Treatment of VAT on Real Estate Transactions in Saudi Arabia

Applicability of VAT on Real Estate Transactions, in The Kingdom of Saudi Arabia – Part 2.

In the previous article dated 25 March 2020, we discussed extensively on the applicability of VAT on Real estate transactions i.e. Residential real estate and Commercial real estate in the Kingdom.

During these six months, considering the global economic situation and the stimulus package announced by Kingdom to support the private sectors, Kingdom announced number of fiscal measures to support the economy, especially in the newly introduced VAT,highlighted in brief: 

Amnesty scheme initiative, which was till 30 June 2020, extended to 30 September 2020 and now few of the schemes like waiver of penalties, stands extended till 31 December 2020. 

Few highlights of amnesty scheme:

Extension of VAT Returns filing dates (for monthly clients from February to May2020, and for quarterly filing clients for the 1st Quarter 2020);

Deferment of Excise Tax and VAT on Imports till 30 September 2020; and

Waiver of Penalties subject to fulfillment of conditions.

Increase of VAT rate from 5% to 15% w.e.f 01 July 2020 onwards;

Application of transitional provisions on the Contracts signed before 11 May 2020 (date of announcement of VAT increase to 15%);

Release of draft electronic invoicing regulations for the comments / opinions / suggestions from the Industry and tax experts, and the last date for submitting is 17 October 2020;

Issuance of Royal decree order (A84), wherein VAT @15% has been removed on the Sales of real estate and introducing a new tax called ‘Real Estate Transaction Tax’ @5% from 04 October 2020.

Considering the exemption of VAT on the sales of real estate transactions, few articles in the KSA VAT Implementing regulations has either been amended or repealed.

In this article we shall discuss in detail, point no. 5 of the above i.e. exemption of VAT on Real estate transactions and the introduction of RETT on Real estate disposal transactions.

As we know, VAT @5% was introduced in the Kingdom from 01 January 2018, which was later increased to 15% from 01 July 2020 onwards. 

The standard rate of 15% was applied to sales of all real estate, and was including;

Sales of a house, apartment or other residential real estate;

Sales of commercial real estate;

Transfer of ownership of bare or undeveloped land; and

Sale of partly completed construction works.

On 2nd October 2020, Royal decree no. A84 was published, announcing the exemption of VAT from 15% to 0% on the sales of Real estate and introducing a new tax on such supplies @5%  known as real estate transaction tax (‘RETT’), which came into effect from 04 October 2020.

Note that, the exemption from VAT on real estate and the application of RETT @5% shall apply on the transactions discussed above, including hire purchase agreements and the leasing of real estate under Islamic finance.

GAZT has released a detailed guide in Arabic on the application of the new tax and clarifies whether VAT shall apply on real estate transactions or RETT.

Types of Supply		VAT		RETT
		Previous	New
Sales of:	Real Estate	15%	Exempt	5%
Leases of	Residential real estate	Exempt	Exempt	Out of Scope
	Commercial real estate	15%	15%	Out of Scope
Sales of real estate	To a government body	15%	Exempt	Out of Scope
	By a government body as a public authority	Out of Scope	Exempt	Out of scope
	By a government body for commercial or investment purposes	15%	Exempt	5%
	To a diplomatic body or an approved international organization	15%	Exempt	Out of scope
Gifting real estate to	A husband, wife or relative to the second degree	Out of scope	Exempt	Out of scope
	Any other person	15%	Exempt	5%

*Matrix source – Keypoint Bahrain Tax Alert

Further, the royal decree has announced the following:

The government shall bear the Real estate transaction tax upto 1 Mn Saudi Riyals of the price of buying the first home for residential purposes by Saudi citizens.  Earlier, the limit was set at 850,000 SAR.

There shall be a mechanism in place for the refund of the Inputs VAT to licensed real estate developers, as approved by Ministries of Finance and Housing.

General authority of Zakat & Tax shall be responsible to monitor and collect the RETT.

GAZT shall prepare a draft regulation on RETT within 90 days.

This initiative shall boost the real estate sector and will push ahead the Kingdom’s Vision 2030 program.

Click here to read the 1st part of the article

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax.