Accounting for Saudi RETT under IFRS: buyers, sellers, developers and clawbacks

The short answer

RETT is not VAT, so it is never a receivable from ZATCA. Whoever bears it treats it as a cost. For a buyer it is a transaction cost of the asset acquired; for a seller of a long-term asset it reduces the gain on disposal; for a developer selling units it is a cost of selling. The only real judgement is which party bears it economically, because the law makes the seller liable while contracts often push the cost to the buyer.

The buyer: capitalise it

Where the buyer bears the tax, it is part of the cost of what was bought. IFRS spells this out for each type of asset:

• Property, plant and equipment (IAS 16): cost includes the purchase price with non-refundable purchase taxes, and costs directly attributable to bringing the asset into use.
• Investment property (IAS 40): directly attributable expenditure includes property transfer taxes by name, along with legal fees and other transaction costs.
• Inventory, for developers buying land to build and sell (IAS 2): cost of purchase includes taxes other than those later recoverable from the tax authorities.

A buyer's worked example

A company buys an office building for its own use for SAR 10,000,000. The contract says the buyer bears the RETT, so it pays SAR 500,000 against the seller's ZATCA invoice, plus SAR 60,000 of legal fees. The building goes into property, plant and equipment at SAR 10,560,000, and none of the RETT is expensed or claimed back. The land element is split out and not depreciated, as usual.

If the buyer is a Saudi citizen with a valid First Home certificate, the state bears 5% of the first SAR 1,000,000, and only the tax actually paid is part of cost.

The seller: reduce the gain

Where the seller bears the tax on a sale of property, plant and equipment or investment property, the tax is a cost of disposal. The gain or loss is net disposal proceeds less carrying amount.

The same building, carried at SAR 7,000,000 and sold for SAR 10,000,000 with the seller bearing SAR 500,000 of RETT, gives net proceeds of SAR 9,500,000 and a gain of SAR 2,500,000. The RETT should not be hidden in administrative expenses, and nothing is booked to a VAT account.

Developers selling units

A developer selling apartments or villas from inventory recognises revenue under IFRS 15 and cost of sales from inventory. If the developer bears the RETT on each unit, it is a selling cost, expensed when the sale is recognised. IAS 2 excludes selling costs from the cost of inventory, so it never enters the inventory balance.

Where the contract makes the buyer bear the tax and the buyer pays ZATCA directly, most developers record neither the tax nor extra revenue, treating it as the buyer's own transaction cost. Because the seller remains legally liable, agree that policy with your auditor and make sure every sale shows evidence of payment before the unit is handed over.

Share deals

When RETT arises on a transfer of interests in a real estate company, the seller of the shares is liable, and the tax reduces the seller's gain on the investment.

• If the buyer bears it and the deal is a business combination, IFRS 3 requires acquisition-related costs to be expensed as incurred, and in practice a transfer tax borne by the acquirer is treated as one.
• If the company acquired is not a business (a single property wrapper is often an asset acquisition), the cost, including the RETT borne, is allocated to the identifiable assets acquired.
• If the buyer acquires a minority stake measured at fair value through profit or loss, transaction costs are expensed; for other financial assets and associates they are generally added to the initial carrying amount.

Exempt transfers and clawbacks

An exempt transfer carries no tax at the time, but many exemptions come with a three- or five-year condition. If the condition is broken, the original transaction becomes taxable, due on the date of the breach and payable within 30 days. The obligating event is the breach itself, so a provision is recognised when it happens, not before.

Until then, the risk belongs in the notes. Where a clawback is possible but not probable, disclose it as a contingent liability under IAS 37 if it is material. In group accounts, keep a register of every exempt intra-group transfer with its end date, so that a later sale or restructuring is tested before it is signed, not after.

Month-end checks

• Every property acquisition: is the RETT in the asset's cost, and is the ZATCA payment invoice or exemption certificate on file?
• Every property disposal: is the RETT in the disposal calculation, and was it paid before notarisation?
• Unnotarised transactions, share transfers and usufructs over 50 years: was the tax paid within 30 days? Unpaid amounts are a liability plus a 2%-a-month fine.
• Exempt transfers: are the conditions still met this month, and has anything happened in the group that could break them?
• Records: deeds, contracts, valuations and payment proof kept for five years, in the Kingdom.

Questions people actually ask

Keep reading

• Guide: Saudi Real Estate Transaction Tax (RETT): the 5% tax on property transfers, explained
• Guide: RETT exemptions in Saudi Arabia: every exemption, its conditions and the clawback periods
• Guide: RETT on share transfers in Saudi real estate companies: the 50% and 30% tests
• Guide: A month-end close checklist for UAE SMEs