RETT Exemption for Transfers to a Registered Endowment (Waqf): Article 3(a)(2) Explained

Waqf is one of the oldest ways Saudi families preserve wealth and fund charitable causes. Increasingly, it is also used to hold family real estate across generations. The RETT system supports this: endowing property is exempt from tax.

The exemption is narrower than many founders assume, though. It protects the gift into the waqf, and nothing more. How the endowment acquires property, and what it does with that property afterwards, are a different matter.

The Provision: Exact Text

This paragraph sets the criteria for the endowment exemption listed in Article 3(a) of the RETT Law. ZATCA’s Detailed RETT Guideline covers it at section 5.1.2.

What It Means in Plain English

The waqf RETT exemption means you pay no RETT when you transfer real estate to an endowment for nothing in return. The endowment must be a public (charitable), private (family) or joint endowment that is registered with, and supervised by, the endowment authorities. Sales to an endowment remain taxable.

Breaking Down the Provision

“Without consideration, whether in cash or in kind”

This is the condition everything else depends on. The endowment must give nothing in return: no price, no assumption of debt, no transfer of another asset, no services. The phrase “whether in cash or in kind” rules out swaps and debt assumptions as much as cash payments.

“To a public, private or joint endowment”

All three forms of waqf recognised under Saudi law qualify:

• Public endowment. The benefit goes to charitable or public purposes.
• Private (family) endowment. The benefit goes to the founder’s family or descendants.
• Joint endowment. The benefit is shared between family and charitable purposes.

This matters because family waqf is often used as a long-term holding structure for real estate, and the text puts it on the same footing as charitable waqf.

“Registered with the relevant endowment authorities … and subject to their supervision”

The endowment must be formally registered as an endowment and fall under the oversight of the endowment authorities, primarily the General Authority for Awqaf. An informal family arrangement described as a “waqf” but never registered does not qualify.

What the provision does not say

The text does not say “first transfer only”. That restriction comes from ZATCA’s Guideline, and it follows logically from the provision, which covers transfers to an endowment. Nothing in it covers transfers by an endowment.

ZATCA’s Position

The Guideline sets out three propositions:

1. The exemption is limited to the first transfer of the property, without consideration, to the endowment. Any later transfer is not exempt under this paragraph.
2. If the property goes to the endowment through a sale, a long-term usufruct right over 50 years, or any other transfer that counts as a sale, RETT applies.
3. Transferring property to an endowment does not by itself give an exemption. The transfer must be without consideration.

Its examples are simple. In Example 17, a commercial building given to an endowment for free is exempt. In Example 18, a residential building sold to an endowment for SAR 1,000,000 is taxable at 5%, which is SAR 50,000.

Worked Examples

Example 1: Family waqf over a commercial building

Mr. Abdulaziz endows a commercial building in Dammam worth SAR 8,000,000 as a family waqf for his descendants. The waqf is registered with the General Authority for Awqaf, and nothing is paid.

Exempt. RETT that would otherwise have been due: SAR 400,000.

Example 2: Endowing a mortgaged property

Same facts, but the building has an outstanding finance balance of SAR 2,500,000, and the endowment agrees to take it on.

The endowment’s assumption of the debt is consideration in kind. The transfer of the building is no longer “without consideration”, so ZATCA could deny the exemption entirely. The most favourable reading is that RETT applies only to the debt portion: 5% × SAR 2,500,000 = SAR 125,000. The better approach is to settle the financing before endowing, so the transfer is clearly gratuitous.

Example 3: The endowment exchanges its property

Five years later, the waqf’s supervisor (nazir) exchanges the building for a larger property, with court approval (istibdal). The waqf sells the old building for SAR 9,000,000 and buys a new one for SAR 12,000,000.

• Sale of the old building: the waqf is the transferor, and RETT of SAR 450,000 applies.
• Purchase of the new building: the seller is the transferor, and RETT of SAR 600,000 applies, normally priced into the deal.

Neither transaction is covered by Article 3(a)(2).

Example 4: Discounted sale to a charitable waqf

A developer sells a plot worth SAR 3,000,000 to a charitable endowment for SAR 1,000,000 as a gesture of support.

This is a sale, so it is not exempt. RETT applies to the consideration, subject to ZATCA’s power under Article 8 to test value against fair market value. The developer should expect RETT on at least SAR 1,000,000 (SAR 50,000). There is a risk that ZATCA treats the full SAR 3,000,000 as the value for a sale below market. Two cleaner structures are a gratuitous transfer of part of the land combined with a separate sale of the rest, or a sale under Article 3(a)(4) if the endowment’s beneficiary entity has public interest status.

Grey Areas

Compliance Checklist

1. Confirm the endowment is registered and obtain the registration evidence.
2. Confirm the transfer is entirely gratuitous: no price, no debt assumption, no swap.
3. Register the transaction on ZATCA’s RETT portal before notarization, selecting this exemption. The waqf’s representative or the founder acts as transferor’s representative.
4. Keep the waqf deed, registration certificate and title documents for at least five years.
5. Treat every later transaction by the endowment as potentially taxable and assess each one separately.

Common Mistakes

• Treating every transaction involving a waqf as exempt. Only gratuitous transfers into the waqf are exempt.
• Endowing mortgaged property. The debt taken on by the endowment is consideration.
• Forgetting the exit. Istibdal and long-term leases by the endowment are taxable transactions.
• Using an unregistered “family waqf”. Without registration and supervision, there is no exemption.

The Bottom Line

Article 3(a)(2) makes endowing real estate free of RETT, which is the right policy result. Founders and their advisers should treat it as a one-way exemption: the gift in is protected, and everything afterwards is assessed on its own terms. Clear any debt first, make sure registration is in place, and plan the endowment’s future transactions with RETT in mind.