VAT Exemptions for Residential Real Estate Transactions — Saudi Arabia

Residential Lease/Rent

• Leasing or licensing a residential property for accommodation is generally exempt from VAT.
• Short-stay “serviced apartments” with hotel-like services may be viewed as taxable hospitality—assess the facts (scope of services, frequency, amenities).

Supplies Incidental to Residential Use

• Purely incidental charges inseparable from accommodation (e.g., basic common-area access) may follow the exemption.
• Separately charged services (e.g., facility management to tenants, parking subscriptions billed apart) are often taxable.

Implications for Pricing

• Sale agreements for property typically price RETT (not VAT) per law and practice.
• Service providers around the deal (brokers, valuers, lawyers) usually charge VAT at the standard rate on their service fees.

First-Home & Housing Programs

• Government housing support programs may affect the VAT/RETT cost borne by eligible buyers in certain scenarios. Corporates should reflect program terms carefully in contracts and invoices.

Direct Attribution First

• Costs used exclusively to make VAT-exempt residential leases (e.g., leasing-only marketing, tenant admin) → generally non-recoverable input VAT.
• Costs used exclusively for taxable supplies (e.g., facility management billed separately to tenants; commercial leasing) → input VAT recoverable.

Partial Exemption (Apportionment)

• For mixed-use portfolios (residential + taxable supplies), apply a fair and reasonable method to apportion residual overhead input VAT (turnover-based, floor-area, unit-count, or hybrid).
• Review and true-up annually; maintain working papers, rationale, and approvals.

Blocked Input VAT (Common Pitfalls)

• Entertainment, staff catering, and certain employee benefits are commonly non-recoverable.
• Medical insurance input VAT is typically not recoverable unless statutorily required.

E-Invoicing & Documentation

• Ensure FATOORAH compliance on taxable service fees; do not charge VAT on exempt residential rent lines.
• Use clear invoice descriptions and tax codes; segregate exempt rent from taxable services.

For Residential Landlords

• State clearly that residential rent is VAT-exempt; separate any taxable service fees (parking, facility access, utilities reselling where applicable).
• Include clauses on RETT only when selling property or transferring title.

For Developers / Funds

• In sale contracts, specify that the transfer is subject to RETT (not VAT) and allocate who bears RETT per commercial terms.
• For construction and professional services, expect VAT at the standard rate—budget accordingly and track input VAT for possible recovery via apportionment.

Mixed-Use Buildings

• Maintain unit-level mapping (residential vs commercial) and bespoke tax codes.
• Split common costs across uses and support your apportionment method with data (meters, floor area, revenue).

Property Management Companies

• Your management fee to the owner is generally a taxable service (standard-rated VAT), regardless of whether the underlying rent is exempt.
• Issue compliant e-invoices and keep engagement letters/SOWs aligned with tax coding.

1) Residential Lease Only

A landlord leases apartments to individuals for accommodation. Rent is VAT-exempt. Separate charges for monthly parking and gym access, billed as optional services, are typically taxable and must appear as separate lines on the e-invoice.

2) Sale of Apartments by Developer

Transfer of title in completed units falls under RETT (not VAT). The developer’s marketing and brokerage services purchased are generally subject to VAT; input VAT recovery depends on direct attribution and apportionment rules.

3) Mixed-Use Tower

Residential floors leased to tenants (VAT-exempt). Ground-floor retail leased to shops (VAT-able). Common costs (security, cleaning) are apportioned; input VAT on residential portion is non-recoverable, while the commercial portion is recoverable.