The "Real Seller": The Five Pillars for Classifying Sales Transactions

Introduction

Until recently, many Saudi apps were content to describe themselves with broad terms such as “digital platform” or “online marketplace.” Yet sweeping regulatory changes have pushed oversight bodies to demand a far more precise explanation of business models: Who is the actual seller? How is the contract formed? What are each party’s roles?

Getting the answers wrong does more than violate regulations—it ripples through the platform’s technical architecture, development timelines, staffing, and profit margins. A single misstep in classifying VAT or commissions can swallow those margins and disrupt cash flow.

This is the second article in the series “Digital Platforms and the Tax & Financial Compliance Requirements in Saudi Arabia.” Here we focus on the pillars for classifying sales transactions. Enjoy the read!

Series Table of Contents

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

2. The “Real 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

Traditional Sales Process

In its simplest form, a customer enters a restaurant and orders a meal; the cashier states the price, the buyer agrees and pays, the meal is prepared, and the customer receives it. Behind this transaction lies a financial and legal documentation cycle for the commercial operation, summarized in the diagram below:

Direct Sale and the Evidentiary Documents Issued Along the Way The agreement may not always follow the exact sequence shown in the model above. Some steps might be skipped or combined to suit the business model, yet tax‑related documents remain mandatory.

Support and Ancillary Services Outside the Sale

A seller may rely on external parties to support the business—marketing to attract customers, POS systems to issue invoices, delivery services, and so on. These services are provided for fixed or variable fees but are separate from the original sale: they have no right to invoice for the goods and bear no tax obligations related to them.

Agency or Brokerage Sale

A seller can also engage a third party to act on its behalf for one or more steps of the sales process. This is where understanding the concepts of principal seller and agent seller becomes crucial:

• Principal Seller: The original seller who owns the good or service and sells it, bearing all financial, tax, and legal obligations arising from the sale.

• Agent Seller: The intermediary who sells or provides the service on behalf of the principal seller and earns a commission when the transaction succeeds. The agent’s liability is thus limited to issuing a commission invoice.

An agent becomes a principal if the agent fails to disclose the identity of the principal seller.

Technology: One Platform, Multiple Roles

A platform may start as a digital service provider that tracks procedures but can expand to become:

• A provider of operations‑management and archiving services.

• An organizer of ancillary services in collaboration with external parties.

• An agent selling on behalf of the merchant.

Therefore, a precise map must be drawn showing what operations occur, who the parties are, how contracts are structured, and how cash flows.

Clarifying the Business Model

Regulatory bodies, by their very nature, will not be satisfied with a generic explanation of how a platform operates and the role it plays in the transactions executed through it. Either you present a clear model, in language a regulator can understand, that maps the relationships, explains your platform’s mechanics, validates the procedures, and demonstrates your commitment to applying the model; or the authority will conduct a thorough examination of the platform and its workflows to reach its own conclusions about the relationships, processes, and compliance. To be prepared, you must answer the following questions clearly:

• What goods or services are offered through the platform? Example: In delivery platforms, the process is not merely purchasing meals from restaurants; it involves marketing, a meal from the restaurant, delivery of the meal, cash collection and management, and coordination among the parties.

• Who are the providers and recipients of those services? In delivery platforms, the parties include the customer, the restaurant, the delivery company, the payment system, and the app.

• What is the nature of the contracts and relationships among the parties? In delivery platforms, does the platform act as the principal seller for all provided services? Which services does the platform act as an agent for? And which services are outside the platform’s scope?

You will need to study the sales model for every good or service offered on your platform, then apply the five pillars below to ensure that your obligations, procedures, and compliance align with financial and tax requirements.

First Pillar: Ownership of the Good or Service

The transfer of ownership implies a sale between two parties, requiring the seller to document the sale through an invoice, while the buyer records receipt as inventory, an asset, or an expense. Here, you must determine who the parties are, and whether the platform is one of them, or merely provides supporting systems for some of them.

If the platform is a party to the transaction, it is important to know whether ownership of the good or service passes to the platform before the sale. In this case, the platform must consider whether regulations permit it to sell that good or service, and whether it is prepared to assume responsibilities toward the buyer (e.g., warranty, after‑sales service) as well as toward regulators (e.g., sales licenses, invoicing, tax).

