Royal Decree No. (M/84) dated 19/03/1446 AH
By the grace of God Almighty
We Salman bin Abdulaziz Al Saud
King of the Kingdom of Saudi Arabia
Based onArticle (Seventy) of the Basic Law of Governance, issued by Royal Order No. (A/90) dated 27/8/1412 AH.
And based onArticle (Twenty) of the Council of Ministers Law, issued by Royal Order No. (A/13) dated 3/3/1414 AH.
And based onArticle (Eighteen) of the Shura Council Law, issued by Royal Order No. (A/91) dated 27/8/1412 AH.
After reviewing Shura Council Decision No. (460/43) dated 3/1/1446 AH.
After reviewing Council of Ministers Decision No. (239) dated 14/3/1446 AH.
We decree the following:
First: Approval of the Real Estate Transactions Tax Law, in the attached form.
Second: The competent judicial authority referred to in Article (Seventeen) of the law -mentioned in item (First) of this decree- shall be the primary and appellate committees stipulated in the Income Tax Law, issued by Royal Decree No. (M/1) dated 15/1/1425 AH.
Third: The Zakat, Tax, and Customs Authority shall apply the provisions stipulated in Articles: (Seventy-Three, Seventy-Four, and Seventy-Five) of the Income Tax Law -issued by Royal Decree No. (M/1) dated 15/1/1425 AH- to the tax dues of the Authority in accordance with the provisions of the law referred to in item (First) of this decree.
Fourth:
1- Stakeholders who have conducted any undocumented real estate transaction before the effective date of the Real Estate Transactions Tax on 14/2/1442 AH shall be granted a grace period of (one) Hijri year from the date of the law’s enforcement -mentioned in item (First) of this decree- to rectify their status and notarize the real estate transactions they conducted in accordance with the relevant legal provisions, provided that the date of the real estate transaction is proven before the competent authority. The Minister of Justice and the Chairman of the Board of Directors of the Zakat, Tax, and Customs Authority shall agree on the regulations for implementing this paragraph and shall submit what requires action in this regard.
The grace period referred to in this paragraph may be extended by a decision of the Council of Ministers based on a proposal from the Chairman of the Board of Directors of the Zakat, Tax, and Customs Authority.
2- Any partner in a company who has conducted a real estate transaction -represented by transferring the property in the name of the company without notarization- shall be granted a grace period of (one) Hijri year from the date of enforcement of the law referred to in item (First) of this decree, to notarize the transaction and provide the Zakat, Tax, and Customs Authority with proof thereof. This period may be extended by a decision of the Council of Ministers based on a proposal from the Chairman of the Board of Directors of the Zakat, Tax, and Customs Authority. The real estate transaction in this case shall be exempt from the Real Estate Transactions Tax, provided that the property subject to the transaction is recorded in the company’s assets before the Real Estate Transactions Tax came into effect, and the transactor submits audited financial statements or a certified certificate -from a licensed legal accountant- proving the inclusion of the property within the company’s assets before the Real Estate Transactions Tax came into effect and until the date of the transaction.
Fifth: Without prejudice to the provisions of the law -referred to in item (First) of this decree- the following shall be exempt from the Real Estate Transactions Tax:
1- Real estate transactions executed pursuant to lease-to-own contracts and financial lease contracts concluded before the effective date of the Real Estate Transactions Tax on 14/2/1442 AH.
2- Real estate transactions subject to Value Added Tax before notarization, in case notarization occurs after the provisions of the Real Estate Transactions Tax Law come into effect.
Sixth: Confirmation that real estate supplies subject to the Real Estate Transactions Tax are exempt from Value Added Tax.
Seventh: His Highness the Prime Minister, the Ministers, and the heads of the relevant independent agencies -each within their jurisdiction- shall implement this decree.
Salman bin Abdulaziz Al Saud
Council of Ministers Decision No. (239) dated 14/03/1446 AH
The Council of Ministers
After reviewing the correspondence received from the Royal Court No. 1758 dated 8/1/1446 AH, regarding the draft Real Estate Transactions Tax Law.
After reviewing the aforementioned draft law.
After reviewing Royal Order No. (A/84) dated 14/2/1442 AH.
After reviewingthe Income Tax Law, issued by Royal Decree No. (M/1) dated 15/1/1425 AH.
After reviewingthe Value Added Tax Law, issued by Royal Decree No. (M/113) dated 2/11/1438 AH.
After reviewing Process No. (502) dated 21/12/1443 AH, memoranda No. (194) dated 13/1/1444 AH, No. (355) dated 8/2/1444 AH, No. (2262) dated 24/7/1444 AH, No. (1427) dated 25/4/1445 AH, No. (2682) dated 27/7/1445 AH, No. (4186) dated 5/12/1445 AH, No. (504) dated 9/2/1446 AH, prepared at the Bureau of Experts at the Council of Ministers.
