Digital Commerce in Saudi: Fundamentals of Transformation and the Legislative Framework

Introduction

Just ten years ago, shopping online in the Kingdom was a niche experience limited to a handful of e‑stores—think bank transfers and cash on delivery. Today, thousands of transactions are completed every minute through mobile apps and digital platforms, with funds moving from e‑wallets to bank accounts in seconds. This shift was no accident; it is the product of bold government initiatives, massive investment in digital infrastructure, and modern regulations that simultaneously spur innovation and impose high compliance standards.

We must also acknowledge the toughest players in this equation: the entrepreneurs who built these platforms. They braved the challenges and carved a path for themselves—and for those who will follow.

This article is the first in a series, “Digital Platforms and the Tax & Financial Compliance Requirements in Saudi Arabia.”

Series Table of Contents

1. Digital Commerce in Saudi : Fundamentals of Transformation and the Legislative Framework
2. The “True Seller”: Five Pillars for Classifying Sales Transactions
3. E‑Commerce Platforms & Marketplaces: Business Models and Their Compliance Obligations
4. Fai’s Billing & Accounting Architecture: The Fastest Route to Testing and Launching Products

Digital Transformation & E‑Commerce in Saudi Arabia

The story began on 25 April 2016, the day Vision 2030 was announced. From the outset, the blueprint placed the digital economy front and centre, empowering the private sector—especially SMEs and freelancers. New regulations made launching online stores easier and encouraged non‑cash payment solutions. In less than a decade, Saudi Arabia’s e‑commerce landscape ballooned from ≈ SAR 50 billion in 2015 to SAR 223 billion in 2024.

Key Drivers

• Vision 2030 and the National Transformation Program: More than 30 digital regulations were enacted, most notably the E‑Commerce Law (2019) and the E‑Invoicing Regulations (2020), which raised standards for technical integration and tax disclosure.
• Legislation supporting digital payments: Since 2020, SAMA has gradually required all businesses to accept electronic payments, pushing the number of POS devices beyond two million by end‑2024—most equipped for contactless transactions.
• Payment infrastructure: The expansion of the mada network, the rise of e‑wallets and digital banks, and the launch of the Sarie instant‑payments system reduced consumer reliance on cash and removed the pre‑payment barrier. Non‑cash payments now account for 79% of all transactions, surpassing the Vision 2030 target of 70%.
• Near‑universal digital inclusion: With 99% 4G/5G coverage and more than 50 million active mobile lines, the smartphone has become the preferred sales channel across demographics.
• Private‑sector investment: Capital has poured into online platforms and commerce‑support services. Quick‑commerce alone reached SAR 1.7 billion in 2024 and is expected to exceed five billion by 2030, intensifying competition for sub‑30‑minute delivery services.

Outlook to 2030

• Market size: If growth averages 13% annually, e‑commerce spending could reach roughly SAR 550 billion before the decade’s end.
• Digital‑payment share: SAMA aims for non‑cash payments to represent 95 % of all transactions by 2030; at 79% in 2024, the target looks achievable ahead of schedule.
• Universal e‑invoicing: Once all taxpayers are required to use e‑invoices by 2026, each invoice will act as a unified identifier that feeds invoice financing and real‑time tax collection, shrinking SME cash cycles from weeks to days.

The 2015‑2024 decade laid the legislative and technical foundation for Saudi Arabia’s fast‑growing digital marketplace. Over the next five years, serious investment in this infrastructure will enable embedded finance and innovative logistics, cementing the Kingdom’s status as the Middle East’s most rapidly evolving e‑commerce market.

Legislative Framework for E‑Commerce

During the 2015‑2025 decade, the Kingdom’s legal framework for digital trade was reshaped through successive waves of regulations designed to keep pace with the market’s rapid growth and ensure the reliability of electronic transactions. The most important of these regulations are:

• Ministry of Commerce ( Ministry of Commerce - Saudi Arabia ): E‑Commerce Law (2019)
• Ministry of Human Resources and Social Development ( Ministry of Human Resources and Social Development - KSA ): Freelance Program (2017)
• Zakat, Tax and Customs Authority - ZATCA ( Zakat, Tax and Customs Authority ): Value‑Added Tax Law and its Implementing Regulations (2017) – E‑Invoicing Regulations (2020)
• Saudi Central Bank - SAMA ( Saudi Central Bank – SAMA ): Payments and Payment Services Law (2019) – Open Banking Framework (2022)

Value Added Tax (VAT)

Value Added Tax, commonly abbreviated VAT, is an indirect tax collected progressively at every link of the supply chain—from the first supplier to the final retailer. Each party shoulders the difference between input VAT (the tax it paid on purchases) and output VAT (the tax it charged on sales). Ultimately, the final consumer bears the tax burden, while ZATCA collects it along the entire supply chain.

