KSA: Key Amendments to RETT Regulations

Article 1 introduces several new definitions that provide clarity in the application of the Regulations. These new definitions include: 

• Merger – Refers to the joining of one or more existing legal persons to another, or the combination of multiple existing legal persons to create a new entity, as regulated by merger operation provisions in KSA.
• Acquisition – Involves the process of exchanging shares (including securities) resulting in the acquisition of all shares of a real estate company, provided both parties are legal persons.
• Related Transactions – Defined as multiple transfers of shares in a real estate company, executed by one or more persons. These transactions are considered related when they form a single agreement, a series of linked transactions, or involve coordination among the persons disposing of the shares.The definitions related to mergers and acquisitions are linked to the new exemptions covering such transactions.

The definition of related transactions corresponds to limits on certain statutory reliefs, beyond which a RETT liability may accrue.

Article 2 stipulates that a 5% tax will be imposed on real estate transactions, encompassing all forms and conditions of the real estate. 

Any movable property in a real estate property intended for the permanent use or exploitation of the real estate, even if it is not permanently attached to it, is considered to be real estate. 

Any original and subsidiary permits, and rights in rem that are closely related to the property should be included within the transaction value.

The tax calculation methodologies have been outlined for various scenarios including transactions involving share transfers of real estate companies, usufructs exceeding fifty (50) years, and BOOT projects. 

The test to determine whether a company qualifies as a real estate company applies at the time of share transfer or any time within 365 days prior to the share transfer date. 

Article 2 introduces a de-minimis threshold of 30% for the transfer of shares in real estate companies. The transfer of shares will be subject to RETT when a person or group of persons sell 30% or more of the shares in a real estate company within a three-year period, starting from or after the date they first hold 30% or more of the shares in that company. The transfer of less than 30% shares of a real estate company is not considered to be a ‘real estate transaction’.

A capital increase through the issue of new shares in a real estate company is not classified as a real estate transaction under certain conditions:

• Existing partners receive all the new shares from a capital increase while preserving their previous ownership percentages.
• New partners acquire shares from the increase, provided current partners hold onto their existing shares for at least five years from the date of the capital increase.

Article 3 outlines the RETT exemptions and the detailed criteria for various scenarios, adding clarity to areas not explicitly addressed in the previous iteration of the regulations. 

This includes new exemptions related to publicly offered securities of real estate companies, unlisted investment funds, mergers and acquisitions, compulsory sale orders, and a more comprehensive standalone exemption for charities.

New exemptions include:

        1- Article 3(A)(9) provides the following
            exemptions: 

• The subscription of securities in a real estate company's public offering under the Capital Market Law provisions.
• The trading of securities of real estate companies listed on a licensed financial market in KSA.
• Joint stock companies purchasing their own shares on a licensed financial market, adhering to local regulations.
• Trades of unlisted units in investment funds within the Kingdom, excluding scenarios involving a controlling interest (≥50%).

       2- Article 3(A)(16) provides the following
            exemptions: 

           Mergers: 

• Consideration limited to shares: Only shares in the merging entity, no cash/in-kind consideration.
• Proportional ownership rights: Ownership shares mirror pre-merger shares.
• Holding period requirement: Shares must be retained for at least five years unless part of another compliant merger.

           Acquisitions:

• Consideration limited to shares: Only shares in the acquiring entity, no cash/in-kind consideration.
• Five-year retention: Shares obtained must be held for at least five years.
• Single transaction requirement: Acquisition must occur in a single deal.

Article 4 clarifies the real estate transaction date where notarization has not occurred. This includes transactions granting usufruct rights exceeding fifty (50) years, BOOT projects, share transfers in a real estate companies, off-plan sales, and cases where previously exempt transaction become taxable as a result of unmet exemption requirements. 

Article 5 outlines provisions for scenarios where RETT may be paid after the transaction date. 

1. Transfer of shares in a real estate company, where payment of RETT is due within 30 days from the earlier of the date on which the shares are transferred, or the date on which an unconditional agreement is concluded to transfer those shares.
2. Transactions that become non-exempt due to failure in meeting exemption conditions, with payment required within 30 days of the exemption breach.

Tax payment for transactions not notarized must be made within 30 days of the transaction date. ZATCA may demand tax payment within 30 days if delaying the payment was the main intent. The new regulations also make clear that RETT is payable on or before the notarization date with regards to off plan sales. 

Article 6 explains that fictitious transactions occur when documents misrepresent or conceal real estate transactions, hiding their true nature. Tax is calculated based on the actual transaction, not those deemed to be fictitious.

Article 7 stipulates that the disposer is responsible for paying the tax due through specified bank accounts. If, however, the party receiving the property causes the tax not to be paid or acts to reduce the tax liability, they will be jointly liable for the tax. Both parties will be informed of the tax due and payment date, particularly if arrangements have been made to avoid timely payment.

Article 8 allows ZATCA to verify transaction values in cases involving related persons, non-cash consideration, unknown values, or suspected manipulation. Accredited Valuers/appraisers’ assessments may be submitted for verification. 

ZATCA may reassess values based on fair market value limits and demand payment of due taxes within three (3) years of the transaction disclosure or the point that ZATCA becomes aware of the transaction.

Article 9 states that tax refunds may be claimed for overpaid or mistaken payments, incomplete or canceled transactions. Requests must be submitted within 12 months from the RETT payment due date or 60 days post-final judicial decision. ZATCA must issue decisions on such requests within 30 days and may extend this period once. If no decision is issued by ZATCA within the relevant timeframes, the refund request is treated as rejected. Approved refunds are processed, but deductions for other unpaid taxes or fines may apply.

Article 10 details confidentiality and disclosure provisions for ZATCA's employees and affiliates.

Information obtained in their official capacity may be disclosed under specific conditions such as judicial orders, necessity for duties, or agreements with foreign tax authorities. Maintaining confidentiality is mandatory, and violations are subject to penalties.

Article 11 requires real estate transactions to be registered using ZATCA’s electronic portal, including detailed transaction information. Corrections to transaction data must be submitted within 30 days of discovering inaccuracies. Cooperation with ZATCA is required for transaction examination, which may include inspecting records and premises under certain conditions. Notifications of decisions are sent electronically, and specific documents and records must be maintained for five (5) years.

Article 12 states that ZATCA issues guidelines, tax circulars, and explanatory decisions to clarify and promote compliance. These documents apply from their issuance date and can be relied upon by taxpayers unless specific facts or criteria differ. 

The article makes clear that such guidance will not have retroactive effect from the dates of issuance. They aim to clarify the application of the Law to specific transactions but cannot grant exemptions or privileges beyond legal provisions.

Article 13 outlines that objections and appeals follow procedures set by the Zakat, Tax, and Customs Committees. If there is suspicion that an appellant will not pay the due tax, ZATCA may require a cash or bank guarantee up to the unpaid tax amount and associated fines.

Article 14 states that for tax due before the Law's effective date, ZATCA may verify transaction values within three (3) years from the effective date of the Law to ensure they reflect fair market value and demand unpaid tax. Fines for unpaid taxes before the Law’s effective date include 2% monthly fines from after the Law’s effective date, capped at 50% of the unpaid amount. 

The Article also states how RETT refund requests are dealt with over the transitional period, with a requirement for refund requests to be submitted within specified periods.

The RETT Regulations will be published on the Official Gazette and will take effect from the RETT Law's effective date (i.e., 10 April 2025).