After reviewing the recommendation of the Council of Economic and Development Affairs No. (18-10/45/T) dated 19/8/1445 AH.
After considering Shura Council Decision No. (460/43) dated 3/1/1446 AH.
After reviewing the recommendation of the General Committee of the Council of Ministers No. (2123) dated 30/2/1446 AH.
It is decided as follows:
First: Approval of the Real Estate Transactions Tax Law, in the attached form.
Second: The competent judicial authority referred to in Article (Seventeen) of the law -mentioned in item (First) of this decision- shall be the primary and appellate committees stipulated in theIncome Tax Law, issued by Royal Decree No. (M/1) dated 15/1/1425 AH.
Third: The Zakat, Tax, and Customs Authority shall apply the provisions stipulated in Articles: (Seventy-Three, Seventy-Four, and Seventy-Five) of theIncome Tax Law -issued by Royal Decree No. (M/1) dated 15/1/1425 AH- to the tax dues of the Authority in accordance with the provisions of the law referred to in item (First) of this decision.
Fourth:
1- Stakeholders who have conducted any undocumented real estate transaction before the effective date of the Real Estate Transactions Tax on 14/2/1442 AH shall be granted a grace period of (one) Hijri year from the date of the law’s enforcement -mentioned in item (First) of this decision- to rectify their status and notarize the real estate transactions they conducted in accordance with the relevant legal provisions, provided that the date of the real estate transaction is proven before the competent authority. The Minister of Justice and the Chairman of the Board of Directors of the Zakat, Tax, and Customs Authority shall agree on the regulations for implementing this paragraph and shall submit what requires action in this regard.
The grace period referred to in this paragraph may be extended by a decision of the Council of Ministers based on a proposal from the Chairman of the Board of Directors of the Zakat, Tax, and Customs Authority.
2- Any partner in a company who has conducted a real estate transaction -represented by transferring the property in the name of the company without notarization- shall be granted a grace period of (one) Hijri year from the date of enforcement of the law referred to in item (First) of this decision, to notarize the transaction and provide the Zakat, Tax, and Customs Authority with proof thereof. This period may be extended by a decision of the Council of Ministers based on a proposal from the Chairman of the Board of Directors of the Zakat, Tax, and Customs Authority. The real estate transaction in this case shall be exempt from the Real Estate Transactions Tax, provided that the property subject to the transaction is recorded in the company’s assets before the Real Estate Transactions Tax came into effect, and the transactor submits audited financial statements or a certified certificate -from a licensed legal accountant- proving the inclusion of the property within the company’s assets before the Real Estate Transactions Tax came into effect and until the date of the transaction.
Fifth: Without prejudice to the provisions of the law -referred to in item (First) of this decision- the following shall be exempt from the Real Estate Transactions Tax:
1- Real estate transactions executed pursuant to lease-to-own contracts and financial lease contracts concluded before the effective date of the Real Estate Transactions Tax on 14/2/1442 AH.
2- Real estate transactions subject to Value Added Tax before notarization, in case notarization occurs after the provisions of the Real Estate Transactions Tax Law come into effect.
Sixth: Confirmation that real estate supplies subject to the Real Estate Transactions Tax are exempt from Value Added Tax.
A draft Royal Decree has been prepared accordingly, its text attached hereto.
Seventh: The Zakat, Tax, and Customs Authority shall, after (three) years from the enforcement of the law -referred to in item (First) of this decision-, review the mechanism for calculating the Real Estate Transactions Tax, including considering the appropriateness of calculating it based on brackets or categories according to the use of the property (residential, commercial, agricultural, etc.) and its location, and shall report on the outcomes in this regard.
Prime Minister
Real Estate Transactions Tax Law and its Executive Regulation
Article 1
For the purposes of implementing this Law, the following words and phrases shall have the meanings assigned thereto, unless the context requires otherwise:
Law: Real Estate Transaction Tax Law.
Regulations: Implementing Regulations of the Law.
Authority: Zakat, Tax, and Customs Authority.
Board: Board of Directors of the Authority.
Governor: Governor of the Authority.
Tax: An amount imposed on a real estate transaction under the provisions of this Law.
The Kingdom: The territory of the Kingdom of Saudi Arabia, which includes the area outside the territorial waters, where the Kingdom exercises on its waters, seabed, sub-soil, and natural resources its sovereignty and jurisdictional rights pursuant to its law and international law.
Real Estate: Immovable property inside the Kingdom.