A quick look at VAT in Saudi Arabia

• Registration threshold: SAR 375,000 within any rolling 12‑month period
• Standard rate: 15 %
• Scope: Applies to all goods and services unless specifically exempt or zero‑rated
• Tax invoicing: Taxable persons must issue VAT‑compliant invoices in line with the prescribed standards
• Tax return: Filed electronically via ZATCA’s portal; frequency is monthly or quarterly, depending on revenue size

For further details on VAT, I recommend watching the interview with CPA Ali Al‑Nasser. (Make sure to activate the subtitle)

E‑Invoicing

An invoice is a commercial and official document created by the seller or supplier to record the supply of a good or service to the buyer. It may appear in several formats, but it typically includes information on the seller and buyer, the goods or services sold, and payment details. The E‑Invoicing Regulation defines the types of invoices, the process for issuing tax invoices, and the mandatory information they must contain.

Types of E‑Invoices in the Kingdom

• Non‑tax invoices: These have no standard wording and are used in business transactions outside the VAT scope or by parties not registered for VAT. They may serve as drafts or official documents to facilitate trade within supply chains or across borders. Such invoices must not include the term “tax” in the document title or display any tax amount.
• Tax invoices: These come in two forms—tax invoice and simplified tax invoice—and must follow a prescribed format; non‑compliance is subject to penalties. All taxable persons have been required to use them since 2021, and Phase Two now mandates direct integration with ZATCA for their issuance.

Implementation of E‑Invoicing (Phase Two)

ZATCA began Phase Two of e‑invoicing in January 2023, rolling it out in successive groups. As of July 2025, Group 17 is now in scope, covering taxpayers whose annual revenue in 2022, 2023, or 2024 exceeded SAR 2.5 million. The authority states it notifies affected taxpayers at least six months before their go‑live date.

To visit the rollout‑phases page.

Payment Collection & Management

Managing payments is a delicate and complex process for several reasons—especially in e‑commerce and, more precisely, on digital platforms:

• Handling confidential data: Every online payment requires the buyer’s card details, which are highly sensitive. Any breach could lead to the theft of the buyer’s funds or the misuse of the card.
• Disbursing collected amounts: When one or more intermediaries are involved in the commercial or collection process, the amount paid may not move directly from the buyer’s account to the seller’s. For example, marketplace apps that aggregate multiple sellers for one customer collect the total payment and then distribute it among the sellers.

Because of these risks, the Payments Law specifies who may provide payment services and how funds may be handled. The Saudi Central Bank closely supervises this activity to ensure that payment‑service providers can protect confidential information. The main payment models relevant to platforms are:

Direct Bank Integration

This model links the website directly to the seller’s bank account, so funds flow straight through. It requires the seller to obtain payment services from the bank and to engage an SAMA‑approved payment gateway or service provider for the technical connection.

Aggregated Payment Gateway

Here, the seller contracts directly with the gateway—no separate bank agreement is needed. When a payment is due, the gateway collects the amount from the buyer and holds it in a dedicated pooled account. The gateway then transfers the seller’s balance to the seller’s bank account according to their agreement.

Digital Wallet

In this case, the service provider issues the seller a digital wallet where balances are stored as electronic money. Wallets are highly flexible—especially when both seller and buyer have wallets with the same provider. They can be topped up with cash or via indirect means such as loyalty rewards, cashback, or refunds.

Conclusion

As the Kingdom’s digital market continues to expand, compliance is no longer merely a legal obligation—it has become a competitive advantage that determines long‑term sustainability. Understanding the legislative landscape and modern payment technologies is not a theoretical luxury; it is the first line of defense against operational and financial risks, and the spearhead for capturing a larger market share. In the next article, we will dive into electronic commercial operations and the relationships among seller, buyer, and platform. Stay tuned!

(Next article in the series: The True Seller: The Five Pillars for Classifying Sales Transactions)

Disclaimer: The information presented here is general in nature and should not be construed as legal, accounting, or tax advice offered to the reader. These materials may not apply to, or be suitable for, your specific circumstances and may require consideration of non‑tax and additional tax factors before any action is taken. Readers should consult a tax professional before acting on any of this information. We assume no obligation to inform the reader of any changes in tax laws or other factors that might affect the information contained herein.