Circular on RETT implications for BOOT contracts

What you need to know  

The Zakat, Tax, and Customs Authority (ZATCA) has issued a Real Estate Transaction Tax (RETT) circular to clarify the RETT treatment on Build, Own, Operate, Transfer (BOOT) contracts.

Key highlights

1. Transaction date: In line with Article 4 of the RETT Implementing Regulations, ZATCA has clarified that the transaction date for BOOT contracts shall normally be at the end of the contract when the transfer of ownership or actual possession to the transferee takes place.
2. Applicable exemptions: ZATCA has clarified that if the transfer of real estate assets under a BOOT contract falls under any of the exemption scenarios as per the RETT Implementing Regulations, then such exemptions shall be applicable. Specifically, ZATCA has addressed the RETT exemptions in case of transfer to a government body or where the real estate is contributed as an in-kind contribution by the project company.
3. Valuation: ZATCA has clarified that RETT is determined based on the fair market value of the real estate at the time when ownership or actual possession is transferred, not at the time of signing the contract.
4. Movable assets: ZATCA has clarified that the transfer of machinery, equipment, and fixtures that form part of a BOOT project but do not fall under the definition of real estate are not subject to RETT.

Deloitte’s view 

The issuance of the circular will be welcomed by the industry as it provides some much-needed certainty on the RETT treatment of BOOT contracts. In our view, the circular effectively resolves many ambiguities regarding when RETT is payable with respect to the transaction date and the valuation of such assets.

It remains to be determined whether these clarifications will be applied retrospectively. This could be a potential opportunity to obtain a refund for taxpayers who have paid the RETT based on an earlier date and a higher valuation.

In addition to the above, the RETT Implementing Regulations for the new RETT law are expected to be published in the near future; it will be interesting to see whether these clarifications are embedded in these regulations.