As of January 1, 2018, the Kingdom of Saudi Arabia has implemented a value-added tax (VAT) on various goods and services.
Today The VAT rate of 15% applies to most transactions, with the Exemption of residential rental income from VAT. People need to be aware of this VAT exemption.
Under the provisions of the Value-Added Tax Law and its Executive Regulations, residential rental incomes are exempt from VAT.
Meaning tenants are not required to pay VAT on their monthly rent, and landlords are not required to charge a VAT on the rent they receive.
Good news for tenants, as it saves them money from their monthly expenses. For the landlords, it reduces the burden of collecting and reporting VAT.
Reason and benefit of the Exemption
The Exemption of residential rental income from VAT is consistent with the Saudi government’s policy to support low-income families and make housing more affordable.
The Saudi government believes that VAT exemption on residential rental income will reduce the financial strain on families encouraging investment in housing.
The government expects the Exemption will develop the housing sector through individual investments. And support the country’s economic growth.
Yet it is imperative to note the Saudi VAT exemption is for residential rental income only. It does not apply to commercial properties. Ret form commercial properties are subject to VAT.
Landlords are required to charge and report VAT on all commercial property rent they collect.
When a landlord rents out a property for residential and commercial purposes simultaneously, the VAT applies only to the commercial portion of the property.
Know your Laws
In conclusion, the Exemption of residential rental income from VAT is a great relief for tenants and landlords in the Kingdom of Saudi Arabia.
It helps reduce the financial burden on families and encourages investment in housing, which supports the country’s overall economic growth. As a tenant or a landlord, you must know this Exemption and understand how it applies to you.