In brief
For Article 1 of the RETT Law, a real estate company is any company, fund or entity that directly or indirectly owns real estate in the Kingdom with the aim of generating revenue by selling or leasing it, provided the fair market value of that real estate is at least 50% of the fair market value of all its assets, either on the share transfer date or at any time in the 365 days before it.
RETT reaches share deals only through the “real estate company” concept. If the company qualifies, a large enough share sale is taxed as an indirect property sale. If it does not, the share sale is outside RETT altogether. Article 2(h) draws that line.
The Provision: Exact Text
What It Means in Plain English
The real estate company RETT definition applies to any company, fund or entity whose Saudi property, held to sell or rent out, is worth at least half of all its assets at market value. The test is checked on the day the shares change hands and at any point in the year before.
Breaking Down the Provision
| Element | Meaning |
|---|---|
| “Any company, fund or entity” | Saudi or foreign companies, CMA funds, sole establishments, other entities |
| “Directly or indirectly owns” | Includes property held through subsidiaries |
| “Real estate within the Kingdom” | Only Saudi property counts towards the numerator |
| “With the aim of generating revenues … by selling or leasing it” | A purpose test that points to investment and trading property |
| ”≥ 50% of the total fair market value of its assets” | Both sides measured at FMV |
| “On the date of transfer … or at any time during the … 365 days preceding” | A one-year look-back, so the company qualifies if the test was met at any point in that period |
The purpose question
The Regulations refer to real estate held to sell or lease. ZATCA’s Guideline describes the definition as applying to any company “regardless of its purpose of incorporation”. These are different things: one concerns why the property is held, the other why the company was set up. They can be read together, so that any kind of company qualifies as long as its property is held to sell or lease. That still leaves owner-occupied operating businesses (a factory, a hospital, a school) in an unclear position. For such companies above 50%, a ruling under Article 12 is worth considering.
Worked Examples
Example 1: Family investment company
Total assets at FMV are SAR 200,000,000, including rental buildings worth SAR 140,000,000 (70%). Real estate company.
Example 2: Book value vs market value
A trading company’s balance sheet shows land at SAR 10,000,000 out of SAR 100,000,000 total assets (10%). At FMV the land is worth SAR 130,000,000 and total assets are SAR 220,000,000, so the land is 59%. It meets the test if the land is held for leasing or sale.
Example 3: Pre-sale disposal
A company sells most of its property two months before a share sale, bringing real estate down to 30% of assets. Real estate was above 50% within the previous 365 days, so it still qualifies.
Common Mistakes
- Testing at book value.
- Ignoring the 365-day look-back.
- Assuming foreign holding companies are outside the rule.
The Bottom Line
Article 2(h) decides whether RETT reaches a share deal at all. Run the 50% test at fair market value, over the whole year before the transfer, and through the group structure, before agreeing the price of any share transaction involving Saudi property.
Key takeaways
- The definition covers any company, fund or entity, Saudi or foreign, that owns Saudi real estate directly or indirectly.
- The real estate must be held with the aim of generating revenue by selling or leasing it.
- Threshold: Saudi real estate at fair market value is at least 50% of the fair market value of total assets.
- The test is met if it is satisfied on the transfer date or at any time in the preceding 365 days, so selling property just before a share sale does not help.
- Assets are measured at fair market value, not book value. Older land on the books at historical cost can easily cross 50% at market value.
- The Regulations' 'aim of selling or leasing' wording and the Guideline's 'regardless of purpose' wording leave owner-occupied operating companies in an unclear position.
Frequently asked questions
What is a real estate company under Saudi RETT?
Any company, fund or entity that directly or indirectly owns real estate in the Kingdom to generate revenue by selling or leasing it, where that real estate makes up at least 50% of the fair market value of its total assets, on the share transfer date or at any time in the previous 365 days (Article 2(h) of the RETT Implementing Regulations).
Is the 50% test based on book value?
No. Both the real estate and total assets are measured at fair market value. Land carried at historical cost is often worth far more than its book value, so companies that look like operating businesses on their balance sheet can meet the test.
Can a company sell property before a share sale to avoid the test?
Not within a year. The test is met if real estate was at least 50% of assets at any time in the 365 days before the transfer, so a recent disposal does not take the company out of the definition.
Is a manufacturing company that owns its factory a real estate company?
It is unclear. The Regulations require real estate held 'with the aim of generating revenues … by selling or leasing it', which an owner-occupied factory may not meet. ZATCA's Guideline says the definition applies 'regardless of its purpose of incorporation'. Where the factory is over 50% of assets, consider a ruling.
Are foreign holding companies covered?
Yes. 'Any company, fund or entity' that directly or indirectly owns Saudi real estate can qualify. A transfer of shares in a foreign holding company owning Saudi property can therefore be a real estate transaction if the thresholds are met.
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.
