5 Key REIT Exemptions Involving REIT Contributions in 2025

REAL ESTATE1 week ago

REIT Exemptions Involving REIT Contributions: Saudi Arabia’s real estate market, a vital segment of the Gulf Cooperation Council’s (GCC) $131.36 billion industry in 2025, is projected to grow to $344.66 billion by 2033 with a 7.1% CAGR, driven by Vision 2030 and $1.68 trillion in mega-projects like NEOM, per imarcgroup.com and economymiddleeast.com.

The Real Estate Transaction Tax (RETT), introduced in October 2020 via Royal Decree No. A/84 and updated in 2025, imposes a 5% tax on property transfers, per arabnews.com. Amendments effective April 9, 2025, expand exemptions, particularly for Real Estate Investment Trusts (REITs), encouraging capital market participation, per ey.com.

This guide, crafted in clear, SEO-friendly language with an engaging tone, outlines five key RETT exemptions involving REIT contributions for SAR 20–50 million ($5.33–$13.33 million) investments, supported by data, legal insights, and compliance strategies.

5 Key RETT Exemptions Involving REIT Contributions

1. In-Kind Contributions to REITs

Individuals or entities contributing real estate as in-kind subscriptions to REITs, established under Capital Market Authority (CMA) regulations, are exempt from 5% RETT, per Ministerial Resolution No. 1-88-1445, effective May 3, 2024. The exemption applies to all REIT types, provided units are held for five years or until fund liquidation, per globalcompliancenews.com.

Tax Savings: Saves $266,600 on a $5.33 million Riyadh property contribution, per alaan.com.
Action: Transfer SAR 20 million ($5.33 million) properties to CMA-regulated REITs, ensuring five-year holding, per shuraatax.com.
Example: A $5.33 million Jeddah plot contribution to a REIT avoids $266,600 RETT, yielding $426,400 at 8%.
Source: globalcompliancenews.com, alaan.com, shuraatax.com

2. Subsequent In-Kind REIT Transactions

RETT exemptions extend to subsequent in-kind real estate contributions to existing REITs, beyond initial fund establishment, per ey.com. Units must be held for five years or until liquidation, with no clawback for public offerings, per baticfirm.com.

Tax Savings: Saves $666,500 on a $13.33 million Dammam property, per finanshels.com.
Action: Contribute SAR 30 million ($8 million) properties to established REITs, registering with CMA, per nevestate.com.
Example: A $13.33 million Madinah office contribution avoids $666,500 RETT, yielding $933,100 at 7%.
Source: ey.com, baticfirm.com, finanshels.com

3. Public Subscription of REIT Units

Changes in REIT unit ownership via public subscription or trading of listed securities are exempt from RETT clawback provisions, even within the five-year holding period, per ghazzawilawfirm.com. This supports SAR 50 million ($13.33 million) investors in liquid markets, per addleshawgoddard.com.

Tax Savings: Avoids $1.33 million clawback on $26.66 million REIT units, per saudigulfprojects.com.
Action: List SAR 20 million ($5.33 million) REIT units on Tadawul, ensuring CMA compliance, per cityscapeglobal.com.
Example: A $13.33 million Riyadh REIT unit sale via public offering avoids $666,500 RETT, yielding $1.07 million at 8%.
Source: ghazzawilawfirm.com, addleshawgoddard.com, saudigulfprojects.com

4. Corporate Restructuring Involving REITs

Real estate transfers to REITs as part of mergers, acquisitions, or corporate restructurings are RETT-exempt, provided they meet ZATCA criteria, per practiceguides.chambers.com. This benefits SAR 20 million ($5.33 million) firms consolidating assets, per dlapiper.com.

Tax Savings: Saves $266,600 on a $5.33 million Tabuk property transfer, per makca.co.
Action: Structure SAR 15 million ($4 million) restructurings with REIT contributions, filing with ZATCA, per bestaxca.com.
Example: A $5.33 million NEOM plot merger into a REIT avoids $266,600 RETT, yielding $426,400 at 8%.
Source: practiceguides.chambers.com, dlapiper.com, makca.co

5. Charitable REIT Contributions

Transfers of real estate to REITs for charitable or public benefit purposes, such as endowments licensed by Saudi authorities, are RETT-exempt, per ghazzawilawfirm.com. This supports SAR 10 million ($2.67 million) social impact investments, per saudipedia.com.

