In brief
A real estate transfer by way of in-kind subscription to the capital of a real estate investment fund is exempt from RETT, under the Capital Market Law and CMA rules, provided the fund units received are not disposed of until the fund terminates or is liquidated, or for at least five years from owning them, whichever is earlier.
Real estate funds are now a standard way for Saudi landowners to unlock value. A family contributes its land to a development fund, an institution contributes cash, and a manager builds and sells. Seeding a REIT with an existing portfolio follows the same logic. If RETT applied to every contribution, it would cost 5% at the start of every deal.
Article 3(a)(13) removes that cost. Its lock-up is tailored to funds, which often have fixed lives.
The Provision: Exact Text
ZATCA’s Detailed RETT Guideline covers this exemption at section 5.1.24.
What It Means in Plain English
This in-kind contribution real estate fund RETT exemption means that if you transfer property into a CMA real estate investment fund and receive units in return, no RETT is due. You must keep those units until the fund ends or for five years, whichever comes first. If you sell earlier, RETT becomes due on your original contribution.
Breaking Down the Provision
“In-kind subscription to the capital of a real estate investment fund”
The contributor transfers real estate and receives fund units as subscription consideration. The vehicle must be a real estate investment fund under the CMA’s framework, whether public (including REITs) or private. Ordinary companies are covered by Article 3(a)(11), not this provision.
“In accordance with the provisions of the Capital Market Authority Law”
The subscription must comply with the CMA’s rules on in-kind subscriptions, including valuation requirements and the fund’s terms and conditions. An in-kind subscription the fund’s terms do not permit, or that has not been properly valued, puts the exemption at risk.
The lock-up: “whichever is earlier”
The units corresponding to the in-kind subscription must not be disposed of until the earlier of:
- the fund’s termination or liquidation; or
- five years from the date the contributor owns the units.
ZATCA’s example puts it in practical terms: the units must be held until the fund terminates, “or for a period of 5 years if the fund continues for a longer period”.
What is not required
There is no audit condition (compare Article 3(a)(11)) and no restriction on other unitholders. Only the contributor’s units are locked.
ZATCA’s Position
In the Guideline’s Example 61, a person subscribes to a real estate fund set up to develop and resell property by contributing one of their properties to the fund’s capital. No RETT is imposed, provided the corresponding units are not transferred until the fund terminates, or for five years if the fund lasts longer.
Worked Examples
Example 1: Land into a three-year development fund
A landowner contributes land worth SAR 60,000,000 to a private development fund with a three-year term, in exchange for 60% of the units.
Exempt. RETT of SAR 3,000,000 is not payable. The lock-up ends when the fund terminates at year three, so there is no five-year wait.
What happens next matters too. When the fund sells completed units to buyers, those sales are taxable real estate transactions of the fund, or exempt under first-home support where it applies. If, on liquidation, the fund distributes unsold land back to the landowner in kind, that is a separate transfer and should be assessed in its own right.
Example 2: REIT seeding with mixed consideration
A developer seeds a new REIT with a portfolio worth SAR 500,000,000. It receives units worth SAR 350,000,000 and SAR 150,000,000 in cash.
- Units: exempt under Article 3(a)(13), provided the units are held for five years.
- Cash: not an in-kind subscription, so RETT applies. 5% × SAR 150,000,000 = SAR 7,500,000.
ZATCA may argue that a mixed transaction is not covered at all. Where the cash element is material, consider a ruling.
Example 3: Selling REIT units early
After the REIT lists, the developer sells 40% of its seed units on the exchange in year two.
The trade is exempt under Article 3(a)(9)(b), but the lock-up is breached. RETT becomes due on the original contribution, payable within 30 days of the breach (Article 5(A)(2)), with a correction request within 30 days (Article 11(b)). Whether ZATCA charges RETT on the whole contribution or only the proportion relating to the units sold is not settled. The prudent assumption is the whole contribution.
Example 4: Dilution through a follow-on offering
The REIT later issues new units in a public offering. The developer does not take part, and its percentage falls from 70% to 45%.
