RETT Exemption for In-Kind Contributions to Company Capital: Article 3(a)(11) Explained

A family that owns a SAR 40 million plot in north Riyadh wants to develop it with an outside investor. The plan is simple. The family puts the land into a new Saudi company, the investor puts in cash, and both hold shares. Without any relief, moving that land into the company costs SAR 2,000,000 in Real Estate Transaction Tax before any work starts.

Article 3(a)(11) of the RETT Implementing Regulations removes that cost. It exempts a real estate transfer made in exchange for shares in the capital of a company established in the Kingdom. Two conditions come with it, and both run for five years. This is where most of the risk lies.

This article covers the exact text, what each phrase means, how ZATCA applies it, and the points the text leaves open.

The Provision: Exact Text

The Regulations were issued by ZATCA Board Resolution No. 01-03-25 dated 24/09/1446 AH (24 March 2025). They took effect with the RETT Law (Royal Decree No. M/84) on 10 April 2025. The wording above is ZATCA’s unofficial English translation, and the Arabic text prevails.

Article 3(a) of the Regulations sets the criteria for the total exemptions listed in Article 3(a) of the Law. Article 3(a)(11) is therefore the operative test for in-kind contributions. ZATCA’s Detailed RETT Guideline covers it at section 5.1.12.

What It Means in Plain English

The in-kind contribution RETT exemption means that if you transfer real estate to a Saudi company and receive shares in its capital in return, no 5% RETT is due on the transfer. You must keep those shares for at least five years. The company must have its financial statements audited by an accredited external auditor every year during that period.

It is a conditional exemption, so it is better thought of as a deferral that becomes permanent after five clean years. If either condition fails, the tax on the original transfer becomes payable.

Why the Exemption Exists

Start with the default position. Article 2(c) of the Regulations taxes the value of “any consideration, whether cash or in kind”. Shares are in-kind consideration, so contributing land for shares is a real estate transaction like any sale. Without Article 3(a)(11), every company formation or capital increase that involved property would carry a 5% charge.

ZATCA’s Guideline says the purpose is to make it easier to increase company capital through in-kind contributions of real estate. The holding period and the audit requirement are there to “prevent misuse”. The policy logic is clear: the state does not want to tax capital going into productive companies. It does want to tax a sale dressed up as a contribution, where the contributor swaps land for shares and sells the shares soon after. The five-year lock-up is aimed at exactly that.

Breaking Down the Provision, Phrase by Phrase

Each phrase in Article 3(a)(11) does work. Here is how each one should be read.

“A real estate transaction”

This is the transfer of the property itself, whether land, a building, a unit or part of a property. Article 2 of the Regulations widens what counts as real estate here:

• Movable items that the owner places in the property for its permanent service or use count as real estate under Article 2(b), even if not permanently attached. Fixtures and building plant go with the property.
• Permits and rights in rem closely linked to the property form part of its value under Article 2(d).
• Long-term usufruct rights over 50 years are real estate transactions under Article 2(f).

There is no wording in Article 3(a)(11) that limits it to freehold title. A contribution of a qualifying long-term usufruct right in exchange for shares therefore appears to fit the text. Because the usufruct regime is new, a ruling is worth considering before relying on this.

“That provides an in-kind share … in the capital”

The consideration must be shares in the company’s capital. That excludes:

• a transfer recorded as a shareholder loan or a payable to the contributor;
• a “capital contribution reserve” or similar equity entry with no shares issued;
• cash, or the company taking over the contributor’s mortgage, paid alongside the shares (see Example 3).

The articles of association, or the amendment for a capital increase, should name the contributor, describe the property, state its value and record the shares issued against it. That document is your main evidence.

“By any person”

The contributor can be anyone. That includes an individual, a Saudi or GCC company, a foreign company, an investment fund or an endowment. Residency and nationality do not matter for the RETT exemption.

Keep a separate question in mind: can the contributor lawfully own the property in the first place? Non-Saudi ownership of real estate has its own rules. If the contributor’s title is defective, the RETT exemption does not fix it.

“A company established in the Kingdom”

The receiving entity must be a company that is established in Saudi Arabia. Any company form under the Companies Law should qualify, such as a joint stock company, simplified joint stock company, limited liability company or partnership. Earlier versions of the regulations listed specific company forms. The current wording is general.

Two boundaries matter:

1. Investment funds are not companies here. Contributions to a real estate investment fund are covered by Article 3(a)(13), which has its own lock-up.
2. Foreign companies and their branches are not established in the Kingdom. A Saudi branch of a foreign company has no separate legal personality. A foreign group should hold Saudi property through a Saudi-incorporated subsidiary if it wants this exemption.

Condition 1: “Shall not be disposed of for … five (5) years”

The contributor must not dispose of the shares received for the property for at least five years. Three details matter:

• The clock starts on “the date of ownership” of the shares, not on the notarization of the property. That is when the contributor becomes the registered owner of the new shares. If the property transfer and the share registration happen on different dates, count from the later date.
• Only the shares “corresponding to the in-kind share” are locked. If the contributor also holds shares bought for cash, those are not caught. Keep the two blocks clearly identified in the shareholder register.
• “Disposed of” is not defined. A sale, a gift or a swap of the shares is clearly a disposal. See “Where the Text Is Silent” below for the harder cases.