Key Reasons for Errors in Handling Ownership and Related Obligations

• Overlapping processes and relationships in innovative models: Multiple parties and frictionless trade complicate the identification of sold services, related parties, and their roles. Therefore, it is crucial to map the financial and contractual cycle and review it periodically to ensure that new features and services added to the platform are reflected and assessed in the model.

• Legal complexities: Ownership transfer follows commercial, legal, accounting, and tax rules that may be unclear to non‑experts or may not keep pace with new platform business models. In such cases, a platform might apply its own interpretation of regulations—potentially incorrectly. Hence the importance of seeking expert advice and consulting regulators for clarification to determine the correct treatment.

• Inconsistent procedures within the platform: Some platforms change contracting mechanisms for certain clients without ensuring that the change is reflected in business models, contracts, invoices, and communications. Such inconsistencies cause errors and raise regulators’ suspicions of manipulation in commercial operations.

Second Pillar: Cash‑Flow Control

Cash‑flow control means that the amounts due to the seller in a commercial transaction first enter a bank account or digital wallet controlled by another party (the platform) before reaching the seller’s own account. Some platforms prefer to receive the funds themselves, either to secure their fees or to inflate their balances for better standing with banks and investors. As long as the platform is not a principal party in the transaction, it may not receive or control the funds without the proper regulatory licences.

To determine whether the platform controls cash flow, ask the following questions:

• Are the funds transferred directly to the platform’s accounts?

• Does the platform’s name appear on the payment receipt the customer receives?

• Are transaction amounts held in an account controlled by the platform, even if that account is not in its name?

• May the platform deduct amounts or refund a transaction without the seller’s approval?

If the answer to any of these questions is “yes,” the platform is most likely the party receiving the consideration. This can expose it to scrutiny by the Saudi Central Bank if it lacks a licence to manage third‑party funds, and it may also draw the attention of ZATCA to determine whether those amounts constitute taxable revenue.

Providing a Payment‑Management Service Through the Platform

Obtaining a payment‑service licence is costly and involves complex requirements. If a platform needs—or wishes—to provide payment management for its users, it can contract with a licensed service provider to deliver the service in a way that fits the platform’s business model. The main models are:

• Direct payment gateway: A service provider links the seller’s bank account to an online gateway or supplies a POS device connected to the platform. This suits support platforms that do not want to become a party to the sales occurring through them. Cash moves directly between buyer and seller.

• Gateway with instant split‑payment service: The provider signs a three‑party agreement with the seller and the platform, giving the seller a direct gateway while allowing the platform to instruct the gateway to split the proceeds instantly. For example, if the platform is an intermediary entitled to 10 % of the sale, the gateway remits 90 % to the seller and 10 % to the platform. This also fits platforms that must divide funds among multiple parties, such as when several invoices relate to one sale or the seller repays financing or subscription instalments.

• Temporary funds hold: A provider can collect funds on behalf of others and hold them for up to 14 days, using a hold‑and‑release mechanism. This model is used in escrow‑style platforms that need an advance or deposit to secure seriousness; the seller is notified of receipt but does not get the money until performance is confirmed.

• Digital wallet: As an alternative to conventional payments, platforms can contract with a provider to let buyers and sellers build digital balances that can be spent within the platform or withdrawn to bank accounts. This benefits super‑apps or online marketplaces by speeding and lowering the cost of trade between parties.

Note that the original contract for these services is between the provider and the platform’s user; if the contract is with the platform itself, the platform may be deemed to control the cash flow. A separate agreement can be signed with the payment provider to deliver its services inside the platform, allowing the platform to earn a commission. This agreement and commission have nothing to do with the commercial arrangement between seller and buyer.

Third Pillar: Responsibility for Issuing the Invoice

An invoice is a mandatory commercial and legal document issued by the seller to evidence the sale of goods or services and is a primary proof for VAT purposes. A tax invoice differs from a standard commercial invoice in that it must contain details specified by ZATCA. A platform may serve merely as a billing service provider—so the invoices bear the seller’s name—or it may be a party to the transaction, in which case the invoices carry the platform’s name.

Tax Invoices and Non‑Tax Documents

As discussed at the beginning of the article, both seller and buyer issue commercial documents to record, execute, and settle agreements. Apart from the tax invoice, these documents are not subject to VAT rules, but they can be reviewed as evidence of the transaction and its mechanics. Examples include purchase orders, commercial contracts, (non‑tax) invoices, draft invoices, receipts, account statements, disbursement orders, and delivery notes.

