Corporate Real Estate: When Is It Exempt from Real Estate Transaction Tax?
In Saudi Arabia’s dynamic business landscape, real estate is one of the most valuable assets founders can leverage. When establishing a new company or increasing the capital of an existing one, founders can offer real estate as an in-kind contribution toward the company’s capital.
This raises an important question:
How can you contribute real estate to your company without paying the 5% Real Estate Transaction Tax?
That’s where the Saudi Companies Law and the Real Estate Transaction Tax Law come together — offering a powerful legal exemption. In this article, Al-Salamah Law Firm explains how you can legally contribute property as part of your company’s capital and avoid paying RETT entirely.
What’s the Connection Between In-Kind Contributions and Tax Exemption?
An in-kind contribution is a strategic gateway for transforming your real estate assets into growth capital — allowing you to establish or expand a company in Saudi Arabia with a full tax exemption on the real estate.
What Is an In-Kind Contribution?
Article 13 of the Saudi Companies Law states:
“A partner’s or shareholder’s contribution may be in cash, in kind, or a combination of both.”
That means you can contribute physical assets — such as land, buildings, or commercial complexes — as capital. These in-kind contributions are appraised at their fair market value and become an integral part of the company’s capital, just like cash.
What Is the Real Estate Transaction Tax (RETT)?
Under Article 1 of the RETT Law, a real estate transaction is defined as:
“Any transfer of real estate ownership or long-term rights to benefit from it (over 50 years), whether directly or indirectly.”
The RETT is a 5% tax on any qualifying real estate transaction, regardless of the condition or use of the property, whether the entire property or a portion, and whether it’s completed, under development, or on a plan — with or without official documentation.
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Are Corporate Real Estate Transactions Tax-Exempt?
Normally, transferring real estate into company ownership would trigger a 5% tax. However, Article 3, Clause 11 of the RETT Law provides a key exemption:
“The following real estate transactions shall be fully exempt from tax:
Real estate contributed as an in-kind share in the capital of a company established in the Kingdom, provided that the corresponding shares are not disposed of for a period not exceeding five years, and the company maintains audited financial statements by an external auditor throughout that period.”
So yes — when real estate is contributed as an in-kind share to a Saudi-registered company, the transaction is fully exempt from RETT. But this exemption is conditional — designed to prevent abuse and ensure serious investment.
What Are the Conditions for RETT Exemption?
To benefit from the exemption, two main requirements must be met:
1. Lock-in Period for Shares
You cannot sell or transfer the shares or equity you received in exchange for the property for five years.
This condition ensures the transaction is a genuine, long-term investment — not a workaround to avoid tax.
2. Financial Transparency
The company must maintain audited financial statements by a certified external auditor for the full five-year period.
This ensures the company is a legitimate, operational entity, meeting governance and transparency standards.
Practical Example:
Let’s say Faisal owns a commercial plot valued at 5 million SAR. He wants to co-found a tech company with Abdulaziz, who’s contributing 6 million SAR in cash.
Traditional route (with tax):
If Faisal sells the land to the company, he would owe 250,000 SAR in RETT (5% of 5 million SAR), reducing his net capital.
Smarter route (with exemption):
Faisal contributes the land as an in-kind share. The land is registered as a company asset at 5 million SAR, and Faisal receives 50% equity — with zero tax paid. His only obligations:
- Not to sell his shares for five years
- Ensure the company keeps audited accounts during that time.
The RETT exemption for in-kind real estate contributions isn’t just a legal loophole — it’s a powerful financial planning tool for investors and business founders in Saudi Arabia. It allows you to unlock the value of your real estate, fuel your company’s growth, preserve liquidity, and avoid upfront tax burdens.
At Al-Salamah Law Firm, we specialize in tax, corporate, and real estate law. Our expert team understands how to connect the dots between different regulations and apply them correctly — ensuring our clients benefit fully and legally from every opportunity.
Whether you’re founding a company, planning a capital restructure, or exploring tax strategies, we’re here to guide you every step of the way.
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