Condition 2: “Audited financial statements from an accredited external auditor throughout that period”

The company must have its financial statements audited by an accredited external auditor, meaning a firm licensed to practise in the Kingdom. “Throughout that period” means every financial year that falls wholly or partly within the five years. A short first year and a partial final year both count.

This condition is often overlooked. Some smaller companies may not otherwise need an audit under company law or their articles. For this exemption, they need one anyway. The contributor depends on something the company controls.

ZATCA’s Position: What the Guideline Says

ZATCA’s Detailed RETT Guideline (Version 6, May 2026) repeats the two conditions and gives three linked examples:

• Example 36. An individual joins a joint stock company by contributing a building worth SAR 5,000,000 and receives shares of the same value on 15 October 2020. No RETT is due, provided the shares are kept for five years and the company is audited for those five years.
• Example 37. The individual sells the shares on 15 November 2025, more than five years later. The 2020 exemption stands.
• Example 38. The individual instead sells on 15 November 2024, before five years have passed. The exemption no longer applies, and the 2020 transfer of the building becomes subject to RETT.

Two points follow from these examples. First, ZATCA treats the five years as running from the date the shares were received. Second, a breach makes the original contribution taxable. It does not tax the later share sale as a separate transaction. The Guideline’s due-date table confirms that the tax is due within 30 days of the breach of the exemption conditions.

Worked Examples

Example 1: Joint venture formation, fully exempt

Al-Noor Holding (an individual’s family office) and Gulf Capital LLC set up Riyadh Heights LLC, a Saudi limited liability company.

• Al-Noor contributes land valued at SAR 12,000,000 and receives 60% of the capital.
• Gulf Capital contributes SAR 8,000,000 in cash and receives 40%.

Gulf Capital can sell its 40% in year two without affecting Al-Noor’s exemption, because only Al-Noor’s shares are locked.

Example 2: Breach in year three

Same facts. In month 34, Al-Noor sells half of its shares to a new investor.

• The lock-up is breached, and RETT on the original contribution becomes payable: 5% × SAR 12,000,000 = SAR 600,000.
• Al-Noor must file a correction request on the ZATCA portal within 30 days of the breach (Article 11(b)(1)) and pay within 30 days of the breach (Article 5(A)(2)).
• If Al-Noor pays three months late, the late-payment fine is 2% × 3 × SAR 600,000 = SAR 36,000. This fine is capped at 50% of the tax.

Does selling only half the shares make only half the value taxable? The text does not say, and ZATCA’s Example 38 describes the whole 2020 transfer becoming taxable. The prudent planning assumption is that any disposal of locked shares puts the full exemption at risk.

Example 3: Mixed consideration of shares plus cash

Mr. Fahad contributes a warehouse with a fair market value of SAR 10,000,000 to a Saudi joint stock company. He receives shares worth SAR 7,000,000 and SAR 3,000,000 in cash.

• The SAR 7,000,000 for shares fits Article 3(a)(11).
• The SAR 3,000,000 in cash is not an in-kind share in capital, so that part is a sale. RETT on it is 5% × SAR 3,000,000 = SAR 150,000.

This split treatment is the most defensible reading. The text exempts a transaction “that provides an in-kind share”. Note that the merger and acquisition exemptions in Article 3(a)(16) are expressly lost if any cash is paid. Article 3(a)(11) has no such wording, but ZATCA may still argue that a mixed deal is not covered at all. The same logic applies if the company takes over a mortgage on the property: the debt it assumes is consideration other than shares. Where the sums are material, structure the deal as shares only or get a ruling.

Example 4: The audit that never happened

Sunrise Trading LLC received a building worth SAR 6,000,000 from one of its partners in exchange for new shares in 2026. The company is audited for 2026 and 2027. In 2028 it changes management, and no audit is done for 2028.

The contributor has not sold anything, but the company has not maintained audited financial statements “throughout that period”. The exemption fails, and SAR 300,000 of RETT becomes payable by the contributor as transferor. If ZATCA finds that the company’s conduct caused the failure, Article 7(B)(2) allows it to treat the company as jointly liable. That does not help the contributor much in practice.

Example 5: Foreign parent, partly owned subsidiary

A UAE company owns 70% of a Saudi LLC, and a Saudi partner owns 30%. The UAE company wants to move a Saudi property it owns into the LLC.

• Article 3(a)(18), the group exemption, is not available, because it needs 100% common ownership.
• Article 3(a)(11) is available if the transfer is made as an in-kind contribution in exchange for new shares in the LLC. The UAE company must keep those new shares for five years, and the LLC must be audited.

This is the main practical value of Article 3(a)(11). It is the one restructuring exemption that works when unrelated shareholders are involved.