No breach. The developer has not disposed of anything, and Article 3(c)(1) expressly protects changes in ownership percentage resulting from public offering subscriptions.
Comparison With Article 3(a)(11)
| Art. 3(a)(13) Fund | Art. 3(a)(11) Company | |
|---|---|---|
| Vehicle | Real estate investment fund (CMA) | Company established in KSA |
| Consideration | Fund units | Shares in capital |
| Lock-up | Until fund termination, or 5 years if earlier | 5 years |
| Audit condition | No | Yes, throughout |
| Best suited to | Development funds, REIT seeding | JVs, operating companies |
Compliance Checklist
- Confirm the fund is a CMA real estate investment fund and that its terms allow in-kind subscriptions.
- Obtain the CMA-compliant valuation and use the same value for the RETT registration.
- Identify any cash or debt assumption alongside the units. That portion is taxable.
- Register the transaction on ZATCA’s RETT portal before notarization, citing Article 3(a)(13).
- Diary the earlier of fund termination and the fifth anniversary of owning the units.
- Keep the subscription documents, unit statements and fund terms for at least five years after the lock-up ends.
Common Mistakes
- Treating listing as a release. Being able to trade the units does not lift the lock-up.
- Ignoring the cash element in seeding deals.
- Missing the in-kind distribution on liquidation, which is a separate transaction.
The Bottom Line
Article 3(a)(13) is the most practical route for moving land into development funds and REITs. Its “whichever is earlier” lock-up suits fixed-life funds, and it has no audit condition. The things to watch are cash mixed into the consideration, early unit sales after listing, and the treatment of anything the fund distributes when it winds up.
Key takeaways
- Article 3(a)(13) exempts in-kind subscriptions of real estate to the capital of a real estate investment fund established under CMA rules.
- The contributor must not dispose of the corresponding units until the fund terminates or is liquidated, or for five years from owning the units, whichever is earlier.
- Short-life development funds benefit most: if the fund liquidates in three years, the lock-up ends then.
- There is no audited-accounts condition, which distinguishes it from the company exemption in Article 3(a)(11).
- Cash paid alongside units, which is common in REIT seeding transactions, is not an in-kind subscription. Expect RETT on the cash portion.
- Selling locked units on the exchange within the period is a breach, even though the trade itself is exempt under Article 3(a)(9). An IPO that only dilutes the contributor is not a breach (Article 3(c)(1)).
Frequently asked questions
Is contributing property to a real estate fund in exchange for units subject to RETT?
Not if Article 3(a)(13) applies. An in-kind subscription of real estate to a CMA real estate investment fund is exempt, provided you keep the units until the fund terminates or liquidates, or for five years from owning them, whichever is earlier. ZATCA's Guideline confirms this with the example of a property contributed to a development fund.
What happens if the fund is liquidated before five years?
The lock-up ends on termination or liquidation. Article 3(a)(13) uses whichever date is earlier, so a three-year development fund releases the contributor at liquidation without any breach. Distributions of property on liquidation are a separate matter.
Can I sell my REIT units on Tadawul within five years?
Selling the units corresponding to your in-kind contribution within the lock-up period breaches the condition, and RETT becomes due on your original contribution. The trade itself is exempt under Article 3(a)(9)(b), but that does not protect the earlier contribution.
Do I need audited accounts for the fund exemption?
Article 3(a)(13) has no audit condition. Funds are regulated by the CMA and have their own reporting requirements. The audit condition in Article 3(a)(11) applies only to contributions to companies.
What if I receive units and cash for the property?
The units fit Article 3(a)(13). The cash is not an in-kind subscription, so that portion is a sale and RETT applies to it. ZATCA may also argue that a mixed transaction falls outside the exemption entirely. Structure seeding transactions with this in mind.
How is Article 3(a)(13) different from Article 3(a)(10)?
Article 3(a)(10) covers the movement of title between a fund and its custodian, which is a custody arrangement. Article 3(a)(13) covers a third party contributing property into the fund in exchange for units, which is a change of economic ownership protected by a lock-up.
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.