Translation of the attached article:
Real estate transaction tax is one of the important taxes that must be understood before completing any sale, transfer, or ownership acquisition of real estate. It directly affects the parties to the real estate transaction and the legal procedures related to it.
The way this tax is applied differs according to the type and nature of the transaction. There are also cases subject to the tax and others exempted under the applicable laws and regulations. Therefore, understanding this tax helps individuals and investors complete their transactions correctly and avoid violations or unexpected obligations.
In this article, we will explain what real estate transaction tax means, how it is calculated and registered, and the cases exempted from it.
What Is Real Estate Transaction Tax in Saudi Arabia?
Real estate transaction tax is a direct tax imposed on all transactions that create a legal effect represented in transferring the ownership right or possession of real estate for the purpose of owning it or owning its benefit from one person to another.
In Saudi Arabia, no annual tax is imposed on real estate. Instead, real estate transaction tax applies when transferring or selling ownership of a property. This tax is imposed at a rate of 5% of the total value of the property subject to transfer or sale, and this tax is not calculated on the cost of financing.
Real Estate Transaction Tax and the Difference Between It, Real Estate Tax, and Value Added Tax
Real estate transaction tax is the tax imposed on certain legal transactions that result in transferring property ownership or creating an in rem right over it, according to what is determined by law.
Real estate tax, on the other hand, is a general term sometimes used to refer to taxes or fees related to real estate, but it is not the name of an independent tax in the legal sense in Saudi Arabia.
Real Estate Transaction Tax: When Is It Imposed and on Which Transactions?
Real estate transaction tax is imposed when a legal transaction results in the transfer of property ownership, benefit, or an in rem right over it, 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 real estate of all types.
- Some gift cases that are not covered by exemption.
- Transfer of ownership for consideration.
- Exchange of real estate properties.
- Other transactions stipulated in the executive regulations.
Who Bears the Real Estate Transaction Tax: The Seller or the Buyer?
The law does not always specify the party obligated to bear the tax amount. The seller and buyer may agree between themselves on who will bear it within the contract terms. From a legal perspective, however, fulfilling the tax requirements or obtaining an exemption is a condition for completing ownership transfer procedures in the cases determined by law.
Therefore, it is recommended to clearly state the agreement on which party bears the tax in the sale contract or agreement, so that no dispute arises between the parties after the transaction is completed, especially in high-value transactions.
Real Estate Transaction Tax: How Is It Calculated in Practice?
Real estate transaction tax can be calculated using the real estate tax calculator through the website of the Saudi Zakat, Tax and Customs Authority. This tax is subject to certain regulations and amendments issued by the Saudi Zakat, Tax and Customs Authority.
In the Kingdom, one tax is imposed on real estate, namely real estate transaction tax. It is calculated at a rate of 5% of the property value, as follows: real estate transaction tax = 5% × property value. It is paid upon each ownership transfer or sale of real estate.
Below, we explain how real estate tax is calculated in Saudi Arabia as follows:
Determining the Property Value:
The market value of residential properties is determined by valuers accredited by the Zakat, Tax and Customs Authority.
Lands:
The market value of lands is determined by valuers accredited by the Zakat, Tax and Customs Authority, or by referring to the land value stated in the real estate register.
Other Properties:
The market value of the property is determined by valuers accredited by the Zakat, Tax and Customs Authority, or by referring to the prices of similar properties sold in the same area.
Real Estate Transaction Tax by Type of Transaction: Sale, Gift, Exchange, and Financial Lease
The application of real estate transaction tax differs according to the nature of the transaction, because each type of transaction has legal provisions that may affect whether it is subject to tax or eligible for exemption, as follows:
Sale:
Sale is one of the real estate transactions most commonly subject to real estate transaction tax. It requires fulfilling the legal requirements and paying the tax or proving exemption before completing ownership transfer procedures.
Gift:
Not all gifts are treated the same way. Some may benefit from exemption if the legal conditions are met, while other cases may be subject to tax depending on the relationship between the parties and the nature of the transaction.
Exchange:
When exchanging one property for another, the transaction is subject to the provisions regulating exchange. The details, value, and nature of the transaction are examined to determine whether it is subject to tax or eligible for exemption.
Financial Lease:
Real estate transaction tax may apply to certain forms of financial lease when they result in the transfer of property ownership according to the legal controls.
Before completing a sale or transfer of property ownership, you may need to use the real estate tax calculator so that you can estimate the value of the real estate transaction tax due and understand your financial obligations before completing the procedure.
Conditions for Exemption from Real Estate Transaction Tax and Excluded Cases
There are certain exceptional cases specified by the Real Estate Transaction Tax Law in which real estate transaction tax does not apply. These cases include the following:
- Properties resulting from the distribution or division of an estate.
