Real Estate Transaction Tax for Foreign Buyers in Saudi Arabia: A Worked Example

How the Real Estate Transaction Tax lands on a foreign buyer, why who pays it is a negotiation, and a worked example of three ways to allocate it on one purchase.

The Real Estate Transaction Tax (RETT) applies to property disposals in Saudi Arabia, with a published headline rate of 5% of the disposal value since October 2020, when it replaced VAT on most real estate sales. Confirm the rate and any exemption for your specific transaction with ZATCA. For a foreign buyer, the important point is commercial: the contract decides which side bears the tax, and that choice can move your total cost by the full amount of the tax.

The situation

A non-resident investor has agreed a headline price for an apartment in a permitted zone. The seller's broker says the price is 'plus tax', while the seller's lawyer drafts the contract as 'tax to be borne as agreed'. The investor wants to see what each allocation means in cash before signing.

Assumptions (illustrative)

• Agreed headline price: SAR 1,200,000.
• Real Estate Transaction Tax at the published headline rate of 5%, assumed to apply without exemption.
• Assumed brokerage commission paid by the buyer: SAR 24,000 before VAT.
• VAT on the brokerage service at the published headline rate of 15%, to be confirmed with ZATCA.
• Seller's minimum acceptable net proceeds: SAR 1,150,000 after tax.

Step 1: Compute the tax on the headline price

SAR 1,200,000 multiplied by 5% equals SAR 60,000.

This is the amount at stake in the allocation clause. It is larger than most other acquisition costs combined, so it deserves its own negotiation.

Step 2: Seller bears the tax

Buyer pays SAR 1,200,000. Seller receives SAR 1,200,000 minus SAR 60,000, which equals SAR 1,140,000.

The seller ends below their minimum of SAR 1,150,000 by SAR 10,000, so this allocation is unlikely to be accepted at this price.

Step 3: Buyer bears the tax

Buyer pays SAR 1,200,000 plus SAR 60,000, which equals SAR 1,260,000. Seller receives SAR 1,200,000.

The seller is SAR 50,000 above their minimum, which shows how much room the buyer gave away by accepting "plus tax" without discussion.

Step 4: Split the tax to meet the seller's minimum

Seller can absorb SAR 1,200,000 minus SAR 1,150,000, which equals SAR 50,000. Buyer bears SAR 60,000 minus SAR 50,000, which equals SAR 10,000. Buyer pays SAR 1,210,000 in total.

Compared with bearing the whole tax, the buyer saves SAR 50,000 while the seller still reaches their stated floor.

Step 5: Add brokerage and VAT to the buyer's cost

VAT on commission: SAR 24,000 multiplied by 15% equals SAR 3,600. Commission with VAT: SAR 27,600. Buyer total under the split: SAR 1,210,000 plus SAR 27,600, which equals SAR 1,237,600.

Brokerage is a service, so it carries VAT, while the sale itself carries RETT. Mixing the two up is a common source of budget errors.

Step 6: Compare the buyer's totals

Buyer bears all tax: SAR 1,260,000 plus SAR 27,600 equals SAR 1,287,600. Split: SAR 1,237,600. Difference: SAR 50,000.

On this deal the allocation clause is worth about four percent of the price to the buyer, more than the entire brokerage cost.

What changes the answer

• If ZATCA assesses the tax on a market value above the contract price, the tax figure rises whatever the contract says about allocation.
• If an exemption applies to the seller's situation, the amount to negotiate may shrink or disappear, so ask the seller's adviser early.
• If the seller is under time pressure, a buyer may secure an allocation more favourable than the split shown here.
• If the property is sold as part of a company share transfer, a different tax analysis applies and must be taken to a licensed adviser.

What the numbers tell you

• Negotiate the tax allocation as openly as the price, and write it into the contract in figures.
• Ask the seller for their net expectation, because it tells you how much of the tax they can absorb.
• Budget VAT on services such as brokerage separately from RETT on the sale.
• Confirm with ZATCA or a licensed tax adviser that the rate, base and any exemption apply to your case.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira works with foreign investors on the property side of entering Saudi Arabia: finding land or premises, due diligence, design, construction and asset management. For licensing, tax and legal steps, work with a licensed adviser; we coordinate with yours so the property decision fits the structure you choose.