Definition of Real Estate Transaction Tax
The real estate transaction tax (RETT) is a 5% tax levied on any sale or transfer of property ownership — land, building, residential unit, or commercial unit. In Saudi Arabia, RETT replaced the 15% VAT on real estate to ease the burden on citizens.
Key Features of RETT
- Levied at 5% of the property value or the agreed sale price, whichever is higher
- Covers sale, purchase, gift, bequest, barter, lease-to-own contracts, and long-term usufruct contracts
- Borne by the seller (the transferor) unless the parties agree otherwise
- Settled before completing the title transfer at the notary public or accredited registrar
- Certain transactions are exempt, including estate distributions, gifts to first-degree relatives, and some government property transfers
- Filed and paid electronically through the ZATCA portal
Why RETT Matters for Decision-Making
Real estate investors and corporates must factor RETT into their cost-sensitivity analysis when deciding to buy or sell. It also affects the valuation of investment properties and the expected return on real estate deals — a five-percent-of-asset cost cannot be ignored in deal modeling.
Practical Example
A Saudi real estate developer sells a residential villa for SAR 2,000,000. RETT is calculated at 5% = SAR 100,000. The tax is paid electronically via the ZATCA portal before the title transfer is completed, and the amount is recorded in the developer’s books as a tax expense.
Saudi Context
The Royal Order introducing RETT at 5% paired the new tax with an exemption of property from the 15% VAT, deliberately lowering the effective tax cost of real estate transactions to support home ownership. ZATCA administers the tax: registration, payment, and exemption requests all run through its e-portal, and a tax receipt must be presented to the registrar to complete title transfer.