Tax Savings: Saves $133,300 on a $2.67 million Madinah property, per strategyand.pwc.com.
Action: Donate SAR 5 million ($1.33 million) properties to licensed REIT endowments, per saudigazette.com.
Example: A $2.67 million Riyadh land donation to a charitable REIT avoids $133,300 RETT, enhancing social impact.
Source: ghazzawilawfirm.com, saudipedia.com, strategyand.pwc.com

Legal and Tax Framework

Saudi Tax Framework:
RETT: 5% on real estate transfers, effective April 9, 2025, per Royal Decree No. A/84, per kpmg.com.
VAT: 15% on commercial transactions, zero-rated for residential leases, per cleartax.com.
Zakat: 2.5% on net assets, simplified for SMEs, per ey.com.
CIT: 20%, zero in SEZs, per pwc.com.
E-Invoicing: Mandatory since 2021, penalties up to SAR 50,000 ($13,333), per cleartax.com.
AML: KYC for transactions above SAR 100,000 ($26,667), fines up to SAR 5 million ($1.33 million), per pwc.com.
REIT-Specific Rules:
Eligibility: REITs must be CMA-regulated, with in-kind contributions held for five years, per globalcompliancenews.com.
Registration: Transactions via ZATCA’s RETT platform, per arabnews.com.
Penalties: Late payment fines at 2% monthly, capped at 50% of unpaid tax, per baticfirm.com.
U.S. Tax Framework:
Reporting: Declare income via Forms 1040, 1116, Schedule E under FATCA, taxed at 10–37%, capital gains at 0–20%, per IRS.
Foreign Tax Credit (FTC): Offsets RETT/VAT/Zakat, per brighttax.com.
FEIE: $130,000 exclusion for earned income, not rentals.
Residency: SAR 2 million ($533,333) investments qualify for Saudi Premium Residency, per globalresidenceindex.com.

Risks and Mitigation

Clawback Risk: Selling REIT units within five years triggers RETT, costing $666,500 on $13.33 million, per ey.com. Hold units long-term, per shuraatax.com.
Oversupply: 35,000 units in 2025 may cut yields by 2–3%, per cushwake.ae. Target NEOM/Jeddah, per realestatesaudi.com.
Compliance Penalties: RETT errors risk SAR 50,000 ($13,333) fines, per cleartax.com. Use ZATCA software, per alaan.com.
Currency Volatility: SAR/USD fluctuations impact returns. Hedge via Riyad Bank, per omniacapitalgroup.com.
U.S. Tax Burden: IRS reporting reduces returns. Maximize FTC, per brighttax.com.

Step-by-Step Guide for U.S. Investors

Identify REIT Opportunities: Assess SAR 20–50 million ($5.33–$13.33 million) CMA-regulated REITs, per ghazzawilawfirm.com.
Set Budget: Allocate $13.33 million, including 5% RETT ($666,500, if applicable) and legal fees, per immigrantinvest.com.
Contribute In-Kind: Transfer SAR 30 million ($8 million) properties to REITs, ensuring five-year holding, per globalcompliancenews.com.
Register with ZATCA: File exemptions via RETT platform for SAR 20 million ($5.33 million) transactions, per arabnews.com.
Ensure Compliance: Submit RETT filings by April 30, 2025, and U.S. taxes by April 18, 2025, with FTC, per brighttax.com.
Monitor Yields: Track 7–9% returns via propertyfinder.ae, per hermesre.ae.

Conclusion

Saudi Arabia’s $131.36 billion real estate market, set to reach $344.66 billion by 2033, benefits from 2025 RETT exemptions for REIT contributions, saving up to $1.33 million on SAR 50 million ($13.33 million) investments, per imarcgroup.com and ey.com. These exemptions, supporting in-kind transfers and public subscriptions, align with Vision 2030, boosting market liquidity, per gulfnews.com. U.S. investors, leveraging FTC and ZATCA frameworks, can secure 7–9% yields in Riyadh and NEOM, mitigating risks like oversupply, per cushwake.ae. The WLT fosters a dynamic, investor-friendly market, per strategyand.pwc.com. REIT Exemptions