Real estate supplies that are exempt, and those that are not, under Article 30
Article 29(1)(c) of the Common VAT Agreement allows each Member State to exempt or tax at the zero rate the real estate sector, in accordance with the conditions and provisions set by that State. Article 10 of the VAT Law provides that the Regulations shall determine the Exempt Supplies and the terms and conditions required in relation to them. Article 30 of the Implementing Regulations, headed "Real Estate Supplies Exempt from Tax", sets out which supplies of real estate are exempt in the Kingdom.
The two exempt categories
Article 30(1) provides that, subject to the other express provisions of the Regulations, the following Supplies shall be exempt from VAT:
- the Supply of real estate, whether commercial, residential or agricultural real estate or developed or undeveloped bare land, through a transfer of ownership or transfer of the right to dispose of the same as an owner; and
- the Supply of residential real estate through lease or license.
The two categories operate differently. The first applies to every type of real estate, but only where ownership, or the right to dispose of the property as an owner, is transferred. The second applies to leases and licenses, but only where the property is residential real estate.
What residential real estate means
Article 30(2) provides that Residential Real Estate means a permanent dwelling designed for human occupation, including:
- immovable property used or intended to be used as a home, such as houses, flats and apartments; and
- other Real Estate intended as a Person's primary residence, including residential accommodation for students or school pupils.
Article 30(4) provides that Residential Real Estate includes the boundaries legally assigned to the property, including gardens, garages or any other feature that is considered a permanent part of the property.
Temporary accommodation is not residential real estate
Article 30(3) provides that, notwithstanding the first and second Paragraphs, any hotels, inns, guest houses, motels, serviced accommodation or any other building designed to offer temporary accommodation to visitors or travelers are not considered Residential Real Estate. The lease or license of such accommodation is therefore outside the residential lease exemption.
Supplies that fall outside Article 30
Reading the Article as a whole, the following are not within its exemption:
- the lease or license of commercial or agricultural real estate, since the leasing exemption is confined to residential real estate;
- the provision of hotel and other temporary accommodation, which Article 30(3) excludes from residential real estate; and
- services related to real estate, such as construction, repair, maintenance or the services of estate agents, architects and surveyors, which are not supplies of real estate through transfer of ownership or residential lease. Article 23 of the Regulations treats these as Real Estate related services for place-of-supply purposes.
Supplies outside the exemption are taxable unless another provision of the Regulations applies to them.
Where an exempt supply is also zero-rated
Article 31(2) of the Regulations provides that a Supply which constitutes both an Exempt Supply under Chapter Five and a zero-rated Supply under Chapter Six is treated as a zero-rated Supply. A supply that falls within Article 30 should therefore also be checked against the zero-rating provisions before the exempt treatment is applied.
Input tax consequences
Under the Agreement's definition, Exempted Supplies are supplies on which no Tax is charged and for which associated Input Tax is not deducted. Developers, landlords and property holders making both exempt and taxable real estate supplies should identify which supplies fall within Article 30 and attribute input tax accordingly.
Instruments relied on: VAT Law, Article 10; Common VAT Agreement, Article 1 (definition of Exempted Supplies) and Article 29(1)(c); Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Articles 23, 30 and 31 (none was amended by ZATCA Board Resolution No. (01-06-24) dated 17/05/1446H, published in the Official Gazette, Umm Al-Qura issue 5082, on 18 April 2025). The Arabic text prevails.