Where the Text Is Silent: Grey Areas

A senior adviser’s job is to say clearly where the law does not answer the question. On Article 3(a)(11), the main open points are these.

Two more points remain open:

• The value taxed on a breach. On ZATCA’s approach in Example 38, the tax is on the original contribution. That should mean the agreed value at that date, within fair market value limits (Article 2(c)), not the value at the breach date. ZATCA can still test the original value under Article 8, since in-kind contributions involve non-cash consideration and often related persons.
• Contributions recorded partly as share premium. If a property worth SAR 15 million is exchanged for shares with a nominal value of SAR 5 million and SAR 10 million of share premium, the consideration is still only shares, so the exemption should apply. Make sure the corporate documents show the full value allocated to the share issue.

How Article 3(a)(11) Compares With Related Exemptions

A planning point: an individual moving property into a company they own entirely can use either Article 3(a)(11) or Article 3(a)(17). If outside investors may join within five years, Article 3(a)(11) is usually the safer route. Dilution breaks Article 3(a)(17) but not Article 3(a)(11). The cost is five years of audit fees.

What Happens After Five Years

Once the five years pass with both conditions met, the exemption is final, as in ZATCA’s Example 37. Do not assume the exit is free of RETT, though.

If the company qualifies as a real estate company, a later sale of shares can be a taxable transaction in its own right. Under Article 2(h), that means real estate makes up 50% or more of the fair market value of its assets on the transfer date or at any time in the previous 365 days. Under Article 2(i), the sale is taxable if a person or a group acting together disposes of 30% or more of the shares within a three-year period. A company formed by contributing land almost always meets the real estate company test. The lock-up protects the entry. It does not protect the exit.

Interaction With Other Taxes

• VAT. Since 4 October 2020, supplies of real estate in the Kingdom have generally been exempt from VAT, so an in-kind contribution normally has no VAT cost. A contributor that is VAT-registered should still consider the effect of an exempt supply on its input VAT recovery.
• Corporate income tax and Zakat. The RETT exemption does not exempt a gain. If a non-Saudi shareholder or a company subject to income tax contributes property worth more than its tax cost, it may realise a taxable gain on the exchange. The receiving company’s tax and Zakat base for the property also needs to be settled.
• Valuation. The Companies Law requires in-kind contributions to be valued, and for joint stock companies that valuation is carried out by an accredited valuer. Using the same valuation for the corporate filings and the RETT registration avoids a mismatch that ZATCA would notice.

Compliance Checklist

1. Before signing: confirm the receiving entity is a company established in the Kingdom, and that the consideration is shares only. Identify any cash, debt assumption or other benefit.
2. Valuation: get an accredited valuation of the property, consistent with fair market value.
3. Corporate documents: put the in-kind contribution, the property description, its value and the shares issued into the articles of association or the capital increase resolution.
4. ZATCA registration: register the transaction on ZATCA’s RETT portal on or before the notarization date (Article 11(a)), selecting the in-kind contribution exemption. Keep the confirmation notice.
5. Notarize the transfer and register the shares in the contributor’s name. Record both dates, since the later one starts the five-year clock.
6. Shareholders’ agreement: add an annual audit covenant, a restriction on transferring the locked shares, and an indemnity if the company’s failure costs the contributor the exemption.
7. Monitor for five years: confirm the audit report each year and check for any share transfer, pledge enforcement, capital reduction or group reorganisation.
8. If a breach occurs: file a correction request within 30 days (Article 11(b)(1)) and pay the tax within 30 days of the breach (Article 5(A)(2)).
9. Keep records: keep the deed, valuation, corporate documents, share registers and all five audit reports. Article 11(f) requires five years from the transaction date at minimum. Because ZATCA’s right to collect after a breach is not limited by the usual periods (Article 8(E)), keep them for at least five years after the lock-up ends.

Common Mistakes

• Treating the exemption as automatic. It is conditional for five years. Treat the RETT as a contingent liability until then and track it.
• Forgetting the audit. Founders of a small joint-venture LLC often skip the audit in a quiet year. That single year costs the contributor 5% of the property value.
• Moving the shares inside the group. Transferring the locked shares to a new family holding company in year two feels like nothing has changed. Under Article 3(a)(11), it is likely a disposal.
• Adding cash to balance the deal. A small cash payment to the contributor to even out valuations may bring at least part of the transfer into tax.
• Assuming fines run from day one. They run only after the 30-day window following the breach. Knowing this changes how urgently a breach should be reported. Report it straight away and the cost is the tax alone.
• Ignoring the exit. After five years, a 30% or larger sale of shares in a real estate company can still carry RETT under Article 2(i).

The Bottom Line

Article 3(a)(11) is the most flexible restructuring exemption in the RETT Regulations. It works for any contributor and alongside unrelated co-investors, and it does not freeze the cap table. The trade-off is that the contributor carries a five-year contingent liability that depends partly on the company’s own discipline. Treat the audit covenant and the share lock-up as seriously as the land valuation. The exemption is valuable, and it is lost easily.