Understanding Real Estate Transaction Tax (RETT)

Real estate transactions are subject to specific tax obligations in many jurisdictions, including the Real Estate Transaction Tax (RETT), which aims to regulate and levy taxes on property disposals. This article provides an overview of RETT, focusing on the key components such as tax entitlement, calculation of the tax base, payment deadlines, and individuals responsible for fulfilling the tax obligation.

Imposing the Real Estate Transaction Tax (RETT)

The RETT is levied at 5% of the total sale price on every real estate disposal. This means that each time a property is sold or disposed of, the sale is subject to the 5% RETT, even if the property is sold multiple times, unless the transaction is exempted based on the exceptions listed in the RETT Implementing Regulation.
It’s essential to note that the tax is imposed regardless of whether the transaction is officially documented. The core criterion for RETT entitlement is the occurrence of the transfer of ownership rights, marking the sale as taxable.

Determining the Tax Base

The tax base for RETT is calculated based on the agreed-upon sale price between the involved parties or the market value of the property, whichever is higher. This value must reflect the fair market value of the property at the time of the transaction and should not be artificially reduced. Financing arrangements tied to the property’s sale are excluded from the taxable value.
To establish the fair market value, the property’s price is compared to similar real estate transactions within the same market. This ensures that the property’s value is aligned with market conditions and prevents undervaluation for tax purposes.

Tax Due Date

The date on which RETT becomes due is tied to the disposal event, meaning the moment ownership is transferred. In a typical sale, this is the date when the sale contract is finalized and the buyer’s ownership is legally recorded.
For instance, when a sale contract is signed, and ownership is transferred, the RETT is due on that date. In specific cases, like BOOT (Build-Own-Operate-Transfer) contracts, where ownership or possession transfers over time, the RETT is triggered at the point when the transfer becomes legally enforceable or possession is handed over.

Payment of the Tax

The RETT Implementing Regulations provide clear guidelines on the timing of tax payment. Generally, the tax must be paid before the disposal is documented with the relevant authorities. Whether the property sale is recorded with a Notary Public or another competent authority, the RETT must be settled with the Zakat, Tax and Customs Authority before the transaction can be legally finalized.
If the transaction qualifies for an exemption, evidence of this exemption must be obtained before proceeding with the documentation. Without proof of tax payment or exemption, the transaction cannot be officially registered.

Special Circumstances for Tax Payment

In certain situations where a transaction is not officially documented, RETT must still be paid within 30 calendar days from the date of the final agreement or contract. This rule applies to cases where the transaction is evidenced by unofficial documents or where BOOT contracts are involved, and ownership or possession is transferred outside of the typical documentation procedures.
Failure to comply within this 30-day window results in late payment penalties. Both the seller and the buyer are jointly responsible for ensuring the tax is paid on time, even if official documentation is not required.

Who is Obligated to Pay RETT?

By default, the disposer (the seller) is responsible for paying the RETT. However, the parties involved can mutually agree to have the buyer bear this responsibility, provided it is explicitly stated in the contract. The contract must also detail the specific tax amounts and property value separately.
Even if the buyer takes on the tax obligation, the seller remains liable to the authority for fulfilling the tax payment. Both parties, the seller and the buyer, are jointly and severally liable for any tax due, meaning the Zakat, Tax, and Customs Authority can seek payment from either or both parties depending on the situation.

Conclusion 

Real estate transactions, especially in markets subject to the Real Estate Transaction Tax, require a deep understanding of the regulations surrounding tax liability and payment timelines. The RETT is a key component in ensuring that property sales are fairly taxed, based on accurate property values and market conditions. Both buyers and sellers must be aware of their obligations to ensure that all tax dues are settled correctly and on time, helping to avoid penalties and legal complications.

Summary

VAT registration is essential for entities engaged in Economic Activities in the Kingdom. According to VAT Law, a Taxable Person is anyone independently conducting income-generating activities, including both Resident and Non-resident Persons. Resident Persons must register if their Supplies exceed the Mandatory Registration Threshold within a year, while Non-resident Persons must register within thirty days of their first Taxable Supply in the Kingdom. Voluntary registration is available for those not mandated but meeting or exceeding the Voluntary Registration Threshold.  

Disclaimer: The Content offer general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for their interpretation and actions based on this information, at their own risk. 

For understanding more about Corporate Tax, VAT, Excise Tax, Financial Services, and Advisory Services, reach out to us at : contact@acme-group.me | +971 52 740 1169