The comprehensive guide to the real estate disposal tax Law

The comprehensive guide to the real estate disposal tax Law

The real estate transaction tax has been in effect since 2022, as it was an executive regulation regulating the tax entitlement process. At the end of 2024, the new real estate transaction tax system was issued to contribute to the development of the real estate sector and encourage private sector investors and real estate developers to invest in this sector by exempting many real estate transactions from tax. 

In this article, we will learn about the real estate transaction tax, types of real estate transactions, real estate transactions subject to tax, those obligated to pay the tax, the mechanism for calculating the tax and when it is due, cases excluded from paying the tax, the real estate transaction tax service, the request to register the real estate transaction, and the method of recovering the residential tax. 

What is the real estate transaction tax? 

Real estate transaction tax is the amount imposed on all real estate transactions whose ownership is transferred, such as sales and gifts, or whose benefit is owned, such as financial leases or usufruct contracts. 

The comprehensive guide to the real estate disposal tax Law

What are the types of real estate transactions for individuals? 

• Sale 
• The will
• Giveaway and waiver 
• barter or exchange 
• Financial leasing
• Leasing ending with ownership
• Long-term usufruct contracts of more than 50 years.

What real estate transactions are subject to real estate disposal tax?

Real estate disposal tax is imposed on all real estate, regardless of the condition of the property, including the land and what was constructed and built on it, and whether the real estate disposal includes the entire property, part of it, a residential unit, or others. 

Who is the person obligated to pay the real estate transaction tax?

• The disposing person (such as the property seller) is obligated to pay the tax value on the dates specified by the Authority.
•  If the disposer (buyer) causes non-payment of the due tax and is obligated to pay the due tax in solidarity with the disposer (seller). 

The comprehensive guide to the real estate disposal tax Law

How do you calculate the value of real estate transaction tax? 

How do you calculate the value of real estate transaction tax?

• A real estate disposal tax of (5%) is imposed on the total value of the real estate disposal agreed upon between the parties to the contract. 
• The tax is imposed only once on real estate disposal if all of the following conditions are met:
• Not to change or modify the parties to the contract. 
• The property must not be modified or changed and must be in the same condition.
• Not changing or modifying the value of the property. 
• Late payment fine: A fine shall be imposed for late payment of tax at a rate of (2%) for each month of delay. 
• Limitation period: The Zakat, Tax and Customs Authority verifies the value of real estate transactions for a period not exceeding 3 years. 

When is the real estate transaction tax due?

• The tax is due on the date of real estate disposal, for example, if the sale is made on 10/10/1446, the tax is due on that same day. 
• The system allows the tax amount due to be paid before the date of real estate disposal or on the same day. 
• The date of real estate disposition shall be the date of documentation of the real estate disposition. 

What are the cases excluded from real estate disposal tax?

The following cases are completely exempt from tax:

• Disposal of real estate when distributing the estate among those entitled to it.
• Disposing of the property without compensation to a private, public, or licensed charitable organization.
• Disposal of real estate by a government agency, public legal entity, or public benefit entities.
• Disposal of real estate by a government agency acting as a public authority. 
• Disposal of the property in cases of expropriation for the public interest or temporary seizure of the property.
• Disposal of real estate such as a notarized gift between spouses and relatives to the third degree.
• Disposing of real estate in implementation of a documented legal will.
• Disposal of real estate in cases of public offering, trading of listed securities, and trading of investment fund units.
• Disposal of temporary property between an investment fund and a custodian or between custodians in accordance with the financial market system. 
• Presenting the property as an in-kind share in the capital of a company established in the Kingdom. 
• Disposal of real estate in which one of the parties is a foreign government, international organization, diplomatic or military body or mission accredited to the Kingdom.
• Real estate disposition that is provided as an in-kind subscription to the capital of a real estate investment fund.
• Disposing of temporary property by using it as security for financing or credit. 
• Disposing of the property in implementation of a forced sale order issued by the competent court. 
• Real estate disposal resulting from mergers and acquisitions between legal persons.
• Real estate disposal by a natural person of a company or investment fund who owns all of the company’s shares, stocks, or fund units, directly or indirectly. 
• Real estate transaction between two companies, one of which owns all the shares and stakes of the other company, directly or indirectly. 
• Real estate disposal by individuals towards a real estate developer licensed to engage in off-plan sales and leasing activities. 
• Disposing of real estate without compensation to a real estate company or fund, and all shares and stocks of the company or units of the fund are owned directly or indirectly by a public or private endowment. 
• Restoring the property to its previous owner due to the cancellation of the real estate disposition notarized by the notary public or notarized by mutual consent between the parties.

Real Estate Tax Service

The Zakat, Tax and Customs Authority has made it possible to register real estate transactions through the Real Estate Transactions Portal before the process of emptying the property and documenting the contract in order to determine the extent to which real estate transactions are subject to or exempt from real estate transactions tax. 

Request to register a real estate transaction

Real estate disposal is registered through the Zakat, Tax and Customs Authority website with the following steps:

• Access the real estate transactions portal from the Authority’s website. 
• Log in through national access with the administrator’s account (such as the seller).
• Select a new real estate registration application.
• Determine the nature of the applicant and the documentation process.
• Enter property data such as deed number and property type. 
• Determine the condition of the property if it is taxable or exempt from payment. 
• Enter the value of the real estate disposition.
• Pay the tax amount due through approved payment channels. 

Residential tax refund

The Real Estate Disposal Portal allows citizens to benefit from an exemption from the real estate disposal tax on the first residence, provided that they obtain a housing tax exemption certificate from the Ministry of Municipality, Rural Affairs and Housing, where the state bears the responsibility of paying the tax on the first residence in the amount not exceeding one million riyals in accordance with the terms and conditions set by the Ministry. 

How can I benefit from the housing tax exemption for my first home?

The buyer must issue a certificate of exemption from tax on the first residence from the Ministry of Municipality, Rural Affairs and Housing before registering the real estate transaction on the real estate transaction portal by following the following steps:

• Access the real estate transactions portal from the Zakat, Tax and Customs Authority website.
• Log in via national access.
• Choose the type of property (residential).
• Choosing the nature of the first residence (villa-apartment-floor).
• Enter the buyer’s identity to ensure that he has obtained a housing tax exemption certificate.
• Determine the date of disposal of the property and the value of the property. 
• Submit the application.

The comprehensive guide to the real estate disposal tax Law

Real estate lawyer from the office of lawyer Abdul Majeed Al Rashid

With the entry into force of the new real estate transactions system, hiring a real estate lawyer is an important requirement to know which real estate transactions are subject to tax, how they are calculated, and which real estate transactions are exempt from tax. 

In addition, a real estate lawyer from the office of Lawyer Abdul Majeed Al Rashid can replace the client in reviewing real estate deals, concluding contracts, ensuring their approval of the system, and taking care of the client’s interest.