RETT Exemption for Transfers to Companies and Funds Owned by an Endowment: Article 3(a)(20) Explained

Modern Saudi waqfs, particularly large family endowments, rarely hold their property portfolios directly. They use an investment company or a private fund, owned by the waqf, which gives them professional management, financing capacity and limited liability. Article 3(a)(2) covers transfers to the endowment itself. Article 3(a)(20) covers transfers to the vehicle.

The Provision: Exact Text

ZATCA’s Detailed RETT Guideline covers this exemption at section 5.1.21.

What It Means in Plain English

The waqf company RETT exemption means that if you give real estate, for nothing in return, to a Saudi company or fund wholly owned by a registered endowment, no RETT is due. The endowment’s 100% ownership of that company or fund must stay unchanged for five years.

Breaking Down the Provision

“Without cash or in-kind consideration”

As with Article 3(a)(2), the transfer must be free. No price, no debt assumption and no swap.

“For a company or investment fund established in the Kingdom”

The recipient is the waqf’s vehicle: a Saudi company of any form, or a Saudi investment fund.

“All … owned - directly or indirectly - by a … registered … endowment”

The endowment must own 100%, directly or through other wholly owned entities, and it must be registered with and supervised by the endowment authorities. Public, private and joint endowments all qualify.

The five-year lock

The endowment’s ownership percentage in the company or fund must not change for five years. Unlike Article 3(a)(2), this exemption has an ongoing condition.

ZATCA’s Position

In the Guideline’s Example 56, a property is transferred free of charge to a company 100% owned by a charitable or family endowment, and the endowment keeps full ownership for five years. Exempt. ZATCA emphasises both requirements: full ownership by the endowment, and no change for five years.

Worked Examples

Example 1: Founder gives land to the waqf’s company

The founder of a registered family waqf transfers a plot worth SAR 20,000,000, for nothing in return, to the waqf’s wholly owned investment company. Exempt, saving SAR 1,000,000, provided the waqf keeps 100% of the company for five years.

Example 2: Co-investment in year two

In year two, the company admits a developer as a 30% shareholder to build on the land. The endowment’s ownership falls to 70%. Breach. RETT of SAR 1,000,000 on the original transfer is payable within 30 days of the change.

Example 3: Waqf moves its own property into its company

The waqf transfers buildings it owns directly into its investment company, and the company issues new shares to the waqf in exchange.

This is the difficult case. The new shares could be seen as in-kind consideration, which would take the transfer outside Article 3(a)(20). Article 3(a)(18) does not help, because the waqf is not a company or fund. Possible routes:

• record the transfer as a contribution without a share issue (for example, a capital contribution reserve), so that it is gratuitous on its face; or
• use Article 3(a)(11), an in-kind capital contribution, which accepts shares as consideration but requires five years’ retention and audited accounts.

Where the value is significant, a ZATCA ruling is worth obtaining.

Example 4: Company sells a building

The waqf’s company sells a building in year three for SAR 15,000,000. The company pays RETT of SAR 750,000 as transferor. The original exemption is not affected, because the endowment’s ownership percentage has not changed.

Grey Areas

Compliance Checklist

1. Confirm the endowment’s registration and that it owns 100% of the transferee, directly or indirectly.
2. Make sure the transfer is gratuitous. Avoid share issues or debt assumptions as consideration.
3. Register the transaction on ZATCA’s RETT portal before notarization, citing Article 3(a)(20).
4. Have the waqf’s supervisor (nazir) adopt a resolution preventing changes in the company’s shareholding for five years.
5. Keep the waqf registration, corporate documents and transfer deeds.

Common Mistakes

• Issuing shares in exchange for the property. This puts the gratuitous requirement at risk.
• Bringing in co-investors within five years.
• Using an unregistered waqf as the shareholder.

The Bottom Line

Article 3(a)(20) gives modern waqf structures the same RETT relief as traditional endowments. The founder can give property directly to the waqf’s investment vehicle. The five-year ownership lock and the gratuitous requirement are where the risks lie, especially when the waqf moves its own property into the company.