The starting point
Since the Real Estate Transaction Tax Law and its Implementing Regulations took effect in April 2025, real estate disposals have been subject to tax at 5% of the value of the disposal, whatever the condition, form or use of the property. Transferring property from its owner to a company, even one the owner wholly owns, is a taxable disposal in principle, unless it falls within one of the exemptions listed in Article 3 of the Implementing Regulations.
Decisions that look purely organisational, such as moving family property into a company or consolidating a group's property in a single company ahead of a financing, can therefore carry a tax cost of 5% of the property's market value unless they are built on one of the exemption routes and its conditions are managed with care.
Route one: contributing property in kind to a company's capital
A disposal in which property is contributed in kind to the capital of a company established in the Kingdom is exempt, on two conditions: the contributor must not dispose of the shares received in exchange for at least five years, and the company must maintain financial statements audited by an approved external auditor throughout that period.
The second condition is the one most often overlooked in practice. Many private companies do not prepare audited financial statements every year, and their absence in any year of the period may cost the exemption.
Route two: from an individual to a company or fund they wholly own
A disposal by a natural person to a company or investment fund established in the Kingdom is exempt if that person solely owns, directly or indirectly, all of its shares or units, provided their ownership percentage does not change for at least five years from the date of the disposal.
This route is designed for a sole owner. If the receiving company is owned by more than one person, such as members of the same family, it does not apply as drafted, and the in-kind contribution route or a different transfer arrangement should be considered instead.
Route three: between companies under full common ownership
A disposal between two companies established in the Kingdom, or between a company and an investment fund, is exempt if one wholly owns the other or both are wholly owned by the same person, provided that full ownership continues for at least five years from the date of the disposal.
This route is useful for reorganising property within a group, but it restricts the sale of either company, or the admission of a partner into either, for the whole period.
| Route | Main condition | Period |
|---|---|---|
| In-kind contribution to a company's capital | No disposal of the shares received, and audited financial statements throughout | 5 years |
| From an individual to a company or fund they solely own | Sole ownership of all shares or units, with no change in the percentage | 5 years |
| Between companies under full common ownership | Full ownership between the two, or by the same person, continues | 5 years |
When is the exemption lost?
If the conditions of the exemption cease to be met at any point during the period, tax becomes due from the date of the original disposal and must be paid within thirty days of the breach. In other words, the tax comes back on the original transfer itself, in addition to any tax due on the later transaction if that too is a taxable disposal.
Situations that commonly lead to a breach include:
- Selling the shares, or part of them, or transferring them to a family member before the period ends.
- Admitting a partner or investor through a capital increase. The increase may not be a real estate disposal in itself, but it may change the transferor's ownership percentage and breach the condition of route two.
- Moving the shares into a holding company as part of a restructuring, which may count as a disposal of the shares depending on the route used.
- Ceasing to prepare audited financial statements under the in-kind contribution route.
The Regulations exclude from a breach any change resulting from a public offering, a court-ordered forced sale, or a merger or acquisition that meets its own conditions, provided the holding period continues.
Questions to settle before the transfer
- Is the five-year holding condition consistent with the owners' plans? Any expected sale, new partner or movement of shares within the family should be considered before the transfer, not after it.
- Which route actually fits the existing ownership structure, and what is needed to meet its conditions in full?
- Can the company commit to an external audit for the whole period if the route is an in-kind contribution?
- Has the exempt transaction been registered with ZATCA on or before its date, with evidence kept that the conditions are met?
- Is the value used for the transfer supported by an independent valuation? ZATCA may verify the value of transactions between related persons, which matters all the more if the exemption is later lost.
In summary
These exemption routes are a useful organisational tool, but each is a five-year commitment rather than a step completed on the day of transfer. The right decision rests on the ownership plan for the years ahead, and is managed after the transfer with a record that tracks the conditions and dates until the period ends.
Regulatory references
- Real Estate Transaction Tax Law, issued by Royal Decree No. (M/84).
- Implementing Regulations of the Real Estate Transaction Tax Law, issued by ZATCA Board Resolution No. (25-03-01) dated 24/09/1446H: Article 3(a) items 11, 17 and 18 and paragraphs (b) and (c); Article 4(f); Article 5(a)(2); Articles 8 and 11.
This article is for general information and reflects the law and regulations as at October 2026. It is not tax advice on any specific matter; the treatment depends on the facts and documents of each case.