Saudi property sales are VAT-free, but commercial rents are not

Selling a building in Saudi Arabia does not attract VAT. Since 4 October 2020 a sale has paid 5% real estate transaction tax (RETT) instead (ZATCA). Rent is a different story. Commercial leases pay 15%, and so does construction, which a developer selling homes cannot deduct.

Key figures at a glance

Metric	Value	Source
Sale of real estate	Exempt from VAT, 5% RETT instead	ZATCA
Residential lease	Exempt	VAT Regulations
Commercial lease under 50 years	15%	ZATCA
Grant of use over 50 years	5% RETT, once	ZATCA, Version 6
Construction	15%, not deductible against an exempt sale	Simplified Guideline

The standard rate has been 15% since 1 July 2020 (ZATCA).

Is the sale of property subject to VAT in Saudi Arabia?

No. Article 30(1)(a) of the VAT Implementing Regulations exempts any transfer of ownership of real estate, including bare land (VAT Implementing Regulations). A developer's first sale gets no special treatment, unlike in some other GCC states, where the Common VAT Agreement leaves each country to decide (GCC Agreement).

Royal Decree M/84, in force from 10 April 2025, also keeps RETT off a transfer that already paid VAT (Umm Al-Qura). So a model that charges both 15% and 5% on one sale is wrong. What remains is the 5% transaction tax and its own exemptions.

Commercial rent pays 15%

ZATCA confirmed on 2 October 2020 that home rents stay exempt and commercial rents pay 15% (ZATCA). In its worked example, a commercial rent of SAR 375,000 a year carries SAR 56,250 of tax (Simplified Guideline, 3 May 2024).

For most tenants the tax washes through, since a trading business reclaims it in its next return. Banks and insurers are the exception. Most of what they sell is VAT-exempt, so they can only reclaim part of the tax and the rest becomes occupancy cost. Financial occupiers in Riyadh's office market should budget for it. The Riyadh rent freeze of 25 September 2025 caps commercial rents for five years, but the VAT on top is unaffected (REGA).

Beyond fifty years, the 15% becomes 5%

A grant of use for more than fifty years counts as a property transaction. It pays 5% RETT once, within 30 days of signing, on the present value of the right or of the payments, whichever is higher (Version 6, May 2026).

Much Saudi commercial development sits on long leases over state and endowment land. Adding 15% a year to a 99-year ground lease overstates the cost, and it hides the single cash payment due in the first month.

Hotels and serviced apartments pay VAT

Hotels, serviced apartments and any building meant for short stays are not treated as residential, so they pay 15% (VAT Regulations, Article 30(3)). The same flat let to someone as their main home is exempt.

GASTAT counted 5,937 licensed hospitality facilities in Q4 2025, and 52% of them were serviced apartments and other non-hotel facilities (GASTAT, 9 April 2026). Student rooms let by the night are taxable too.

What the exemption costs a developer

Construction still pays 15%, as it did before October 2020, and ZATCA marks that input tax "Non-refundable" for a developer selling under RETT (Simplified Guideline, 3 May 2024).

The cash leaves early. VAT is due on every contractor progress claim, including the share the employer holds back as retention (Contracting Sector Guideline, May 2026).

Licensed developers can apply to ZATCA for a refund of that VAT, provided they hold a certificate from the Ministry of Municipalities and Housing. Refunds cover homes sold, not homes let. Each claim must be at least SAR 5,000, and ZATCA pays within thirty business days of approving it (developer guideline, Third Edition, May 2026). A building that later switches from sale to residential letting can see the refund clawed back for up to ten years.

What the public data does not show

ZATCA does not publish VAT collected on commercial rent, the number of approved developers or the refunds paid. Its latest volume figure dates from 2021, when 568,671 real-estate sales went through the RETT platform (ZATCA). Budget figures mix VAT with excise and RETT (Ministry of Finance), so no property share can be read from them.

Omran estimate: VAT a build-to-rent residential scheme cannot recover. Residential letting is exempt, so the 15% paid on construction cannot be deducted or refunded. If construction is 70% of development cost, the lost VAT is 10.5% of total cost. At 50% it is 7.5%. No Saudi authority publishes a land-to-build split, so that input is yours (n/a).

Nobody records whether a Saudi commercial rent is quoted with or without VAT. Two analysts can value the same office or retail asset 15% apart for that reason alone. Ask for the underlying tax and lease treatment table.

FAQ

Is the sale of a commercial building subject to VAT? No. It pays 5% RETT instead.

Is rent on a shop or an office subject to VAT? Yes, at 15%, on leases of less than fifty years.

Do serviced apartments count as residential? No. They are taxed at 15%, like hotels.

Does a 99-year usufruct pay 15% VAT? No. It pays 5% RETT once, within thirty days of the grant.

Sources

ZATCA, VAT Implementing Regulations, Eighth Edition (Article 30): link
ZATCA (Arabic), announcement of the real-estate VAT exemption, 2 Oct 2020: link
ZATCA (Arabic), 15% standard rate in force 1 Jul 2020: link
ZATCA, Simplified Guideline for RETT, 3 May 2024: link
ZATCA, Detailed Guideline for RETT, Version 6, May 2026: link
ZATCA, Guideline for VAT Refund for eligible Real Estate Developers, Third Edition, May 2026: link
ZATCA, Guideline for the Contracting Sector under VAT, May 2026: link
ZATCA, real-estate sale transactions in 2021: link
Common VAT Agreement of the GCC States: link
Umm Al-Qura official gazette, Royal Decree M/84: link
REGA, Riyadh five-year rent freeze, 25 Sep 2025: link
GASTAT, Tourism Establishments Statistics Q4 2025, 9 Apr 2026: link
Ministry of Finance, Quarterly Budget Performance Report Q2 FY2026: link