Another milestone for the Kingdom’s digital transformation
The Saudi Ministry of Commerce and Investment (“MOCI”) has introduced a new Electronic Commerce Law (the “E-Commerce Law”), effective as of 9th October 2019. It is part of the Saudi Vision 2030 to diversify and enhance the economy of the Kingdom of Saudi Arabia (“KSA”), and this is another milestone achieved in the Kingdom’s digital transformation journey.
The E-Commerce Law
The E-Commerce Law will apply to all those providing goods or services via an electronic store within the KSA or any electronic platform or store that can be accessed by consumers in the KSA.
The E-Commerce Law has developed the e-commerce sector by allowing service providers, whether having a commercial registration in KSA or not, to sell their goods and services to consumers online. By opening up the e-commerce sector in this manner, the E-Commerce Law aims to stimulate and develop e-commerce activity whilst regulating the relationship between all types of service providers and consumers.
Under the E-Commerce Law, service providers will be required to provide consumers with online terms and conditions of use, by way of an electronic contract between the provider and the user. The service provider will also have to disclose details of their trade, the goods and services provided and the total price, which will include all fees, taxes and other related payments. Moreover, to further govern the relationship between consumers and practitioners in the e-commerce realm, the E-Commerce Law also requires service providers to issue an electronic notification to make it clear, on the face of the transaction, that it will bind the end-user in a contractual relationship.
The Law aims to improve overall consumer confidence in e-commerce transactions. It includes provisions intended to protect consumers against fraud, deception and misrepresentation of information. There is a clear emphasis on the protection of consumer data, and the E-Commerce Law imposes a legal obligation on the service provider to maintain the privacy of a consumer's data. Furthermore, the E-Commerce Law includes a provision that consumers may return goods, or terminate a contract of service, obtained through an e-commerce channel, within seven days of receipt, if they have not used or benefitted from the goods or services - except for certain circumstances that are set out in the E-Commerce Law. Such circumstances are likely to include a situation where the good is defective due to poor consumer care. The consumer will also have the right to cancel their order if the service provider delays delivery for more than fifteen days. Further, certain obligations are placed around electronic advertisements.
An independent study conducted by ‘eShopWorld’ in 2018 reported that “there are currently 12.94 million e-commerce users in Saudi Arabia, with an additional 6.34 million users expected by 2022” and that in 2022 the “19.28 million e-commerce users will spend an average of USD 487.70 online”. The E-Commerce Law is intended to lay the foundations for this surge in online activity in the region, and develops consumer rights, to align with other jurisdictions around the globe, to further promote confidence in its online users and encourage them to further engage in e-commerce in the KSA.
E-commerce is a fast-evolving sector in the KSA that has seen a continuous upwards trend over the last few years. According to figures from the KSA Communications and Information Technology Commission, the rate of e-commerce growth, grew 49.9% by volume in 2018, an increase on the 47.9% in 2017, and 37.3% in 2016. The E-Commerce Law is another step towards enhancing and promoting the growth of this sector in the KSA and is expected to reach untapped potential companies, consumers and practitioners; primarily facilitated by the provision that practitioners, that do not have commercial registration in the KSA, but are wanting to participate in e-commerce, will now be able to engage in regulated electronic trade.
Monitoring and enforcement
The E-Commerce Law has given the authority to the MOCI to form committee(s) to apply punitive measures in the event of an individual violating provisions of the E-Commerce Law. The severity of the penalties that can be awarded pursuant to the E-Commerce Law range, depending on the violation, from the violator receiving a mere warning, to receiving a monetary fine of up to one million Saudi Riyals. In addition, the committee could order for the e-commerce practice to be suspended, or closed down permanently, or have the website blocked. The severity of the penalty imposed, or penalties (if more than one measure is applied), will take into consideration factors such as the seriousness of the violation, its frequency and the damage caused to others.
In fact, the Department of Monitoring Electronic Stores has already been established within MOCI. Its role is to monitor electronic stores, monitor their compliance with the E-Commerce Law (and the implementing regulations) and receiving consumers’ complaints.
Guidelines and implementing regulations
The E-Commerce Law provides a high level review of the requirements for e-commerce service providers and users and will be accompanied by “Implementing Regulations”, a draft of which has been issued for public consultation. MOCI has also issued guidelines for compliance with the E-Commerce Law which reiterate in a simplified manner the requirements and obligations under the E-Commerce Law.
The Implementing Regulations will provide more granular detail on what is expected under the E-Commerce Law. For example, the draft Implementing Regulations stipulates certain timelines, mandatory data and information required at the various stages of the e-commerce business model, registration of service providers in the commercial register and licensing requirements for entities engaged in the registration of electronic stores.
A marketplace is also defined in the draft Implementing Regulations, and obligations of a marketplace towards service providers and consumers are also stipulated.
Furthermore, the draft Implementing Regulations regulate in further detail data privacy and handling of personal data.
Although practitioners not having a registration in KSA seem to fall within the ambit of the E-Commerce Law, the draft Implementing Regulations, for the purpose of determining the address of a practitioner, seem to recognise practitioners having a place of business (or a place of residence/domicile in the case of individuals) in KSA, which may not clearly reflect the spirit of the E-Commerce Law of embracing foreign practitioners. This seem an area to be considered along with tax advisors as it may trigger certain considerations that are beyond operational aspects.
We see the E-Commerce Law as a great step forward in regulating e-commerce in KSA and essential to the digital transformation journey. Nonetheless, the E-Commerce Law did not clearly define its scope. Does it also apply to the offering of financial services? Will there be support for innovative digital solutions that may offer e-commerce not as core, but as part of a bigger solution, whether in a sandbox or otherwise? Does the E-Commerce Law also apply to manufacturers who digitised their sales platforms given the broad sense of a “consumer” in the E-Commerce Law?
The draft Implementing Regulations seem to affect all e-commerce offering in KSA and there are new obligations and registration procedures introduced to the market. We suspect that concerned parties will take a more cautious approach when engaging in e-commerce in KSA, thus affecting the growth rate of e-commerce in the Saudi market to avoid falling foul of the provisions of the E-Commerce Law and the Implementing Regulations.
We would have hoped to see in the Implementing Regulations a new approach that supports the growth of local e-commerce providers and that collaboratively interlinks with the various components of an e-commerce transaction, such as but not limited to, payment platforms (gateways, e-wallets, etc), insurance, and exclusion of certain businesses from the scope of implementation. However, we have seen various regulators in KSA, including MOCI, being agile in refreshing laws and regulations to ensure that the local market is getting the required regulatory support, which keeps us excited to monitor this space.
Article co-authored by Bilal AlSamarrai and Lyndsey Shaw.