RETT Exemption for IPOs, Listed Securities, Buybacks and Fund Units: Article 3(a)(9) Explained

RETT does not stop at title deeds. Under the RETT Law, transferring shares in a real estate company can itself be a taxable real estate transaction. A real estate company is any company, fund or entity whose Saudi real estate makes up at least 50% of its assets (Article 2(h)). Applied literally to the stock market, that rule would mean RETT on every trade in a listed real estate developer or REIT.

Article 3(a)(9) prevents that. It carves out four types of capital-market transaction, so that RETT applies to property deals and not to market trading.

The Provision: Exact Text

ZATCA’s Detailed RETT Guideline covers this exemption at section 5.1.23.

What It Means in Plain English

The RETT listed shares exemption means that buying or selling shares in a listed real estate company on the Saudi Exchange, subscribing in its IPO, or a listed company buying back its own shares does not trigger RETT. Trading units in an unlisted Saudi real estate fund is also exempt, unless someone disposes of a controlling 50% stake within three years.

Breaking Down the Provision

Limb (a): Public offering subscriptions

Subscribing to securities offered to the public by a real estate company, under the Capital Market Law and CMA rules, is exempt. This covers IPOs and, in our view, public rights issues and follow-on public offerings.

Limb (b): Trading listed securities

Trading listed securities of a real estate company on a capital market licensed in the Kingdom is exempt. That covers the Saudi Exchange’s main market and the Nomu parallel market. It also covers listed REIT units and other listed securities with equity characteristics. “Securities” in Article 1 takes its meaning from the Capital Market Law.

Limb (c): Buybacks

A listed joint stock company buying back its own shares is exempt, provided it complies with the applicable regulations. A buyback that breaches the Companies Law or CMA rules loses the exemption.

Limb (d): Unlisted fund units, with a 50% limit

Trading unlisted units of a Saudi investment fund that meets the real estate company definition is exempt. This covers private real estate funds, which hold a large share of institutional real estate in the Kingdom.

The exception follows the structure of the 30% rule in Article 2(i), with a higher threshold. The exemption is lost where:

• a person, or a group acting in agreement,
• disposes of a total of 50% or more of the fund’s units,
• through one or more related transactions,
• within any three-year period starting on or after the date their holding reaches 50%.

“Related persons” are presumed to act in agreement unless proven otherwise (Article 1, “Agreed Disposal”).

ZATCA’s Position

The Guideline explains the purpose as exempting transfers of interests in listed real estate companies, and extending that to unlisted funds that are real estate companies where the transfer represents less than 50% of the units.

• Example 58. An investor buys shares in a listed real estate company. Exempt.
• Example 59. An investor sells 10% of the units in an unlisted real estate fund. Exempt, because the total transaction is below 50%.

Worked Examples

Example 1: Retail investor on Tadawul

An investor buys SAR 500,000 of shares in a listed real estate developer and sells them a month later. Exempt. No ZATCA registration is required (Article 11(a)(6)).

Example 2: Private fund units, below the limit

An institution holding 30% of the units in an unlisted Saudi real estate fund, which qualifies as a real estate company, sells its entire holding. Exempt, because it is below 50%. Unlike listed trading, this exempt transaction should be registered on ZATCA’s portal.

Example 3: Private fund units, controlling stake

A family office holds 60% of an unlisted real estate fund worth SAR 400,000,000. It sells 35% in Year 1 and 20% in Year 2, a total of 55% within three years.

The exemption does not apply to these related disposals. RETT applies to the fair market value of the fund’s real estate multiplied by the percentage transferred, or to the agreed allocated price if that is higher (Article 2(e)). If the fund’s real estate is worth SAR 380,000,000, RETT on 55% is 5% × SAR 209,000,000 = SAR 10,450,000, payable within 30 days of each transfer or unconditional agreement (Article 5(A)(1)).

Example 4: Unlisted real estate company

An investor sells 40% of an unlisted real estate company (not a fund). Article 3(a)(9) does not apply. Under Article 2(i), a disposal of 30% or more is a taxable real estate transaction.

Grey Areas

Compliance Checklist

1. Confirm whether the security is listed on a licensed Saudi market. If not, consider limb (d) or Article 2(i).
2. For fund units, confirm the fund is established in the Kingdom under CMA rules and is a real estate company.
3. Track cumulative disposals by the investor and any persons acting with them over rolling three-year periods.
4. Register exempt transactions on ZATCA’s RETT portal, except IPO subscriptions and listed trading.
5. Keep trade confirmations and unit registers for at least five years.

Common Mistakes

• Assuming all share deals are exempt. Only listed trading, IPOs, compliant buybacks and fund units below 50% are covered.
• Ignoring related parties when tracking the 50% fund limit.
• Applying the exemption to foreign-listed companies. It covers licensed Saudi markets only.

The Bottom Line

Article 3(a)(9) keeps RETT out of Saudi capital-market activity: IPOs, Tadawul trading, buybacks and most private fund unit trades. The exposure starts where control changes hands, at 50% for unlisted funds and 30% for unlisted companies. Investors building or exiting controlling positions should model RETT before agreeing a price.