Previously, a value-added tax applied to real estate at a rate of 15% of the property’s value, be it land, a house, or other real estate. In Saudi Arabia, a royal decree imposed the real estate transaction tax on the seller instead of the buyer, resulting in a significantly lower rate than the value-added tax. What is the real estate transaction tax, and how is the property registered in it? This is what we explain in our article, mentioning the cases in which the property becomes subject to tax as well as the cases in which it is exempted from it. We also specify when the property must be registered with the Zakat and Income Authority.
What is the real estate transaction tax?
In 1442, a royal decree imposed a tax on real estate in Safar, prohibiting the collection of value-added tax fees and substituting the real estate transaction tax, which charged 15% of the property price. The person conducting any sales transactions on a property is now obligated to pay 5% of the total value of the property when he carries out any real estate transaction, such as selling the property to others, bequeathing it, or renting it, whether this lease ends in ownership or not, in addition to usufruct contracts whose duration exceeds 50 years.
It is important that the value of the tax be paid before or during the process of registering sales contracts or transferring ownership. It should also be noted that this tax includes the land on which the property was built and everything that was constructed in the area of the property. The value-added tax has been replaced with a real estate transaction tax with the aim of supporting citizens and improving their standard of living, through the state bearing an amount of one million Saudi riyals from the value of the first property purchased by the citizen, on the condition that the value of the property to be purchased exceeds one million riyals.
How to Register a Real Estate Transaction
It is necessary for the process of registering real estate transactions to take place during the completion of the process of transferring ownership and documenting contracts, and this can be done electronically through the real estate transactions portal by following the following steps:
- Click the link here to access the website.
- Choose to register real estate transactions.
- Choose “Individuals Account,” then select your account type, whether you are a Saudi or Gulf citizen, and register your ID number or residence number to complete login. If you are not registered, create an account for yourself.
- You can also log in through your account on the Nafath platform by logging in with your activated account and then waiting for verification to accept your access to the account.
- Choose “Register a Property” and choose either administrator, agent, or other.
- Determine the path through which you will document the real estate transaction, depending on the type and condition of the property.
- Choose a transaction type and enter property information.
- The seller’s data is then filled in, filled out accurately, and then moved to the buyer’s data.
- Indicate the date of the property’s disposal. The registration process should not take longer than the disposal date. In these boxes, you record the property’s price so that you can calculate 5% of its value as tax.
- Payment is made electronically through the SADAD system if the required amount is more than 20 thousand riyals, and if it is less than 20 thousand riyals, payment is made through “Mada.”.
What is the difference between real estate transaction tax and value-added tax?
Real estate was first subject to value-added tax, but with the issuance of the royal decree approving the imposition of the real estate transaction tax, it was no longer subject to the value-added tax. What is the difference between the two taxes? We explain the difference to you in a simple manner below:
| Comparison | Value-added tax | Real estate transaction tax |
| The tax percentage is based on the property value. | 15% of the property’s value. | 5% rate. |
| The state bears the value of purchasing a citizen’s first home. | 850 thousand riyals. | One million Saudi riyals. |
| When a government agency purchases the property, | It was calculated at 15% of its value. | No tax is charged. |
| When purchasing real estate from a government entity for the purpose of trade or investment, | 15% charged | 5%. |
| When you sell the property to an international organization, | 15 %. | 5%. |
| When a joint stock company submits property as part of its capital, | 15 %. | Taxes do not apply. |
The difference between a real estate transaction tax and a real estate tax
Despite the great similarity between the names of the two types of taxes, the real estate transaction tax is completely different from the real estate tax, and the differences between them are evident as follows:
| Comparison | Real estate transaction tax | Real estate tax |
| Payment deadline | Once when documenting the sales contract. | Paid annually. |
| Determine, based on | According to the current property value. | According to the difference between the current value of the property and its value 5 years ago |
| On what basis is it imposed? | The seller of the property is entitled to his benefit. | On the property itself by virtue of its ownership. |
| Its value | 5% of the property value | It is often 10%, but its percentage changes depending on many factors and may reach 20% of the property value. |
| The entity that imposes it | It falls under the heading of income taxes and is imposed by the Zakat and Income Tax Authority. | Zakat and Income Authority. |
Real estate transactions to which the tax applies
All real estate that is made for sale or something similar is subject to the real estate disposition tax, regardless of its condition, including the land on which the disposed-of property is built, even if it is not documented. Among the real estate covered by the tax are the following:
- Property that is transferred to others.
- Cases of real estate gifting.
- Real estate whose ownership is transferred to others by will.
- The lease ends with the lessor owning the residential unit or property.
- Financial leasing.
- Properties that have a long-term usufruct contract (more than 50 years).
- Islamic Murabaha.
Exemptions from the real estate transaction tax
There are certain cases in which real estate is excluded from imposing real estate value, and these cases include the following:
Property left behind after the death of its owner
This property is not subject to the real estate transaction tax unless it is sold, but if it is legally divided between the heirs of the deceased without a sale, the real estate transaction tax will not be imposed on it, but it will still need to be registered with the Zakat and Income Authority.
Property whose ownership is transferred to a charitable organization
Any property or land that is delivered to a charitable organization or presented as an endowment for the purpose of using it as a type of civil or charitable endowment is not subject to the real estate disposal tax, with the obligation to register it with the Zakat and Income Authority, as is the practice.
