Under Saudi Arabia’s Vision 2030, real estate sector plays a pivotal role. In Kingdom’s fast-growing real estate landscape, Homeowners’ Associations (HOAs) are increasingly becoming central to the management of shared properties. The Mullak Program, launched by the Real Estate General Authority (REGA), has introduced a formal framework for regulating these associations in residential communities. However, a critical issue remains under-explored: how should VAT apply to HOAs in the Kingdom?

Are they simply collective cost-sharing vehicles acting on behalf of owners—or are they in fact service providers subject to 15% VAT under Saudi VAT legislation?

In this column, we unpack this VAT dilemma surrounding the HOAs in the Kingdom.

What is an HOA under Mullak?
The Mullak Program was introduced to formalize property ownership structures in jointly owned properties, such as apartment buildings, residential compounds, and gated communities.

If the number of owners in a jointly owned property reaches three or more, they must establish the HOA among them to manage the affairs of that property, and register that association with the REGA. Once the HOA is registered with the REGA, it has its own separate legal identity distinct from the owners. It is also allotted a unified national number (700) to facilitate the procedures for dealing with the concerned authorities. Moreover, it can also have a bank account in its own name.

As per the FAQs issued by the REGA, a HOA is established by the real estate developer. The HOA then appoints a property manager, which can either be an individual or an entity such as property and facilities management company. The duties of the property manager are to execute the decisions of the HOA, maintenance, management and insurance of common area, representing the HOA before courts and service agencies, and obtaining the necessary licenses, communicating with service providers and contracting with them, issuing and collection of invoices, etc.

From a VAT perspective, the structure and activities of the HOA raise the fundamental question – Is the HOA conducting an economic activity?

The VAT framework in Saudi Arabia
Under the KSA VAT legislation, an entity must register for VAT if it:

• Conducts an economic activity; and
• Has annual taxable supplies exceeding SAR 375,000

VAT applies to the supply of goods and services for consideration made by a taxable person in the course of their economic activity.

There could be two possible VAT classifications for HOAs
1. HOAs are not conducting any economic activity
Under this interpretation, the HOA merely acts as an agent of the property owners wherein Fees are collected as owners’ contributions to shared expenses. HOA is not formed with an intention to carry out any economic activity. Resultantly, under this interpretation, the HOA is considered as being outside the scope of VAT and is therefore not required to register for VAT. Billing pattern would greatly influence the tax treatment. If the property manager bills on the owners and only the payment is routed through the HOA, HOA can still be treated as not carrying on any economic activity.

2. Service provider model
As discussed above, the HOA has a distinct legal entity responsible for management, monitoring and maintenance of joint property.

Therefore, under this interpretation the HOA functions as a centralized supplier of bundled services. The property manager acting as a sub-contractor to HOA. Accordingly, HOA can be said to be engaging in economic activity and must register for VAT if the SAR 375,000 threshold is crossed.

This view is in line with the position followed in UAE, where HOAs or management companies are incorporated entities and require registering for VAT.

Having said the above, the Zakat, Tax and Customs Authority (ZATCA) has not issued any HOA-specific guidance on VAT so far. However, given that fact HOA has a distinct legal personality, it is likely that the position to be followed is similar to the UAE, where the management company is required to register for VAT. This position is further consolidated in cases where the HOA would generate other income such as commercial rents for retail spaces, penalties, premium parking fees etc.

Conclusion: A grey area needing clarity
Saudi HOAs operating under the Mullak Program find themselves in a regulatory grey zone. While it may be argued that they are merely facilitators of collective cost sharing, their structure and financial behaviour may push them into the realm of taxable persons under VAT legislation.

As the real estate sector in KSA continues to evolve, it’s likely that ZATCA will issue more detailed guidance. Until then, HOAs must tread carefully. It is also suggested to engage early with ZATCA and obtain written clarifications to manage the VAT obligations.