Major changes to land and property taxation and tax amnesty extended again has been saved
Major changes to land and property taxation and tax amnesty extended again
The past couple of days has seen a storm of activity in relation to taxation in the Kingdom of Saudi Arabia (KSA). Firstly, in a move that will help the property market in KSA, a new Royal Decree, number A/84 was issued on 1 October 2020 and contains some very significant changes to the way in which property and land sales will be taxed in KSA. In addition to this, the tax amnesty that commenced on 18 March 2020 has now been extended for a third period, to the end of 31 December 2020.
In terms of the property and land changes, and subject to further clarifications, real estate transactions will immediately become exempt from Value Added Tax (VAT) from 4 October 2020. However, a new Real Estate Transaction Tax (RETT) will also take immediate effect on this date. It will function in a similar manner to a stamp tax where there is a transfer of a property or development and will apply at a 5% rate. The new tax will fall under the purview of the General Authority for Zakat and Tax (GAZT). In good news for Saudi citizens, they will be relieved from having to pay any tax on the first sale of a property up to the value of SAR 1M.
For those involved in the construction and development of real estate, there will be a mechanism whereby VAT will be refunded for those developers that are on a special list that will be regularly updated in conjunction with the Ministry of Finance and the GAZT. Further details are awaited in this respect, but this is likely to have a very broad impact across the KSA and in particular where the projects and developments are complicated in their set up. Given how quickly these changes have taken effect, it will be very important to evaluate the commercial as well as the tax compliance implications at the earliest opportunity, and particularly if real estate transactions are contemplated in the near future as the implications from a cash flow perspective may be material.
With the introduction of a new tax, it will also be critical to understand the detail of how it will function in practice. At first sight however this change appears to reduce the tax impact that would otherwise have been felt at a higher rate of VAT (15%) to a more modest 5%, and will allow for greater liquidity in the housing market, particularly for residential sales between private citizens, which is to be welcomed.
The extension of the tax amnesty to 31 December 2020 will provide further relief to taxpayers from the financial and economic impact on the private sector due to COVID-19. The fundamentals of the amnesty will continue to allow late registrations, corrections and amendments to all returns (VAT/Tax return/Withholding tax, etc.) to occur without penalties (i.e. this applies to periods before 18 March 2020). However, in a significant [temporary] change in approach, taxpayers that currently have open objections with the GAZT (as well as appeals with the competent judicial authority where a final decision has not been issued) will also be able to avail of the amnesty on the basis that the principal amounts under dispute are paid (or request it to be paid in installments) to the GAZT on the proviso that the objection (or appeal) is subsequently withdrawn. On this basis, any penalties that may have been levied will be withdrawn. As we have previously stated, the amnesty represents an excellent opportunity to remediate any past omissions, errors or mistakes before 31 December 2020.