Transferring ownership of the property to a public benefit entity
This means giving away the property to a government agency that is implementing projects that are beneficial to the community, whether the property buyer is a representative of a government agency or a legal person. He is exempt, even though it is not provided for free, and must be registered with the authority.
Including the property within the capital
If the property is presented as part of the capital of an institution or company, it will not become subject to tax, provided that it is not a joint company, and its registration will still be necessary despite this.
A property sold by a government entity
If the government entity does not sell the property as a form of trade or competition in the private sector, it is not subject to tax because, in this case, it is neither an investment nor a commercial activity, and therefore the sold property is registered without paying any fees for it.
A property sold before the issuance of the royal tax decree
If the ownership of the property was transferred according to a leasing contract or a financial lease agreement that was agreed upon before the tax was applied, then no tax is imposed on it, and all you have to do is register it with the Zakat and Income Authority only.
Temporary transfer of ownership
When a property is temporarily disposed of and traded among the custodians of one fund, the real estate transaction tax will not be required on it, but registration must be initiated nonetheless.
Expropriated real estate
Every property for which an eviction decision has been issued and is sold compulsorily is not subject to tax and is registered with the Zakat and Income Authority.
Property sold to a third party
If one of the parties to the real estate transaction is a foreign government, diplomatic mission, military body, or the like, it will not be subject to tax, provided that the entity to which the transaction is made is accredited in the Kingdom.
If the sale is canceled,
When the property is returned to the original owner after canceling the previous transaction, no tax will be imposed on it, provided that this is done by mutual consent between the parties.
Real estate provided to a real estate investment fund
When the property is presented as a contribution in kind to a real estate fund, it becomes exempt from the real estate disposition tax.
The property was sold through a real estate development agency.
Such as the case of disposing of a property from its owner to a real estate developer with the aim of selling or renting it.
Granting the property to a company
The property becomes exempt if its ownership is transferred from the original owner to a company in which the property owner owns all of its shares.
Properties that are gifted to relatives
Property donated to relatives up to the third degree may be exempted, knowing that the donor cannot gift the property to a relative to whom the original donor was unable to gift the property.
Real estate is subject to value-added tax.
The property on which value-added tax has been applied is exempt from the real estate transaction tax, provided that there has been no change in the terms of its contract.
Property left to a bequeathed person
When the owner of the property dies and bequeaths a person identified as the owner of the property after him in a will notarized after his death, the property is no longer subject to tax.
If the new owner is a company owned by a charitable entity,
When the property is granted to a company owned by a private or charitable entity, it must be registered with the Zakat and Income Authority, and no tax must be imposed on it.
Temporarily transferred property
The transferred property excludes its ownership for a specific period to a person other than the original owner, whether a natural or legal person, such as in the case of mortgaging a house in exchange for repaying loans to the bank.
Selling the property by an owner in the company
The property that is counted among the assets of a company and is subject to disposal by a partner in the organization is not subject to tax because it is then considered one of the company’s assets, with the requirement that it be registered as one of the company’s assets before the tax takes effect.
Selling the property from one company to another owned by the seller
The property is exempt from tax when it is traded between two companies, one of which owns the other, whether directly or not, or between a company and a fund, provided that the fund is owned by the company, or between two companies owned by the same person, provided that there is no change in the ownership share for the next 5 years.
Violations of non-payment of real estate transaction tax
If the seller disposes of his property and sells it without registering it with the Payment and Income Authority and paying the tax imposed on it at the rate of 5% of its total value, he exposes himself to the penalties resulting from his violation of the laws, and these penalties are:
Imposing the seller to pay the tax amount with an increase of 5% of its value for each month of delay, even if there is an incomplete month, is calculated at the same rate.
The violator faces a fine and must pay a fine of no less than 10,000 riyals and no more than the required tax if he does not submit reports with the required forms and information or delays doing so.
The seller is required to pay an amount of money equivalent to the value of the tax imposed on the property, and it may increase until it becomes three times that.
How to object to the real estate transaction tax
If you need to object to the real estate transaction tax imposed on you, you will need to follow the following steps:
- Go to the Zakat Authority website via the link here.
- Click on electronic services.
- From the services that appear in front of you, select tax services.
- Among the tax services, choose the real estate transaction tax, and in the search box, you can write the word “objection” to display the available objection services, and you can choose the one that suits the condition of your property.
- Fill in the information that is requested from you, then submit the objection request and wait for it to be decided.
How does the Qoyod system contribute to real estate taxes?
Whether you work in the real estate field or not, the Qoyod accounting system contributes greatly to organizing and recording your taxes. Especially the real estate transaction tax, as you can benefit from the system in the following ways:
- Easily calculate the amount of tax due and extract the prescribed 5%.
- Recording the payment due date and documenting the payment process when it is made through the SADAD service.
- You will not need to download the system to your devices, and this means that you will be able to use the system from any device easily and safely.
- You can create several accounts to organize your company’s accounting entries.
Conclusion
You can benefit from the Qoyod accounting system to pay the value of the real estate transaction tax that you are required to pay, and you can also benefit from all the services provided by the Qoyod system for free for 14 days, so register without the need for a credit card and let us know the result of your experience in the comments.
