Is there VAT on residential rent in Saudi Arabia?

Article 30(1)(b) exempts the supply of residential real estate by lease or licence. ZATCA’s real estate guideline explains that the lessor does not charge VAT on this exempt rental and cannot deduct the VAT it pays on costs relating to it.

The article defines residential real estate as a permanent dwelling designed for human occupation, including:

Article 30(3) states that hotels, inns, guest houses, motels, serviced accommodation and any other building designed to offer temporary accommodation to visitors or travellers are not residential real estate.

ZATCA’s real estate guideline explains that only residential rental is exempt, and that other real estate rental made by a taxable person is subject to VAT. Its predecessor, the General Authority of Zakat and Tax, said in December 2017 that renting hotel rooms and serviced furnished suites is a real-estate service taxed at the standard rate, which has been 15% since 1 July 2020.

Leasing non-residential property, such as shops and offices, carries 15% VAT when the lessor is VAT-registered or required to register, with a tax invoice for each rent charge. Registration is mandatory once taxable supplies exceed SAR 375,000 a year, and voluntary once supplies or expenses reach SAR 187,500.

If a registered lessor lets both commercial and residential units, such as a building with shops and flats, VAT applies to the commercial rents only. Input VAT on costs of the residential letting is not deductible, and for costs shared by both activities only the share relating to the taxable activity is deductible, under the proportional deduction rules in Article 51 of the Regulations and ZATCA’s input tax deduction guideline.