Translation of the attached article:
Not all real estate transactions in Saudi Arabia are subject to real estate transaction tax. The law has specified several cases that may benefit from exemption as long as they meet the prescribed conditions and controls.
However, many individuals and companies face difficulty in knowing whether their transactions fall within these cases or not, or they believe that merely having a certain description apply to the transaction is enough to obtain the exemption. This leads to mistakes that delay completing the transaction or affect tax obligations.
Therefore, understanding the conditions for exemption from real estate transaction tax is an essential step before concluding any real estate transaction, whether it is a sale, gift, transfer of ownership, or any other transaction regulated by law. In this article, we will explain the conditions required for exemption from real estate transaction tax, the most prominent exemption cases, and the cases in which the tax is imposed.
Definition of Real Estate Transaction Tax, Its Rate, and Its Purpose
Real estate transaction tax is a fee imposed by the Zakat, Tax and Customs Authority in the Kingdom at a rate of 5% of the total value of the property when it is sold or its ownership is transferred. It is applied only once to each real estate transaction and includes all types of real estate, such as residential units, lands, and commercial properties.
The tax is collected upon each purchase, sale, gift for consideration, financial lease contract, or transfer of shares within companies. The seller is primarily responsible for paying this tax, but the parties may agree between themselves that the buyer will bear it, provided that this agreement is documented in the official contract.
Before searching for or applying for exemption, it is important first to learn about real estate transaction tax, so that you understand when the tax is imposed, how it is calculated, and which cases may be exempt from it.
When Is Real Estate Transaction Tax Imposed? And Which Transactions Fall Within Its Scope?
Real estate transaction tax is imposed when a legal transaction results in transferring property ownership, transferring a benefit, or creating an in rem right over the property, whether the transaction is for consideration or in certain cases specified by law. The most prominent transactions that may be subject to the tax include:
- Sale of all types of real estate.
- Gifts to non-relatives.
- Exchange and assignment.
- Long-term financial lease.
- Agreements that transfer the benefit of real estate for more than 50 years.
Who Is Obligated to Pay? And When Is Payment Made?
The person obligated to pay is the disposer, who is usually the seller, while the person to whom the property is transferred, namely the buyer, may be jointly liable in some cases, especially if the tax is not paid due to negligence or collusion.
The buyer and seller may agree between themselves on who will bear the tax within the contract terms. This is done by clearly recording the agreement on bearing the tax within the agreement or sale contract, so that no dispute arises between the parties after completing the transaction, especially in high-value transactions.
When reviewing the conditions for exemption from real estate transaction tax, you can benefit from the real estate tax calculator to estimate the tax amount before payment or before submitting the request.
Conditions for Exemption from Real Estate Transaction Tax
Below, we explain the conditions for exemption from real estate transaction tax as follows:
- Distribution of estates when dividing properties and assets among heirs.
- Donation to relatives, such as children, wife, and grandchildren, meaning relatives up to the second degree.
- Disposal in favor of a charitable endowment or charitable association, provided that the disposal is not for administrative purposes.
- Disposal to a public legal person or a government entity of public benefit for the purpose of achieving public benefit.
- A government entity’s disposal of real estate outside the economic, commercial, or investment scope.
- Disposal of real estate as a gift documented with the competent authorities to a husband, wife, or relatives up to the third degree.
- Expropriation for public benefit, such as the government taking over a property for public purposes.
- Temporary transfer of property ownership as security for financing or credit.
- Disposal of real estate pursuant to a temporary Sharia document.
- Transfer of property ownership to execute lease contracts.
- Disposal of real estate subject to value added tax before its documentation, provided that no details in the contract are changed.
If the exemption is not accepted or there is an error in applying the tax, it is important to learn about objecting to real estate transaction tax to know the appropriate legal procedure.
Most Prominent Cases of Exemption from Real Estate Transaction Tax in Saudi Arabia
The law has specified some cases that may benefit from exemption from real estate transaction tax. However, this exemption does not apply automatically. It requires fulfilling the legal conditions and controls specific to each case as follows:
Gifts, Kinship, Wills, and Inheritance:
Some exemptions include transactions carried out between persons who have certain kinship relationships as determined by law, in addition to the transfer of real estate through inheritance or wills in cases that meet the legal conditions.
First Home and Housing Support:
Some citizens may benefit from housing support programs under which the state bears the real estate transaction tax for the first home within certain limits and controls. This requires meeting the eligibility requirements determined by the competent authorities, and merely purchasing a property for the first time is not enough to benefit from the exemption.
Government, Diplomatic, and Public Benefit Entities:
The law includes exemption cases related to some government entities and public authorities, as well as diplomatic missions and international organizations that enjoy legal exemptions or special agreements, in addition to some transactions carried out to achieve public benefit in accordance with the applicable laws.
