RETT Rate of 5% on All Real Estate Transfers in Saudi Arabia: Corporate Guide to Scope, Valuation & Compliance

What Is RETT and When Does the 5% Apply?

RETT (Real Estate Transaction Tax) is a flat 5% tax charged on the value of most real estate transfers in the Kingdom, regardless of whether the transfer results in accounting profit or loss. It generally applies to:

• Sales of land, buildings, and units (residential, commercial, industrial).
• Transfers of usufruct or similar rights granting use/enjoyment for consideration.
• Assignments of rights to acquire property and certain barter transactions.
• Intra-group transfers where no specific exemption applies.

RETT is typically due by the transferor/seller (unless contractually shifted) and must be declared and paid before the title or right is registered.

Key Definitions Corporate Tax Teams Should Know

• Taxable disposal: Any transfer of legal title or taxable real estate right for consideration or in satisfaction of an obligation.
• Transaction value: The higher of the stated consideration or the fair/market value recognized for registration; 5% applies to this base.
• Connected persons/related parties: Normal rules to prevent undervaluation; arm’s-length principles and documentation are essential.

How to Calculate RETT at 5% (Examples)

Illustrative only; confirm scope/valuation against the latest ZATCA guidance and supporting appraisals.

Transactions Commonly Exempt or Out of Scope

While the 5% RETT is broad, certain transfers may be relieved under specific conditions (documentary proof required). Examples often include:

• Transfers by inheritance to legal heirs.
• Certain transfers between spouses/close relatives meeting legal criteria.
• Government acquisitions for public interest.
• Specific charitable or endowment transfers subject to qualifying rules.

Corporate groups should not assume automatic relief on restructurings—obtain written confirmation where required and retain board approvals, valuations, and legal opinions in the deal file.

RETT vs. VAT: Don’t Double Count

• RETT (5%) applies to disposals of real property/rights.
• VAT generally does not apply to the disposal subject to RETT, but VAT may still apply to ancillary services (e.g., development, leasing services, property management) and to imports of services by real estate businesses.
• Check TOGC/going-concern treatment for asset-deal carve-outs; prepare a tax position memo explaining whether RETT, VAT, or both apply to the various components around closing.

Filing & Payment Milestones (Corporate Checklist)

1. Deal structuring: Identify each taxable real estate component and the expected RETT base (consideration vs. FMV).
2. Documentation pack: SPA/assignment, valuation report, CRs, site plans, powers of attorney, and corporate approvals.
3. Portal declaration: Submit RETT details through ZATCA e-Services for the relevant transaction before registration.
4. Payment: Settle the RETT (SADAD/bank) using the issued reference; align cash planning with closing funds flow.
5. Registration: Property/right registration proceeds in the justice/land system only after tax settlement confirmation.
6. Record retention: Keep the tax file (declaration, payment proof, valuation) for audit readiness.

Risk Areas That Trigger Queries

• Under-valuation when parties are related or consideration appears below market benchmarks.
• Split contracts (land vs. structure; property vs. fit-out) that obscure the true taxable base.
• Rights transfers (usufruct/leasehold assignments) not reported as taxable disposals.
• Late payment or missing reference matching in bank/SADAD remittances.

Deal Playbook: Practical Tips to Manage the 5% Cost

• Term sheet clarity: Specify who bears RETT and how price gross-up works if FMV is higher than stated price.
• Cash flow staging: Add a pre-closing step for tax payment to avoid registration delays.
• Valuation defense: Independent appraisal and internal pricing memo for related-party deals.
• Closing binder: Keep a digital binder with all RETT evidence for finance, legal, and audit teams.

Quick FAQ for Corporate Taxpayers

Q: Is RETT always 5%?
A: Yes, the standard rate on taxable real estate disposals is 5%; exemptions require meeting specific conditions and documentation.

Q: Do share sales of a property-holding company trigger RETT?
A: Share deals can have different tax/registration consequences than asset deals—assess substance, control of real property, and current rules before assuming no RETT.

Q: Can we net RETT against income tax or Zakat?
A: RETT is a transaction tax settled at transfer; it isn’t a credit against CIT/Zakat, though it’s part of deal costs for accounting purposes.

Model Template: RETT Computation Sheet

Transaction description:  _______________________
Buyer / Seller (CR):       _______________________
Property / Right:          _______________________
Consideration (SAR):       _______________________
Fair Market Value (SAR):   _______________________
RETT Base (higher):        _______________________
RETT @ 5%:                 _______________________
Payment Ref / Date:        _______________________
Registration Doc No.:      _______________________
    

Key Takeaways

• The 5% RETT applies broadly to real estate disposals; assess scope early in deal structuring.
• Use the higher of price or FMV as the tax base and document your valuation approach.
• Declare and pay before registration to avoid closing delays and penalties.
• Maintain a robust audit file—contracts, valuations, declarations, and payment proofs.