In brief
Article 3(c) provides that three events do not breach the condition of not disposing of shares or units corresponding to a tax-exempt real estate disposal: a change in ownership percentage through subscription to a public offering of the transferee company or fund, an exempt disposal under a court's forced sale order, and disposals from exempt mergers and acquisitions, provided the resulting shares are held for the rest of the required period.
Six of the Article 3 exemptions make relief conditional on holding shares or units for five years. Businesses do not stand still for five years, though. Companies list, groups merge, and some fail. Article 3(c) deals with that by identifying three events that do not count as a breach.
The Provision: Exact Text
What It Means in Plain English
Three events during a RETT exemption holding period do not count as a breach: new investors subscribing in an IPO of the company or fund that received the property, a court-ordered forced sale that is itself exempt, and a qualifying merger or acquisition, as long as the new shares are held for whatever remains of the original period.
Which Exemptions Have Holding Periods?
| Exemption | What is locked | Period |
|---|---|---|
| 3(a)(11) In-kind contribution to a company | Contributor’s shares | 5 years |
| 3(a)(13) In-kind contribution to a REIF | Contributor’s units | Until fund termination, or 5 years if earlier |
| 3(a)(16) Mergers and acquisitions | Shares received | 5 years |
| 3(a)(17) Individual to wholly owned company | Ownership percentage | 5 years |
| 3(a)(18) Intra-group transfers | 100% ownership of the transferee | 5 years |
| 3(a)(20) Endowment-owned company | Endowment’s ownership percentage | 5 years |
The gift exemption in Article 3(a)(7) has a different kind of restriction, on onward disposal by the recipient for three years. Article 3(c) is framed around “shares or stocks”, so it is unlikely to apply to that rule.
The Three Safe Harbours
1. IPO subscription
A change in ownership percentage that results from new investors subscribing in a public offering of the transferee company’s shares or fund’s units is not a breach.
ZATCA’s Example 60(A): a person transfers property to his 100%-owned company under Article 3(a)(17) and wants to take the company public before five years have passed. The IPO dilution does not breach the condition.
What it does not clearly cover: a secondary sale by the locked shareholder. If the contributor sells existing shares to IPO investors, that is a disposal by the contributor, not a change “through subscription”. We would treat a secondary sell-down within the lock-up as a breach unless ZATCA confirms otherwise.
2. Exempt court-ordered forced sale
An exempt disposal under a competent court’s forced sale order does not breach a holding condition. The forced sale exemption itself is in Article 3(a)(15), and it is limited to liquidation and administrative liquidation under the Bankruptcy Law. The words “exempted in accordance with the provisions of the Law and these Regulations” link this safe harbour to that exemption, so an enforcement sale outside bankruptcy is unlikely to qualify.
3. Exempt mergers and acquisitions
A disposal arising from a merger or acquisition that is itself exempt, which in practice means meeting Article 3(a)(16), does not breach the condition, provided the resulting shares are held for the rest of the original period.
ZATCA’s Example 60(B): a company transferred property to its 100% subsidiary under Article 3(a)(18) and wants to merge with another company before five years have passed, in a way that complies with the Law. The merger does not breach the condition, and the clock continues on the new shares.
Worked Examples
Example 1: IPO two years after an Article 3(a)(18) transfer
HoldCo transferred land worth SAR 100,000,000 to its wholly owned SubCo in 2026. In 2028, SubCo lists, and 30% new shares are issued to the public. HoldCo sells none of its shares. No breach, because the change came through subscription.
Example 2: Secondary sale in the same IPO
As in Example 1, but HoldCo also sells 10% of its existing shares in the offering. That is a disposal by HoldCo. We would expect ZATCA to treat it as a breach of the Article 3(a)(18) lock-up, which would mean RETT of SAR 5,000,000 on the 2026 transfer.
Example 3: Merger in year three
The company that contributed property under Article 3(a)(11) in 2026 merges its interest into a larger group in 2029, in a merger that meets Article 3(a)(16). The shares it receives must be held until 2031 to complete the original five years. No breach, provided they are.
Common Mistakes
- Treating every IPO as protected. Only subscription dilution is protected. Secondary sales are not.
- Assuming any restructuring is a “merger”. It must qualify under Article 3(a)(16).
- Restarting the clock. The M&A safe harbour carries the original period forward. It does not start a new one.
The Bottom Line
Article 3(c) allows businesses that benefit from RETT lock-ups to list, merge and be restructured through insolvency without losing their exemptions. Each safe harbour is narrow, though. Plan IPOs as primary offerings during the lock-up, make sure any merger qualifies in its own right, and keep track of the remaining holding period on the new shares.
Key takeaways
- Article 3(c) sets out three safe harbours for the share- and unit-retention conditions attached to RETT exemptions.
- A change in ownership percentage through subscription to a public offering of the transferee's shares or units is not a breach. Dilution on IPO is protected.
- An exempt real estate disposal carried out under a competent court's forced sale order does not breach a holding condition.
- Disposals arising from exempt mergers and acquisitions do not breach a holding condition, provided the resulting shares are held for the rest of the original period.
- The IPO safe harbour protects changes 'through subscription'. A contributor selling existing shares in a secondary offering is disposing, and that is outside the safe harbour.
- The holding periods themselves are found in Articles 3(a)(11), (13), (16), (17), (18) and (20). The gift exemption in 3(a)(7) has a separate three-year rule.
Frequently asked questions
Does an IPO break a RETT exemption's five-year lock-up?
Not if the change in ownership arises through subscription to securities offered in a public offering of the transferee company or fund. Article 3(c)(1) of the RETT Implementing Regulations treats this as no breach. ZATCA's Guideline, Example 60, gives the case of a person who wants to IPO a wholly owned company that received his property within five years.
Can I sell my shares in the IPO without breaching the lock-up?
That is riskier. The safe harbour covers a change in percentage 'through subscription' by new investors, which is dilution. Selling your own existing shares in a secondary offering is a disposal by you, and the text does not clearly protect it.
Does a merger during the lock-up period breach the RETT exemption?
Not if the merger or acquisition itself qualifies for exemption under Article 3(a)(16) and the resulting shares are held for the rest of the original period. Article 3(c)(3) provides this, and ZATCA's Example 60(B) illustrates it.
Does a court-ordered sale in bankruptcy break a lock-up?
No. Article 3(c)(2) provides that an exempt real estate disposal carried out under a forced sale order of a competent court does not breach the condition. The forced sale exemption itself is in Article 3(a)(15).
Which RETT exemptions have holding periods?
In-kind contributions to companies (Article 3(a)(11)) and funds (3(a)(13)), mergers and acquisitions (3(a)(16)), transfers to an individual's wholly owned company (3(a)(17)), intra-group transfers (3(a)(18)), and transfers to endowment-owned companies (3(a)(20)). The gift exemption (3(a)(7)) has a three-year restriction on onward transfer by the recipient.
Sources
- ZATCA — Real Estate Transaction Tax Law and Implementing Regulations
- ZATCA — Detailed Guideline for the Real Estate Transaction Tax (Version 6, May 2026)Section 5.1.23 (closing paragraphs) and Example 60
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.
