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Saudi Arabia exempts real estate deals from VAT and imposes new 5% tax

October 3, 2020

The latest move is expected to boost property sector in the kingdom

Saudi Arabia on Friday issued an order exempting real estate deals from a 15 per cent value-added tax (VAT) and imposed a new 5 per cent tax on transactions, according to a statement on Saudi Press Agency.

The latest decision by the government is expected to boost the property sector in the kingdom and help Saudi citizens to buy homes.

“The royal decree aims to support citizens and ease their burden…and enable them to own their homes,” Saudi Arabia’s finance minister Mohammed Al-Jadaan said in a tweet. “It also contributes to the development of the kingdom's economy by stimulating the residential and commercial real estate sector.”

Saudi Arabia tripled value-added tax from 5 per cent to 15 per cent on all services and goods starting from July 1 as part of measures to shore up its economy hit by the impact of coronavirus pandemic and low oil prices.

The government would also bear the cost of the new Real Estate Transaction Tax for up to 1 million riyals for Saudi citizens purchasing their first home, according to the latest decision.

“This contributes to achieving the kingdom’s vision of increasing housing ownership by Saudis to 70 per cent by 2030,' the country’s housing minister Majid Al-Hogail said in a tweet.

During the second quarter of this year, average sale prices in Riyadh rose 3.5 per cent year-on-year, while average rental rates slid 1 per cent, according to JLL report. In Jeddah, average sale prices and rental rates both fell, by 6 per cent and 5 per cent respectively. In Dammam, the average sale price rose 1.5 per cent and in Makkah, sale prices and rental rates dropped 2 per cent and 11 per cent, respectively.

“The decision to levy a 5 per cent property transaction tax, rather than apply 15 per cent VAT, should serve to support the market and is consistent with a long-term government policy of increasing home ownership,” Chris Hobden, associate director and head of strategic consultancy at Chestertons Mena told The National.

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