Real Estate Transaction Tax in Saudi Arabia

Real estate transaction tax in Saudi Arabia, officially known as the Real Estate Transactions Tax, is a 5% tax imposed on transactions that transfer ownership of a property or its usufruct permanently or for a period exceeding 50 years, unless the transaction qualifies for a statutory exemption. It is calculated on the agreed transaction value, provided that this value is not less than the property's fair market value.

If a person sells a property worth one million riyals, the tax under normal circumstances is:

1,000,000 × 5% = 50,000 riyals

However, before applying this formula, you need to know: Is the transaction taxable in the first place? Does an exemption apply? What value will the Authority use? And who is responsible for payment?

Therefore, handling real estate transactions tax correctly begins with classifying the transaction before calculating the tax.

What Is Real Estate Transaction Tax?

Real estate transactions tax is a tax imposed when a real estate transaction transfers ownership of a property or its usufruct permanently, directly or indirectly, or transfers usufruct for a period exceeding 50 years.

The new Real Estate Transactions Tax Law entered into force in the Kingdom on April 10, 2025, replacing the previous regulations that had governed the tax since its introduction in October 2020.

The tax is not limited to residential properties; it may also cover transactions involving:

• Land.
• Villas.
• Apartments.
• Commercial buildings.
• Industrial properties.
• Agricultural land.
• Investment properties.
• Properties under construction.
• Off-plan properties.
• Divided or undivided portions of a property.

What Is the Real Estate Transaction Tax Rate?

The real estate transactions tax rate in Saudi Arabia is 5% of the value of the taxable real estate transaction.

There is no minimum property value for the tax to apply; a transaction is subject to 5% whenever it falls within the scope of the law and no exemption applies.

Example

A property was sold for:

800,000 riyals

Tax:

800,000 × 5% = 40,000 riyals

The official guide from the Zakat, Tax and Customs Authority confirms almost the same example for a property worth 800 thousand riyals, with tax payable of 40 thousand riyals.

How Is Real Estate Transaction Tax Calculated?

The basic formula:

Real estate transaction tax = Real estate transaction value × 5%

Or:

Tax = Property value × 0.05

Calculation Examples

However, it is not enough for the seller and buyer to enter just any value in the contract.

The law stipulates that the tax is calculated based on the total agreed transaction value when it is within the fair market value range. The Authority may verify the value and recalculate the tax if the declared value is found to be lower than the fair market value.

Who Bears Real Estate Transaction Tax: the Seller or the Buyer?

As a general rule under the law, the transferor, who is the seller in a typical sale, is responsible to the Zakat, Tax and Customs Authority for the tax and its payment.

The buyer may become jointly liable in certain cases, such as when it is established that they contributed to non-payment of the tax or its improper reduction.

A commercial agreement between the parties for the buyer to bear the tax amount does not necessarily change who is responsible to the Authority under the law.

Therefore, a distinction must be made between:

Who bears the cost under the contractual agreement

And:

Who has legal responsibility to the Authority

Discover: The Best Accounting System in Saudi Arabia

When Is Real Estate Transactions Tax Paid?

The tax is due on the date of the real estate transaction, and it may be paid before that date.

Title transfer or notarization is usually not completed until the transaction has been registered and the tax due has been paid, or until it has been verified that one of the statutory exemptions applies.

Therefore, the process usually follows this sequence:

Identify the transaction → Register it with the Zakat, Tax and Customs Authority → Determine tax liability or exemption → Issue the tax amount → Pay → Transfer title or notarize

How Is a Real Estate Transaction Registered?

Real estate transactions tax does not require periodic registration of the establishment in the manner customary for value added tax.

It is a tax linked to each real estate transaction, and the transaction is registered through the dedicated service provided by the Zakat, Tax and Customs Authority.

Details entered include:

• Property details.
• Transaction type.
• Transaction value.
• Details of the parties.
• Whether the transaction is taxable or exempt.

The procedures are then completed according to the outcome of the application.

Which Transactions Are Subject to Real Estate Transaction Tax?

The concept of a real estate transaction is not limited to a conventional sale.

The law covers any transaction that results in a transfer of ownership or usufruct according to the statutory definition.

Examples of transactions that may fall within the scope of the tax include:

• Sales.
• Barter or exchange.
• Certain forms of ownership transfer.
• Transfer of long-term usufruct rights.
• Certain indirect transactions involving real estate companies.

Therefore, we recommend relying not solely on the name of the contract, but on the actual effect of the transaction.

Which Cases Are Exempt from Real Estate Transactions Tax?

The law identifies a number of real estate transactions that are fully exempt, subject to the conditions of each case.

The most notable include:

• Division of an estate among heirs.
• Transfers without consideration to a public, private, or mixed endowment.
• Transfers without consideration from or to a licensed charitable association.
• Certain transactions involving public entities.
• Expropriation for the public interest.
• Documented gifts to a husband, wife, or relatives up to the third degree.
• Execution of a documented Sharia-compliant will.
• Certain transactions involving investment funds.
• Certain restructuring, merger, and acquisition transactions between legal persons.
• Certain transactions between companies or funds under common ownership, subject to statutory conditions.
• Specific cases involving the transfer of properties to a licensed real estate developer for off-plan sale projects.
• Returning a property to its previous owner after cancellation of the documented transaction, subject to the specified conditions and time limits.

