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:
Few highlights of amnesty scheme:
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;
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:
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.