In brief
A real estate transaction by a public entity is exempt from RETT only where it is carried out in its capacity as a public authority. All three conditions must be met: a regulatory instrument authorises the entity to exercise that public authority, the transaction is not carried out on economic or commercial standards, and it does not compete with the private sector.
Article 3(a)(4) protects transfers to the government. Article 3(a)(5) deals with the opposite direction, and it is much narrower. The government is a significant seller of real estate in the Kingdom, through land allocations, housing programmes, auctions and investment schemes. Only some of those transactions are exempt.
The test is not who the seller is but the capacity in which it is acting. A ministry exercising public authority pays no RETT. The same ministry acting as a property seller in a market pays RETT like anyone else.
The Provision: Exact Text
ZATCA’s Detailed RETT Guideline covers this exemption at section 5.1.5.
What It Means in Plain English
The RETT government land transfer exemption means that a government body transferring real estate as part of its public role, under its statutory powers, pays no RETT. The transfer must not be on commercial terms and must not compete with private sellers. If any one of those conditions fails, the transfer is taxable.
Breaking Down the Provision
Who can qualify
- Any ministry, department, authority or centre forming part of the government.
- Any public legal person that exercises public authority under Saudi regulations.
Government-owned commercial companies are not included. A real estate developer owned by a state fund is a company, not a public authority.
Condition (a): A regulatory instrument
There must be a statutory basis, meaning a law, regulation or decree, that authorises the entity to carry out the activity as a public authority. ZATCA’s Guideline gives the Ministry of Municipalities and Housing and the General Authority for State Real Estate as examples of bodies whose laws require them to make such transfers.
Condition (b): Not on economic or commercial standards
The transaction must not be driven by commercial considerations. Indicators that a transaction is commercial include market pricing, a profit objective, auction processes and investment returns. Free grants and statutory subsidised allocations are at the other end of the scale.
Condition (c): No competition with the private sector
If a private seller could offer the same thing in the same market, the government entity is competing, and the exemption is not available. This keeps the government on an equal tax footing when it acts as a market participant.
“All of the following”
The conditions are cumulative. A transaction carried out under statutory authority but priced commercially fails. A non-commercial transaction outside the entity’s statutory mandate also fails.
ZATCA’s Position
The Guideline says the exemption applies only to transactions within the statutory instrument that enables the entity to act as a public authority. It also says the absence of commercial criteria and of competition with the private sector “must be verified by the Authority”. In other words, ZATCA will check.
- Example 23. A ministry grants a residential apartment free of charge as part of its statutory role in housing citizens. Exempt.
- Example 24. A public agency sells a villa for SAR 3,000,000 through one of its investment programmes. Taxable at 5%, because the sale is commercial activity in competition with the private sector.
Worked Examples
Example 1: Statutory land allocation
Under its governing regulations, a municipal authority allocates residential plots free of charge to eligible citizens. Exempt, because all three conditions are met.
Example 2: Subsidised housing at a statutory price
A government housing body transfers units at a price set by regulation, well below market, to eligible beneficiaries under its mandate. The transfer is made under statutory authority, it is not on commercial standards, and the beneficiaries are a regulated group rather than the open market. In our view it is likely exempt. The closer the price comes to market, the weaker that position becomes.
Example 3: Public auction of surplus land
A government authority auctions surplus commercial land to the highest bidder for SAR 25,000,000. The sale is market-priced and competes with private land sellers. It is taxable, and RETT of SAR 1,250,000 is payable by the authority as transferor.
Example 4: Transfer to another ministry
A ministry transfers a building to another ministry. Whether or not Article 3(a)(5) applies, the transfer is exempt under Article 3(a)(4), because the transferee is a public entity.
Grey Areas
| Situation | Our view |
|---|---|
| Below-market sale to a private investor to stimulate a priority sector | There is a statutory and policy purpose, but the buyer is a market participant. The outcome depends on the facts, so obtain a ruling. |
| Exchange of state land for privately owned land | The government’s transfer is for consideration, being the land it receives. The exemption is likely only if the exchange is part of a statutory process, such as compensation. |
| Government-owned company selling under a mandate given by a ministry | The transferor is the company, not the public entity. Not covered by Article 3(a)(5). |
| Long-term usufruct granted by the state under a concession | Usually commercial terms. Assess under the BOOT and usufruct rules in Article 2(f) and (g). |
Compliance Checklist
- Identify the statutory instrument under which the entity is making the transfer.
- Document why the transaction is not commercial, such as the pricing basis, eligibility rules and policy purpose.
- Confirm there is no private-sector market for the same transaction.
- Register the transaction on ZATCA’s RETT portal before notarization. The public entity is the transferor.
- Where any condition is doubtful, consider a ZATCA ruling under Article 12 of the Regulations.
Common Mistakes
- “We are government, so we are exempt.” The exemption depends on the capacity in which the entity acts, not on its status.
- Treating auctions as public authority. They are market transactions.
- Assuming government-owned companies qualify. They do not.
- Weak documentation. ZATCA will look for the statutory instrument and the pricing rationale.
The Bottom Line
Article 3(a)(5) separates the state acting as a regulator and provider from the state acting as a property seller. Free and subsidised transfers under a statutory mandate are exempt. Sales at market prices are not. For public bodies, it is good practice to classify each programme in advance, and to document the statutory basis for the exempt ones before the first transfer.
Key takeaways
- Article 3(a)(5) exempts transfers by a public entity only when it acts in its capacity as a public authority, not as a market participant.
- Three conditions must all be met: a statutory instrument authorising the activity, no economic or commercial basis for the transaction, and no competition with the private sector.
- ZATCA's Guideline: a ministry granting an apartment free of charge under its housing mandate is exempt, while a public agency selling a SAR 3,000,000 villa through an investment programme is taxable.
- Ministries, departments, authorities and centres forming part of the government, and public legal persons exercising public authority, can qualify. Government-owned companies cannot.
- Market-priced sales such as auctions, investment programmes and commercial developments are taxable, and the public entity as seller bears the RETT.
- Transfers between two government bodies are usually exempt anyway under Article 3(a)(4), because the transferee is a public entity.
Frequently asked questions
Do government bodies pay RETT when they sell real estate in Saudi Arabia?
It depends on the capacity in which they act. Under Article 3(a)(5), a transfer is exempt only if it is made under a statutory instrument authorising public authority functions, is not carried out on commercial or economic terms, and does not compete with the private sector. Commercial sales by government bodies are taxable at 5%.
Is a state housing grant to a citizen subject to RETT?
No. ZATCA's Guideline gives the example of a ministry granting a residential apartment free of charge as part of its statutory role in housing citizens, and confirms it is exempt under Article 3(a)(5).
Is a government land auction exempt from RETT?
Generally not. An auction is a market-based sale on commercial terms, and it competes with private sellers, so it fails at least two of the three conditions. The public entity, as transferor, is liable for 5% RETT on the auction price.
Do companies owned by the government qualify for Article 3(a)(5)?
No. The provision applies to ministries, departments, authorities and centres forming part of the government, and to public legal persons exercising public authority. A government-owned commercial company is not exercising public authority, and its sales are taxable in the normal way.
What happens when one government body transfers property to another?
Such transfers are usually exempt under Article 3(a)(4), which covers any transfer to a public entity, whatever the terms. Article 3(a)(5) matters mainly where the recipient is a private person.
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.
