Since 4 October 2020, following a Royal Order and the Real Estate Transaction Tax Law and its Implementing Regulations, how does Saudi Arabia generally tax an ordinary sale of real estate, outside of specific exemptions?
- The sale is subject to standard-rate VAT at 15% in addition to a separate 5% Real Estate Transaction Tax, so total indirect tax on the transaction is 20%
- The sale remains subject to standard-rate VAT at 15% exactly as before October 2020, since the Real Estate Transaction Tax applies only to commercial property leasing, not to sales
- The sale is generally exempted from VAT and instead becomes subject to a separate Real Estate Transaction Tax of 5% on the transaction value
- The sale is zero-rated for VAT purposes and no other tax applies, mirroring the treatment of goods exported outside the GCC
Why C? And why not the others?
Correct answer: C. The sale is generally exempted from VAT and instead becomes subject to a separate Real Estate Transaction Tax of 5% on the transaction value
Following the Royal Order and the introduction of the Real Estate Transaction Tax Law with effect from 4 October 2020, an ordinary sale of real estate is generally exempted from VAT and instead becomes subject to a separate Real Estate Transaction Tax of 5% on the transaction value, replacing rather than adding to the prior VAT treatment for most sales. The option stacking both a 15% VAT charge and the 5% Real Estate Transaction Tax on the same sale is wrong because the reform's purpose was to substitute one tax for the other on ordinary sales, not to layer both taxes on the same transaction. The option claiming VAT still applies unchanged, with the new tax confined to commercial leasing, is wrong because it is ordinary sales, not leasing, that shifted to the new tax; certain leasing arrangements can remain within the VAT system. The option describing the sale as zero-rated is wrong because zero-rating and exemption are distinct VAT concepts with different input VAT recovery consequences, and the reform placed real estate sales into the exempt category, not the zero-rated one.
Source: Real Estate Transaction Tax Law and Implementing Regulations, effective 4 October 2020