RETT Exemption for Real Estate Transferred as Security for Financing: Article 3(a)(14) Explained

In Saudi practice, a lender often holds security over real estate by taking title to it, not by registering a charge while the borrower keeps ownership. The deed moves into the bank’s name until the debt is paid. Legally, that is a real estate transaction, which is why Article 3(a)(14) is needed.

The exemption follows the commercial substance. While the transfer is security, there is no tax. Once it becomes a permanent acquisition, RETT applies.

The Provision: Exact Text

ZATCA’s Detailed RETT Guideline covers this exemption at section 5.1.9.

What It Means in Plain English

This RETT exemption for property used as security for financing means that transferring title to a licensed bank or finance company as security for a loan does not trigger RETT. Getting the property back when you repay does not trigger it either. If the lender ends up owning the property, or sells it to someone else because you defaulted, RETT is due.

Breaking Down the Provision

“Temporary … for the purpose of using the real estate as a guarantee”

The transfer must be security: a transfer that ends when the debt is repaid. ZATCA’s Guideline requires evidence that the arrangement is a temporary transfer of the property that ends on repayment, and not a permanent transfer to the financier to recover the financing.

“For financing or credit by a licensed entity”

The financier must be licensed under Saudi regulations: banks, licensed finance companies and refinancing companies. A private individual or an unlicensed company taking title as security is outside the exemption.

“Unless the real estate ownership is permanently transferred to the financier or a third party”

This is where the exemption ends. Permanent transfer happens when:

• the financier keeps the property in settlement of the debt; or
• the property is sold to a third party to recover the debt.

In either case, a taxable real estate transaction arises.

ZATCA’s Position

The Guideline takes a broad, commercially sensible view:

• Example 31. A borrower transfers his home to a licensed lender as security until the loan and financing cost are repaid. Exempt. The return of the property to the owner after repayment is also exempt.
• Example 32. The borrower defaults, and the lender takes the property to recover the debt. Taxable, because the transfer has become permanent.
• Example 33. A homeowner with an ijara finance contract moves the remaining debt to another bank for a lower rate, and title moves from the first bank to the second. Exempt, as a temporary transfer securing the debt to the final beneficiary.
• Example 34. A refinancing company buys a portfolio of 100 ijara contracts from a bank, at a discount, and takes the title deeds. It collects the instalments and transfers the deeds to the homeowners on full payment. Exempt in full.

Worked Examples

Example 1: Corporate financing secured by title

A trading company transfers its warehouse, worth SAR 15,000,000, into a bank’s name as security for a five-year facility. Exempt. On repayment in year five, the return of title to the company is also exempt.

Example 2: Default and enforcement

In year three the company defaults. The bank sells the warehouse to a third-party investor for SAR 13,000,000.

The transfer to the investor is permanent, so RETT applies: 5% × SAR 13,000,000 = SAR 650,000. The exemption covered the security transfer, not the sale to recover the debt. In practice, the transferor and the RETT liability should be agreed in the enforcement documentation. If the sale is ordered by a court in a bankruptcy liquidation, Article 3(a)(15) may apply instead.

Example 3: Refinancing to another bank

A homeowner’s financing of SAR 1,400,000 is moved from Bank A to Bank B. Title moves from A to B. Exempt, following ZATCA’s Example 33.

Example 4: Private lender

An investor lends SAR 3,000,000 to a friend’s company and takes title to a villa as security. The lender is not licensed, so Article 3(a)(14) does not apply. The transfer to the investor is a taxable real estate transaction, and the return of the villa is potentially another one.

Distinguishing Islamic Home Finance

Many Saudi home purchases use ijara or murabaha. In those structures, the bank buys the property from the developer or seller and later transfers it to the customer. That first transfer is a sale, and Article 2(l) taxes it once only, provided the contracts identify both transfers, the parties and the value. That is a different mechanism from Article 3(a)(14). Once the ijara is in place, Article 3(a)(14) covers bank-to-bank refinancing and refinancing company portfolio transfers, as ZATCA’s Examples 33 and 34 confirm.

Grey Areas

Compliance Checklist

1. Confirm the financier holds a Saudi licence.
2. Document the security purpose: the facility agreement and the security clause requiring return on repayment.
3. Register the security transfer, and later the return, on ZATCA’s RETT portal before notarization.
4. On default, assess RETT on the permanent acquisition or the third-party sale, and agree in the documents who bears it.
5. Keep the facility and security documents for at least five years after the final transfer.

Common Mistakes

• Assuming enforcement is covered. It is not. Permanent transfers are taxable.
• Using unlicensed lenders. The exemption is lost.
• Confusing ijara purchase transfers with security transfers. Different rules apply.

The Bottom Line

Article 3(a)(14) lets Saudi title-based security work without a RETT cost: transfer to the lender, return to the borrower, and moves between lenders are all exempt. The exemption ends when the lender becomes the owner, or sells to someone who does. Lenders and borrowers should agree in advance who bears RETT if that happens.