- Properties disposed of for charitable purposes, provided that the disposal is not for administrative purposes but for the purposes of the endowment itself.
- Properties disposed of to public benefit entities or government entities.
- Real estate transactions carried out by government entities in their capacity as public authorities when performing their public duties and tasks.
- Real estate transactions in cases where the state expropriates ownership of a property for reasons related to public interest.
- Real estate transactions that constitute a gift of property to relatives of the first or second degree, or if the property is included in a lawful will.
- When a person uses their property temporarily as security to obtain financing or a loan.
- Real estate transactions completed before the regulations governing this tax came into force.
You can learn more about the conditions for exemption from real estate transaction tax to know whether your case qualifies for exemption or not.
Steps for Registering Real Estate Transaction Tax
The electronic Zakat and Income website provides a real estate transaction tax registration service to facilitate the process of registering the property and the tax. The steps for using the service are as follows:
- Access the electronic website of the General Authority of Zakat and Income.
- Click on e-services, then select real estate transaction tax.
- Click on the property registration request option from the list of available services.
- A page will appear showing more information about the service. Click the option to go to the service at the bottom of the page.
- Choose the type of real estate transaction that applies to the property you wish to register.
- Fill in the required data according to the selected type of real estate transaction. This data may include the applicant’s identity, such as individuals, government entities, institutions, and others, as well as ID number, ID type, and deed number.
- Enter the verification code, read the terms and conditions, and agree to them.
- Enter the verification code sent to your phone in the designated field.
- Make sure the entered data is correct, then select the property type and status from the dropdown list.
- If the property is subject to tax, an invoice will be issued to pay the tax due.
- You will receive a message containing the request number as confirmation that the registration request has been successfully received.
If you believe that the real estate transaction tax was calculated incorrectly or applied to a case that qualifies for exemption, you may need to know about objecting to real estate transaction tax, so that you understand the grievance steps and protect your legal rights.
Why Is Nawaf bin Awad Al-Harbi Law Firm the Best Firm in Real Estate Transaction Tax Cases?
Real estate transactions require a precise understanding of tax regulations and the related legal procedures. Any error in calculating the tax, applying exemptions, or completing legal procedures may delay the completion of the real estate transaction or lead to legal disputes.
Therefore, Nawaf bin Awad Al-Harbi Law Firm provides legal services that help individuals and companies in all matters related to real estate transaction tax. The firm’s services include:
- Providing legal consultations related to real estate transaction tax.
- Clarifying taxable cases and exemption cases under the laws.
- Reviewing contracts and real estate transactions before completing them.
- Providing legal support in objections and tax disputes related to real estate.
- Representing clients before the competent authorities when needed.
- Providing legal advice to ensure compliance with regulations and reduce legal and tax risks.
Contact now with the best real estate cases lawyer to ensure that real estate transaction tax is calculated and registered legally and smoothly, while following up on all official procedures, avoiding mistakes, and ensuring compliance with Saudi regulations without delay or financial fines.
Conclusion
Real estate transaction tax is one of the taxes that everyone who wants to buy, sell, or transfer ownership of real estate must understand and know its provisions. This helps in understanding the tax obligations and legal procedures related to each real estate transaction.
Knowing the cases that are subject to tax or eligible for exemption also helps avoid mistakes and violations that may affect completion of the transaction. Seeking the assistance of a specialized lawyer will greatly help you avoid any future problems or obstacles.
When there is a dispute over real estate transaction tax or how it is calculated, a tax lawyer can help you understand your rights and the appropriate legal procedure.
Frequently Asked Questions
When Is Real Estate Transaction Tax Imposed?
This tax is imposed when ownership of the property is transferred or when the transaction is documented by an approved notary or notary public. The concerned parties must pay the tax before the documentation date or on the same date to ensure compliance with the regulations and laws.
What Is the Real Estate Transaction Tax Rate?
The real estate transaction tax rate is 5% of the value of the real estate transaction. The government bears part of this tax when citizens purchase their first home, as it pays the tax on an amount of up to SAR 1 million.
What Penalties Are Imposed in Case of Non-Compliance with Paying Real Estate Transaction Tax?
Among the penalties imposed in case of failure to pay real estate transaction tax are large financial fines. Therefore, the specified deadlines for paying the tax must be complied with.
Does Real Estate Transaction Tax Include All Types of Real Estate?
Yes, it includes all types of real estate, including commercial and residential buildings and lands. It also applies to the transfer of shares or stakes in real estate companies whose real estate assets exceed 50% of their total assets, except where there is a direct relationship between the company’s assets and ownership of the shares.
