Tax Alert: New 5 per cent tax on real estate transactions in Saudi Arabia.

As announced by Royal decree No. (A/84) dated 14/2/1442 H 2 October 2020, real estate transactions will attract a 5 per cent tax which has been effective from 4 October 2020.

Based on the Royal Decree and executive decisions which will be approved, real estate supply (sale) will be exempt from the current 15 per cent VAT, subsequently RETT at the rate of 5 per cent of the property value will now be imposed. The real estate transaction tax, RETT, will be applied to sales, will, financial leasing (ending in ownership) and long-term contracts of more than 50 years

The tax will be calculated on the value of the property and in accordance with the agreed value between the seller and the buyer, ensuring that the deal must not be agreed at less than the market value at the time of disposal. The payment is compulsory before or during the discharge by the seller.

Furthermore, additional changes made to further stimulate the real estate market include:

• Raising the amount borne by the state from the value of real estate transactions tax from 850,000 to one million riyals from the purchase price of the first home for Saudi citizens.
• Granting licensed real estate developers, the right to refund the VAT incurred on their goods and services (such as building materials, etc.) which are subject to VAT.

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