Person: Any natural person, public or private legal person, or any other entity entitled by law to conduct real estate transactions.
Real Estate Transaction: Any disposition that transfers the ownership of a real estate or permanently transfers its usufruct, whether directly or indirectly, or transfers its usufruct for a period of more than 50 years.
Real Estate Company: Any company, fund, or entity which, regardless of the purpose of its establishment, directly or indirectly owns real estate inside the Kingdom to generate revenues through sale or lease, provided that the fair market value of said real estate exceeds a certain percentage of the total fair market value of its assets, as specified by the Regulations; however, such percentage may not be less than 50% of the value of such assets.
Assignor: Any person who conducts a real estate transaction, whether for his own benefit or on behalf of another person.
Assignee: Any person to whom the rights associated with the real estate subject of the transaction are transferred in whole or in part
Fair Market Value: Financial consideration against which a real estate is traded in an open market between two independent parties in relation to a real estate transaction that is similar or close to the approved real estate indexes, as specified by the Regulations.
Notarization: Procedures for establishing a real estate transaction in accordance with relevant statutory provisions.
Article 2
1. A 5% tax shall be imposed on any real estate transaction, regardless of the condition, configuration, or use of the real estate at the time of the transaction, whether the transaction includes the whole real estate or part thereof; whether it is a subdivided or common property; whether it is constructed, under construction, off-plan, or otherwise; and whether it is notarized or not.
2. The tax shall be calculated based on the total value of the real estate transaction agreed upon between the assignor and the assignee, provided that the value of the transaction, on the date of conclusion thereof, is within the fair market value. For the purposes of calculating the tax, the value of the real estate transaction shall not include the term cost in cases where financing is obtained from licensed entities.
3. A tax on a real estate transaction shall be imposed only once if the transaction involves the same parties, the same real estate, and the same value.
The Regulations shall specify the provisions and controls necessary for the application of this Article, including matters related to the real estate company.
Article 3
Article 4
1. The tax shall be due on the date of the real estate transaction. Such date shall, by law, be the notarization date of the transaction.
2. The Regulations shall specify the provisions related to determining the date of the real estate transaction if the transaction is not notarized.
Article 5
1. The tax shall be paid to the Authority on the date of the real estate transaction and may be paid prior to such date.
2. Notwithstanding paragraph (1) of this Article, the tax may be paid after the date of the real estate transaction in the cases specified by the Regulations.
Article 6
No person involved in a real estate transaction may carry out any procedure or conclude any agreement that results in fictitious or concealed transaction leading to non-payment of the actual tax due. For the purposes of application of the provisions of this Law, the tax shall be calculated and collected on the basis of the real, not the fictitious or concealed, transaction.
Article 7
1. The assignor shall be responsible for paying the tax due to the Authority according to applicable procedures and at the times specified by the Regulations, without prejudice to the provisions of Article 5 of this Law.
2. The assignee shall, jointly with the assignor, be responsible for paying the tax due in cases of nonpayment where the Authority establishes that the assignee is responsible for such non-payment.
3. For the purposes of application of the provisions of this Article, the assignor shall mean any person for whose benefit a real estate transaction is conducted.
Article 8
1. The Authority may, within a period not exceeding three years from the date of the real estate transaction, verify the disclosed value of the real estate transaction. The Authority shall recalculate the tax due in cases where such value is established to be less than the fair market value, including cases of tax evasion, as specified in the Regulations.
2. For the purposes of calculating the tax due, the Authority shall, within a period not exceeding three years from the date of the real estate transaction, assess the value of the real estate transaction disclosed to the Authority the value of which is unspecified.
3. The Authority shall calculate the tax due for a real estate transaction that is not notarized or not disclosed thereto.
4. The Authority shall demand payment of the tax due within a period not exceeding three years from the date of the real estate transaction or from the date on which the Authority becomes aware of an unnotarized or undisclosed real estate transaction.
5. The Authority may seek the assistance of an accredited appraiser to assess the fair market value of the real estate transaction and to establish the unspecified value of the real estate transaction.
6. The periods provided for in this Article shall not affect the Authority’s right to demand payment of the tax due in the case of failure to adhere to the time limits specified in the Regulations for tax-exempt real estate transactions, in accordance with Article 3 of this Law.
The Regulations shall specify the provisions and controls necessary for the application of this Article.
Article 9
1. Overpaid tax, tax paid in error, or tax paid for a real estate transaction that is not completed shall be refunded.
2. Tax paid for a real estate transaction that is canceled shall be refunded, provided that all the conditions specified in Article 3(A)(21) of this Law are satisfied.
The Regulations shall specify the relevant procedures, controls, and periods.