A case being listed among the exemptions does not mean that the exemption automatically applies in all circumstances; some cases are subject to ownership conditions, time periods, or specific documents.

Therefore, the exemption conditions must be verified before carrying out the transaction.

Discover:Accounting Systems Approved by the Zakat and Income Authority

Is a First Home Exempt from Real Estate Transaction Tax?

There is a government mechanism through which the state bears real estate transactions tax on a citizen's first home within the prescribed limits and conditions.

The Authority's guidance explains that state coverage extends to a property value of one million riyals, with 5% tax applied to the portion exceeding this limit if the eligibility conditions are met.

Example

If a citizen eligible for support purchases their first home for:

1,200,000 riyals

And state coverage applies to the first million riyals, the remaining portion is:

1,200,000 - 1,000,000 = 200,000 riyals

Tax on the excess portion:

200,000 × 5% = 10,000 riyals

The official eligibility conditions and procedures must be met.

What Is the Difference Between Real Estate Transaction Tax and Value Added Tax?

The two taxes are often confused.

The decree concerning the Real Estate Transactions Tax Law confirmed that real estate supplies subject to real estate transactions tax are exempt from value added tax in accordance with the relevant provisions.

You can read the guide to Value Added Tax in Saudi Arabia to understand the differences between various tax obligations.

Does Real Estate Transaction Tax Have a Registration Threshold?

There is no mandatory registration threshold like that for value added tax.

It is a transaction-based tax, so each real estate transaction is registered separately, and all transactions are generally taxable unless a statutory exemption applies.

This means that a person selling a single property may need to register the transaction even if they do not conduct ongoing real estate activities.

How Do Real Estate Companies Record the Tax in Their Accounts?

For companies, developers, and entities with multiple real estate transactions, completing the tax procedure electronically is not enough; the transaction must also be traceable in the accounts.

We recommend that the accounting record include:

• Property value.
• Transaction date.
• Details of the other party.
• Tax amount.
• Proof of payment.
• Sale contract or notarization.
• Any exemption-related document.
• The transaction's effect on accounts and assets.

The accounting system from AamalSoft enables the management of journal entries, accounts, payments, and reports, helping the establishment maintain an organized financial record of transactions.

The smart reporting system also helps management monitor financial data and reports generated by the system.

Common Mistakes in Real Estate Transactions Tax

Mistakes we recommend avoiding include:

• Assuming that the tax applies only to sales.
• Always calculating the tax on a low price without considering fair market value.
• Believing that the buyer is legally responsible in all cases.
• Finalizing the agreement before checking exemption status.
• Confusing real estate transactions tax with VAT.
• Believing that there is a minimum threshold for tax liability.
• Treating every gift as exempt without reviewing the conditions.
• Failing to retain transaction documents.
• Failing to register the transaction before title transfer or notarization.
• Using outdated information from before the new law entered into force in April 2025.

Frequently Asked Questions About Real Estate Transaction Tax

What Is the Real Estate Transaction Tax Rate?

The real estate transactions tax rate in Saudi Arabia is 5% of the value of the taxable transaction, unless an exemption applies.

Who Pays Real Estate Transactions Tax?

As a general rule, the transferor, who is the seller in a typical sale, is responsible to the Authority for the tax, although there are cases in which the transferee may become jointly liable.

Is There a Minimum Threshold for Real Estate Transaction Tax?

There is no minimum transaction value for the tax to apply; the 5% tax applies to taxable transactions based on the value determined under the law.

Is Inheritance Subject to Real Estate Transactions Tax?

A real estate transaction resulting from the division of an estate is among the exempt cases under the Real Estate Transactions Tax Law.

Are Gifts Subject to Real Estate Transactions Tax?

Not all gifts are exempt, but the law provides an exemption for documented gifts to a husband, wife, or relatives up to the third degree, subject to statutory conditions.

When Is Real Estate Transactions Tax Paid?

It is paid on the date of the real estate transaction and may be paid beforehand. Notarization is usually not completed until payment or the existence of an exemption has been verified.

Conclusion

To understand real estate transaction tax correctly, follow this sequence:

Transaction type → Property value → Verify exemption → Fair market value → Calculate 5% → Register the transaction → Pay → Transfer title or notarize

The rate itself is simple:

Transaction value × 5%

However, true accuracy lies in determining whether the transaction is taxable, whether an exemption applies, and the value on which the tax should be calculated.

It should also be noted that the current Real Estate Transactions Tax Law entered into force on April 10, 2025, so the current law and its regulations should be relied upon when reviewing any new transaction.

Companies managing a large number of transactions, assets, and payments can use accounting and point-of-sale software to organize journal entries, accounts, documents, and financial reports, as well as explore AamalSoft solutions or request a trial to evaluate the system according to the nature of their business.