Real estate transaction tax
Are you about to make a real estate deal? Understanding the real estate transaction tax is crucial to avoiding material surprises, and in this article we will help you understand how this tax is calculated and the conditions for exemption from the real estate transaction tax and avoid possible errors.
Real estate disposal is defined as any legal procedure that results in the permanent transfer of ownership or usufruct of a property, whether the transfer is direct, indirect, or for a period exceeding 50 years. The following is an answer to the following question: What is the real estate disposal tax in Saudi Arabia?
The difference between real estate tax and real estate transaction tax in Saudi Arabia
Real estate tax is an annual tax imposed on the ownership of real estate, whether land or buildings, regardless of whether it is purchased or sold. This tax is imposed on the market value of the property, and it is not currently applied in the Kingdom of Saudi Arabia with this concept, and it may be similar in some aspects to zakat on real estate designated for trade if it reaches the quorum and there is a year “Hijri”.
As for the real estate transaction tax, as we mentioned earlier: it is imposed on any transaction in the property, whether it is a sale, purchase, or any form of transfer of ownership. It is paid once upon documentation of the transaction, and its percentage is calculated at an estimated 5% of the total value of the property.
How much is the real estate tax in Saudi Arabia?
According to the Real Estate Disposal Tax System and its Executive Regulations, which consists of 20 articles, the tax is the amount of money paid when buying or selling any property, whether it is land, a building, an apartment, or even part of a property.
Regardless of the type, size or price of the property, the tax imposed represents 5% of the transaction value whether you buy a new or old property, sell part of your property or if the property is still under construction.
This tax is calculated based on the price agreed upon by both the seller and buyer, provided that this price is close to the real price of the property in the market. If you finance the purchase of the property from the bank, the value of the loan is not included in the tax calculation. Once the transaction is completed and registered correctly in law, the tax is paid once and is not repeated.
Steps to ensure compliance with the real estate transaction tax
The following measures are recommended to ensure compliance with the provisions of the real estate transaction tax:
Determine the fair market value of the property subject to disposal, to accurately determine the tax base, and this depends on the evaluation criteria approved by the General Authority of Zakat, Tax and Customs.
Legal documentation of real estate transactions in the relevant official records and payment of the due tax within the specified regular deadlines, to avoid fines and penalties.
Careful review of the provisions of the Executive Regulations for Real Estate Disposal Tax, including tax rates and established exceptions, to ensure the correct calculation of the tax.
Hire a specialized legal advisor when needed to understand the legal and financial aspects related to real estate management and avoid any violations.
How to pay real estate transaction tax
You can pay the real estate transaction tax by submitting the tax return to the competent authorities, then paying the due amount through the approved electronic channels. The payment process must be completed before starting the procedures for documenting the real estate transaction with a notary or licensed notary, as paying the tax is a basic condition for completing the documentation process legally.
You can recover the real estate transaction tax if the deal is cancelled, provided that this is done before documenting it with a notary public. In this case, you can submit a refund request to the competent authorities, attaching all official documents proving the cancellation of the deal and the failure to complete the ownership transfer procedures.
How to register a property in the real estate transaction tax and registration conditions
A set of basic requirements and conditions must be met before starting the procedures for registering a property in the real estate disposal tax, which are as follows:
Provide detailed information about both the seller and buyer, including full names, addresses, phone numbers, and email addresses.
Attach documents proving ownership of the property and the validity of its legal disposition, such as: a copy of the title deed, or contracts related to the sale or transfer process.
Determine the type of real estate disposition to be registered, whether it is a sale, will, gift, or any other form of transfer of real estate ownership.
Determine the nature of the property to be registered, whether it is residential, commercial, land, or any other classification, with the aim of determining the taxes due.
Approval of the tax terms and conditions announced by the competent authority, in accordance with the applicable real estate transaction tax system and executive regulations.
As for how to register a property in the real estate transaction tax, it consists of the following steps:
Access the General Authority of Zakat and Income website.
Choose electronic services, then click on the real estate transaction tax service.
Click on “Property Registration Request”.
Choose the type of real estate disposition that applies to the property to be registered.
Fill in the required data based on the type of real estate transaction chosen.
Enter the verification code.
Read the terms and conditions.
consent
Don’t forget to verify the accuracy of the information you entered in the electronic form, which is a very important step to avoid any delays or problems in processing your order.
If the property is taxable in accordance with the rules and regulations, an electronic invoice will be issued containing the amount of tax due and methods of payment.
You must pay this tax to complete the registration process, and you will receive a message containing the application number, which serves as official confirmation that your application has been received, and you can use it to follow up on the status of the application later.
List of cases excluded from real estate transaction tax
In order to achieve justice and facilitate some transactions, the Real Estate Disposal Tax System has identified exceptional cases to which the tax does not apply, as follows:
Real estate resulting from the division or distribution of the estate.
Properties disposed of for charitable purposes, provided that the disposition itself is for the purposes of the endowment itself and not for administrative purposes.
Properties disposed of by government agencies or entities providing public benefit.
Real estate transactions carried out by government agencies in their capacity as a public authority if they carry out their public tasks and duties.
Real estate transactions in the event that ownership of a property is confiscated by the state for reasons related to the public interest.
Real estate transactions that constitute a real estate gift to first- or second-degree relatives, or if this property is included in a legal will.
When someone temporarily uses their property as collateral for a loan or financing.
Real estate transactions that took place before the entry into force of the system and regulations governing this tax.
Is real estate tax on the seller or buyer in Saudi Arabia?
There is a question that some may ask, which is: Is the real estate tax on the seller or buyer in Saudi Arabia? According to the country’s real estate transaction tax system, the seller or lessor pays this tax because he is the primary beneficiary of the sale, lease, or real estate transaction he will undertake.
Finally, would you like to hire a specialized real estate attorney? It is a crucial step that ensures the safe completion of real estate transaction tax procedures in the Kingdom of Saudi Arabia and simplifies legal details that may be complex for you and require a good understanding of the applicable rules and regulations.
A real estate attorney can offer you their scientific and professional expertise and help you evaluate a real estate transaction to determine whether it is subject to real estate transaction tax, accurately calculate its value, ensure the validity of the procedures followed, and prepare and submit the required documents to the relevant authorities. This significantly helps avoid any delays or potential legal problems.
The lawyer also provides you with specialized legal advice on cases exempt from real estate transaction tax and appropriate procedures in specific cases such as division of estate, gift or endowment, which helps you make appropriate decisions, save time, effort and money and successfully complete your real estate transactions in accordance with the approved law.
Contact Abdul Majeed Al Rashid Law Firm and Legal Consultations now, and obtain high-level legal services under the supervision of an elite group of lawyers specializing in real estate cases.
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