By Abdulaziz Alqabbaa, Associate, Zimam

Saudi Arabia’s Real Estate Disposal Tax (RETT) applies whenever a real estate disposition takes place, and it carves out an exemption for transfers made purely between an investment fund and its custodian. That narrow exemption points to a deeper, unresolved question: can an investment fund actually own, transfer, or acquire real estate in the first place? Under Saudi law, only a natural person or an entity expressly granted legal personality can hold rights and bear obligations — and investment funds, as currently regulated, are not expressly granted that status. The gap between how funds are regulated in practice and how legal personality actually works has real consequences for how RETT applies to fund transactions.

Legal Personality Under Saudi Law

The Civil Transactions Law, effective since 1444H, lists the categories of legal persons in Article 17: the state; public bodies and entities granted legal personality by regulatory texts; endowments (awqaf); companies granted legal personality by regulatory texts; civil and cooperative associations granted legal personality by regulatory texts; and anything else granted legal personality by regulatory texts. Article 18 then sets out what that status confers — independent financial liability, legal capacity, standing to litigate, an independent domicile, and nationality. Investment funds are not listed among these categories, and no separate regulatory text expressly grants them legal personality. The Capital Market Authority’s fund regulations do allow funds to be structured as “special purpose vehicles,” which do acquire legal personality once registered — but an ordinary investment fund is not that.

A Contractual Partnership, Not a Legal Person

Under the Capital Market Authority’s Investment Fund Regulations and Real Estate Investment Fund Regulations, a fund is formed purely by contract — the fund’s terms and conditions, signed by the fund manager and the initial unit holders. The fund’s assets belong collectively to the unit holders, not to the fund itself; the fund manager only administers those assets within the bounds of the regulations and the fund’s terms, while a separate custodian holds registered title purely for safekeeping. Unit holders bear losses only up to the value of their investment — a feature sometimes read as evidence of independent legal personality, but one that in fact mirrors mudaraba-style contractual arrangements, which Saudi law does not treat as separate legal persons either.

How Other Taxes Already Treat Funds Inconsistently

The Zakat Collection Regulation defines “person” narrowly as natural or legal persons, which should exclude funds — yet the same regulation separately lists CMA-licensed financing funds as subject to zakat, an inconsistency the regulation should resolve by expressly extending legal-person status to funds for zakat purposes specifically. The Income Tax Law takes a more direct route: it expressly treats investment funds as “companies of capital” for income tax purposes, extending legal personality by definition — even though funds are not, in current practice, actually assessed income tax. VAT and excise tax go further still: the unified GCC VAT Agreement defines “person” to include “any other form of partnership,” which captures investment funds directly, with the fund manager representing the fund before the tax authority.

RETT Before and After the New Law

Before the RETT Law took effect, dispositions were governed by a ministerial implementing regulation that exempted only transfers between a fund and its custodian — implicitly confirming that all other fund transactions were taxable, and by extension suggesting the fund itself could hold and transfer property. The tax authority’s own detailed RETT guide took the opposite position: because funds lack legal personality, they cannot own real estate at all, and registered title sits with the custodian purely as a safekeeping arrangement rather than evidence of the fund’s ownership.

The new RETT Law moved the needle further. It defines a “real estate company” to include “any company, fund, or entity” holding Saudi real estate for income-generating purposes — language that treats funds as a separate category from companies, suggesting the legislature intends funds to carry at least a functional capacity to hold and dispose of real estate for RETT purposes, without going so far as to expressly grant them full legal personality.

What This Means in Practice

Because fund assets legally belong to unit holders rather than to the fund, the party actually disposing of real estate in any fund transaction is the unit holder, not the fund — with the fund manager acting only as agent. That distinction matters most at the edges of a fund’s life cycle: contributing real estate in kind to a fund one already wholly owns creates no real transfer and no tax; adding a new unit holder through a capital increase is a taxable disposition to the extent of the new holder’s share; and winding down a fund and returning nominal title to the sole original owner is not a taxable event, since beneficial ownership never actually left that owner.

The absence of legal personality changes the mechanics of a fund transaction, not its substance.

For transactions with third parties, however, the fund manager’s role as agent for the unit holders produces the same practical tax outcome as under current practice.

Conclusion

Investment funds occupy an unsettled space in Saudi law — regulated as structured, well-governed partnerships, yet withheld express legal personality under the Civil Transactions Law. RETT’s own text has moved toward treating funds as capable of holding and disposing of real estate, without fully resolving the underlying question. Until legislation closes that gap explicitly, fund managers, custodians, and unit holders should treat unit transfers, capital increases, and fund wind-downs as the moments where this ambiguity is most likely to surface, and plan their RETT positions accordingly.