The amendments to the RETT Regulations largely reflect the proposed changes announced in the public consultation in June this year. The key amendments include:
- The scope of RETT exemption by natural personal has now been extended to include KSA investment funds subject to certain conditions.
- The RETT exemption on real estate transfers between companies within the group has been extended to include transfers of real estate between KSA companies and KSA investment funds subject to certain conditions.
- Enhancement of the ZATCA's tax administration by committing to the guidelines and rulings issued by them (i.e., legally binding effect on the authority).
The key message is that the RETT exemption net has been revised again. When a corporate group changes its structure in a corporate reconstruction or restructuring and transfers property in KSA between group companies, it may give rise to RETT implications in KSA. It is more important than ever to observe the latest exemption scope to identify opportunities and exposures during the initial planning so that appropriate tax implications are factored in the decision‑making stage.
Overview of the latest amendments
For completeness, below is an overview of the latest amendment to the RETT Regulations:
- Article 3(a)(16), under which the transfer of real estate by a natural person to a KSA company fully owned by that person, is exempt from RETT, has been extended to include the transfer of real estate by a natural person to an investment fund established in KSA.
In order for the exemption to apply, the fund must be fully owned directly or indirectly by the transferor, and there must be no change in the fund's ownership for a period of five years from the transfer date.
- Article 3(a)(17), under which the transfer of real estate between companies that are fully owned by the same person is exempt from RETT, was amended such that the exemption would apply to cases in which the disposal of real estate occurs between two companies established in KSA where one is fully owned by the other.
In addition, the exemption has also been extended to include real estate transfers between KSA companies and investment funds established in KSA fully owned by such companies and the real estate transfers between companies and investment funds established in KSA that are owned by the same persons. The exemption is contingent to the requirement that there should be no change to the ownership of the fund or company for a period of five years from the transfer date.
- A new Article 11 was added to address RETT rulings. The new Article 11 incorporates into the RETT Regulations reflects ZATCA's administration of giving binding affect to rulings and certain publications issues by ZATCA.
The new provision explains that ZATCA may issue rulings, guidelines, and circulars at its discretion. It also states that rulings, guidelines, and circulars are binding on ZATCA. Notably, the amendment makes clear that the binding content of rulings, guidelines, and circulars would not apply retroactively but rather covers periods from the date of the issuance of such material. However, ZATCA will not be bound by rulings that are based on facts that were omitted or misrepresented by the applicant or if the facts presented by the applicant differ from the actual transaction.
The amendments are effective as of the date of their publication in Umm Al Qura.
To speak with us in relation to any of the proposed changes to KSA VAT, or any tax matters or issues more generally, please contact one of the team members above.
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* Content prepared by Legal Advisors in association with Baker & McKenzie Limited.