Tax Exemption

A tax exemption is a statutory exception that removes a supply, income, transaction or category of taxpayer from a tax that would otherwise apply, so that no tax is charged on it; it exists only where the law or its regulations expressly provide for it. An exemption differs from 'out of scope' (something never subject to the tax) and from 'zero rating' (a taxable supply at 0% that keeps the right to deduct input VAT). For VAT in Saudi Arabia, Article 30 of the Implementing Regulations exempts the supply of real estate, whether commercial, residential, agricultural or developed or undeveloped land, by transfer of ownership, and the lease or licence of residential real estate. Residential real estate covers permanent dwellings such as houses, flats and student accommodation, together with their gardens and garages, but excludes hotels, inns, guest houses, serviced accommodation and any building designed for the temporary stay of visitors and travellers. Because an exemption removes output VAT and with it the right to deduct input VAT, a residential landlord bears the VAT on its purchases as a cost. Exemptions take other forms in the Saudi system too. Property sales exempt from VAT bear 5% Real Estate Transaction Tax, whose new implementing regulation, effective since 10 April 2025, exempts cases including division of estates, registered endowments and transfers between spouses and relatives up to the third degree; separately, the state bears the tax on up to SAR 1 million of the price of a citizen's first home. For zakat, payers carrying on public-benefit activities are exempt upon an annual request filed within 120 days of the end of the zakat year. The common rule is that exemptions are never presumed or read broadly, and many require an application, a certificate or conditions to be met.