). Trading in unlisted fund units falls under Article 3(a)(9)(d).
- Transfers must be made in accordance with the Capital Market Law and the CMA's rules, and they must be registered on ZATCA's portal.
Frequently asked questions
Is RETT due when a real estate fund transfers title to its custodian in Saudi Arabia?
No. Article 3(a)(10) of the RETT Implementing Regulations exempts temporary transfers between an investment fund and its custodian, and vice versa, made under the Capital Market Law and CMA rules. The fund's economic ownership does not change.
Does changing a fund's custodian trigger RETT?
No. Transfers between custodians of the same fund are expressly exempt. ZATCA's Guideline notes that when a custodian is replaced, the transfer of title is not treated as a permanent transaction for tax purposes.
Is a sale of property by a fund exempt because the custodian holds title?
No. A sale by the fund, through its custodian, to a third party is an ordinary taxable real estate transaction. Article 3(a)(10) covers only movements of title within the fund's own custody arrangement.
What about transferring property into a fund in exchange for units?
That is a contribution, not a custody transfer. It may be exempt under Article 3(a)(13), which covers in-kind subscriptions to a real estate investment fund. That exemption requires the units to be held until the fund ends or for five years, whichever comes first.
Does the exemption apply to funds established outside Saudi Arabia?
The provision refers to transfers under the Capital Market Law and its regulations, which govern Saudi funds and custodians. A foreign fund holding Saudi property through a nominee is not within the provision as drafted.
Sources
Based on the RETT Law (Royal Decree No. M/84, effective 10 April 2025), the RETT Implementing Regulations (ZATCA Board Resolution No. 01-03-25 dated 24 March 2025, unofficial English translation) and ZATCA's Detailed RETT Guideline Version 6 (May 2026). The Arabic text prevails. This article is general information, not advice on any specific transaction. dariba.co is an independent knowledge platform and is not affiliated with ZATCA.
