In brief
For taxable transactions that transfer shares in a real estate company, RETT is calculated on the fair market value, at the time of the transaction, of all real estate the company owns directly or indirectly and for any purpose, multiplied by the percentage of shares transferred, or on the value the parties agreed and allocated to the real estate, if higher.
Buyers and sellers in a share deal negotiate an equity price. For RETT purposes, that price is largely irrelevant. Article 2(e) looks through the company to the property it owns and taxes a proportionate share of its gross value. That distinction is why RETT on a leveraged real estate company can be a surprisingly large cost.
The Provision: Exact Text
What It Means in Plain English
For RETT share transfer valuation, take the market value of all the property the company owns, including through subsidiaries, multiply it by the percentage of shares being sold, and charge 5% on the result. If the deal price puts a higher figure on the property, use that figure instead.
The Formula
Breaking Down the Provision
- “Taxable real estate transactions.” The rule applies only once the transfer is taxable: the company is a real estate company (2(h)), the 30% threshold is met (2(i)), and no exemption applies.
- “Fair market value at the time of the transaction.” The valuation date follows Article 4(d), which is the earlier of share transfer or unconditional agreement.
- “All real estates owned directly or indirectly … for any purpose.” This covers subsidiaries’ property and owner-occupied property as well as investment property.
- “Or … allocated to the real estate if it is higher.” If the SPA or purchase price allocation assigns more to the property, that higher figure governs.
Worked Examples
Example 1: Leveraged company
RealCo owns property worth SAR 500,000,000 and has SAR 300,000,000 of bank debt, so its equity is worth SAR 200,000,000. A buyer acquires 40% for SAR 80,000,000.
- Base: SAR 500,000,000 × 40% = SAR 200,000,000
- RETT: SAR 10,000,000, which is 12.5% of the equity price paid
Example 2: Higher allocated value
On the same facts, the purchase price allocation assigns SAR 220,000,000 to RealCo’s real estate for the 40% stake. The base is the higher figure: SAR 220,000,000, and RETT is SAR 11,000,000.
Example 3: Indirect holdings
RealCo owns 60% of SubCo, which holds property worth SAR 100,000,000. RealCo’s indirect share of that property is SAR 60,000,000. For a 40% transfer of RealCo, SubCo’s property adds 40% × SAR 60,000,000 = SAR 24,000,000 to the base. Applying the ownership chain proportionately is our recommended approach. The text does not prescribe a method for partly owned subsidiaries.
Grey Areas
| Situation | Our view |
|---|---|
| Partly owned subsidiaries | Apply the effective ownership percentage through the chain. Document the method. |
| Foreign property held by the company | Only real estate in the Kingdom is within RETT. Exclude foreign property from the base. |
| Earn-outs and deferred consideration | Relevant to whether the allocated value exceeds FMV. Consider a correction request if they crystallise later. |
Common Mistakes
- Applying 5% to the equity price.
- Leaving out subsidiaries’ property.
- Ignoring the purchase price allocation, which ZATCA can rely on if it is higher.
The Bottom Line
Article 2(e) taxes share deals as if the proportionate share of the underlying property were sold, on a gross basis. Model RETT on property values, not equity value, and align the SPA’s allocation with the valuation you intend to file.
Key takeaways
- On a taxable share transfer, RETT is based on the underlying real estate, not on the share price.
- Base: fair market value of all real estate owned directly or indirectly by the company, times the percentage transferred.
- If the parties' agreed price allocates a higher value to the real estate, that higher figure is the base.
- All real estate counts, including through subsidiaries ('indirectly') and whatever its use ('for any purpose').
- Company debt does not reduce the base. A leveraged real estate company can carry RETT well above 5% of the equity price.
- Valuation is at the time of the transaction, which is the earlier of share transfer or unconditional agreement (Article 4(d)).
Frequently asked questions
How is RETT calculated on a sale of shares in a real estate company?
On the fair market value of all real estate the company owns, directly or indirectly, at the time of the transaction, multiplied by the percentage of shares transferred, or on the price the parties agreed and allocated to the real estate, whichever is higher (Article 2(e) of the RETT Implementing Regulations).
Does company debt reduce RETT on a share sale?
No. The base is the gross fair market value of the real estate multiplied by the percentage transferred. Bank debt in the company reduces the share price but not the RETT base, so RETT can be a large percentage of the equity value.
Is property held by subsidiaries included?
Yes. Article 2(e) covers all real estate owned 'directly or indirectly', so property in subsidiaries of the real estate company is included, multiplied through the ownership chain as appropriate.
Does a share transfer always trigger RETT?
No. It must be a taxable transaction: the company must be a real estate company under Article 2(h), and the disposal must reach the 30% threshold under Article 2(i), unless it is exempt, for example listed trading or a qualifying acquisition.
Sources
- ZATCA — Real Estate Transaction Tax Law and Implementing Regulations
- ZATCA — Detailed Guideline for the Real Estate Transaction Tax (Version 6, May 2026)Section 4.2 (Transfer of Equity in a Real Estate Company)
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.