Companies, In-Kind Shares, Mergers, Acquisitions, and Endowments:
Some transactions related to corporate restructuring, providing real estate as in-kind shares, mergers and acquisitions, or establishing endowments may benefit from exemption, provided that all controls stipulated by law are met and that the purpose of the transaction is not to evade tax obligations.
Conditions for Exemption from Real Estate Transaction Tax in Off-Plan Sales, Property Return, Security, and Financing:
There are special cases related to off-plan sales, returning the property to its owner under certain circumstances, or transactions related to guarantees and real estate financing. These may benefit from exemption if the legal conditions specific to each case are met. This requires studying the nature of the transaction and its related documents before relying on the exemption.
When reviewing the conditions for exemption from real estate transaction tax, it is important to review the new real estate mortgage law if the property subject to the transaction is mortgaged or linked to financing.
Required Documents for the Exemption Request
Submitting the required documents for an exemption request is essential for accepting the request. Documents such as the following should be attached:
- The property title deed issued by the competent authority.
- The documented legal gift deed.
- The deed of heirs determination or inheritance certificate.
- Proof of kinship, such as a birth certificate or family card.
- Official approval from the relevant government entity when needed.
- The housing support certificate or proof of beneficiary status from state programs.
- The disability document if there is a special exemption for this category.
Steps for Application and Registration Through the Zakat, Tax and Customs Authority
Real estate transaction tax is registered through the Zakat, Tax and Customs Authority by following these steps:
- Access the Authority’s website and log in through the National Single Sign-On.
- Choose the real estate transaction service and specify the property type: building, land, commercial property, or apartment.
- Enter the property data, such as the deed number and date, or the plot and plan number if no electronic deed has been issued.
- Enter the agreed sale amount and the buyer’s data, such as the commercial register or ID.
- After confirming the entered data, the system issues a SADAD number. The reference number automatically expires after thirty days from the issuance date if payment is not made. Once payment is completed, the request number is activated in the Ministry of Justice systems to allow the property transfer.
If you are not sure whether the exemption conditions apply to your real estate transaction or if your request was rejected, you may need to consult a tax lawyer, so they can review your legal status and help you submit the request or objection correctly.
Common Mistakes and Legal Challenges
There are some mistakes that lead to rejection of the tax exemption request or exposure to tax claims, such as:
- Believing that all gifts are exempt from tax.
- Relying on outdated information regarding exemption cases.
- Failing to complete the required documents proving entitlement to exemption.
- Choosing the wrong type of transaction when submitting the request.
- Confusing real estate transaction tax with value added tax.
- Carrying out the transaction before confirming that the exemption conditions apply.
- Not obtaining legal consultation in complex real estate transactions.
The Difference Between Real Estate Transaction Tax and Other Real Estate Obligations
Real estate transaction tax is imposed on the legal transaction that results in transferring property ownership or creating an in rem right over it in the cases specified by law. However, the transaction may also involve other fees or obligations, such as documentation fees, registration services, real estate brokerage fees, or real estate valuation.
It is important to distinguish between these obligations when calculating the cost of the real estate transaction, because paying the tax does not necessarily mean that there are no other fees or expenses related to completing the transaction.
Contact now with the best real estate cases lawyer to ensure that the conditions for exemption from real estate transaction tax are fulfilled legally and smoothly, while following up on all official procedures, avoiding mistakes, and ensuring compliance with Saudi regulations without delay or financial claims.
Conclusion
Knowing the conditions for exemption from real estate transaction tax helps avoid many mistakes that may lead to rejection of the exemption or delay in completing the real estate transaction. Each case has requirements and controls that must be met, and merely believing that the transaction falls within exempt cases is not enough.
Therefore, reviewing the legal aspects before selling, gifting, or transferring ownership, and seeking the assistance of a specialized lawyer when dealing with complex transactions, help ensure that the laws are applied correctly and that the required procedures are completed with minimal risk.
Frequently Asked Questions
Is the Purchase of a First Home Exempt from Tax?
The state bears real estate transaction tax on behalf of the citizen for the first home in the residential sector only, up to a currently specified price ceiling of SAR 1 million. Any amount exceeding that is borne by the buyer at a rate of 5%.
Does the Tax Exemption Apply Automatically?
Not necessarily. The matter may require completing certain procedures and submitting documents proving that the exemption conditions apply to the real estate transaction.
Do Companies Benefit from Exemption from Real Estate Transaction Tax?
Some corporate transactions may benefit from exemption from real estate transaction tax, such as certain cases of mergers, providing in-kind shares, or restructuring, if they meet the conditions specified by law.