Tax invoices, however, are governed by Saudi VAT law, which mandates their format, method of issuance, and required information. The most common forms are:

• Standard tax invoice: For B2B sales or supplies exceeding SAR 1,000.

• Simplified tax invoice: For B2C sales or supplies below SAR 1,000.

• Self‑billed invoice: Issued by the buyer on behalf of the seller under a written agreement and with ZATCA’s prior approval.

• Debit or credit note: Used to adjust the value of a previously issued invoice, whether upward or downward.

Fourth Pillar: VAT Trigger Point

Under the VAT Implementing Regulations, the supply of goods or services is deemed to have occurred at the earliest of the following events:

• Issuing the invoice: If an invoice is generated when the online order is confirmed or when the purchase is completed at the POS, VAT becomes due immediately—even if payment has not yet been received or the service has not yet been rendered.

• Receiving consideration: If any payment is received from the customer—even if the goods have not yet been delivered or prepared—VAT is due on the amount received.

• Delivering the good or service: This is often the most complex trigger because delivery may be deemed or virtual. Documentation is crucial here (e.g., a goods‑received note for cash‑on‑delivery or a completion certificate for service contracts). The invoice must be issued as soon as delivery is confirmed.

How Does This Pillar Interact with the Others?

• With ownership: If the platform purchases inventory or services, input‑tax credits can play a key role in easing working‑capital gaps.

• With cash flow: Issuing the invoice and triggering VAT often coincide with receiving consideration—even if the funds are held or still being settled.

• With invoicing: If the platform issues the invoice, the tax trigger shifts to the moment the invoice is generated within the platform’s system, whereas seller‑issued invoices may be deferred until the product is prepared and handed over to the shipper.

Fifth Pillar: Special Cases for E‑Marketplaces

Issue 5082 of Umm Al‑Qura (18 April 2025) published a ZATCA Board resolution approving amendments to the VAT Implementing Regulations. Among them was a change to Article 47, which sets criteria for classifying commercial brokerage transactions. The amendment takes effect at the start of 2026.

Note: The information provided here is neither an official translation nor a condensed official translation of the amendments. Consult your tax advisor for an accurate understanding of the article.

Definition of an E‑Marketplace in the Article

The article addresses electronic marketplaces that facilitate the supply of goods and services by acting as an intermediary between seller and buyer. It specifies platforms that enable sellers to display, offer, or produce their goods and services, or that help them contract with customers—playing an active and primary role in the transaction. Excluded are systems that merely process payments (e.g., banks, payment‑service providers) and systems focused solely on marketing or advertising that redirect customers to another marketplace to complete the sale (e.g., classifieds or social networks).

Seller Segments Covered by This Regulation

The marketplaces serve many groups, but the article focuses on two main segments:

• Resident sellers in Saudi Arabia who are not registered for VAT, such as small enterprises and unregistered individuals, covering their sales of goods and services.

• Non‑resident sellers (outside Saudi Arabia) who provide services only.

Treatment Under This Article

When a platform operates under a brokerage model with either of these segments, the regulation treats the good (for Saudi sellers) or the service (for both segments) as being supplied through the platform itself. Thus, the contract is deemed to be directly between the customer and the platform, and the original supplier is considered to have supplied the platform. Consequently, the platform becomes responsible for invoicing, calculating VAT on the good or service, and remitting it to ZATCA.

Exception Criteria for These Segments

• Non‑resident sellers: (1) The platform must clearly disclose the supplier’s identity and role across all contractual arrangements, and (2) the platform must not perform any of the following roles in the transaction: setting supply terms, determining the price, demanding payment from customers, collecting payments, handling complaints, offering supply‑related promotions, or providing compensation.

• Saudi sellers: The same two conditions apply plus an additional requirement: (3) The contractual relationship between supplier and customer must be direct and in compliance with the Kingdom’s regulations.

Conclusion

A platform’s compliance begins with one question: Who is the real seller?

We answered it through five pillars that link ownership, cash flow, invoicing, VAT trigger points, and the Article 47 criteria. Regulators look at facts, not intentions, so the chosen model must be documented and reflected in contracts, technical systems, and marketing messages.

In the third article, we will apply these pillars to common platform models and detail each model’s obligations. Stay tuned.

(Next article in the series: e-Platforms & Marketplaces: Their Business Models and Compliance Requirements)

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.