Globally, the gaming sector is growing exponentially. Saudi Arabia, too, is making huge investments in its gaming sector as part of Vision 2030. For instance, the Qiddiya City near Riyadh is building capabilities to host a major esports arena, backed by Savvy Games Group and the Public Investment Fund. Recently in July and Aug 2025, Riyadh hosts the Esports World Cup, the world’s largest esports event led by the efforts of the Saudi Arabian Games and Esports Federation (SAGAF).

The Kingdom sees gaming as a way to diversify its economy, connect with youth, and build global influence.

Commercial transactions

Saudi Arabia prohibits all forms of gambling. This includes both physical and online gambling platforms. Further, the promotion or facilitation of gambling activities via electronic means is also prohibited. However, non-gambling online games, such as e-sports, mobile games, and console-based entertainment, are permitted and increasingly regulated.

Having said that, online gaming activities are not governed by any specific gaming regulation. Thus, the broad spectrum of regulations in the Kingdom that are applicable to other sectors would apply to online gaming activities too, viz. the Sharia law, data protection and privacy laws, financial market laws for licensing and payments, and advertising laws regulating the content and advertisements in this space.

There are different participants in the online gaming ecosystem viz. the game developers, game publishers, e-distributors, retailers and streaming platforms (also known as intermediaries), hardware/software developers, gaming arenas and finally the players and broadcasters¹. With players, developers, publishers and platforms spanning jurisdictions, the VAT implications are complex, especially in terms of determination of the place of supply and the value of the supply.

Understanding KSA VAT Implications

The Kingdom does not have a designated VAT policy for the online gaming sector. Hence, transactions in this sector must be examined within the realms of the general VAT law.

General VAT Provisions

As a general rule, the Kingdom levies 15% VAT on taxable supplies of goods and services. Exports are zero-rated while certain supplies (eg. specific financial supplies) may be exempt. In case of imports, VAT must be paid by the Saudi buyer under the reverse charge mechanism (RCM).

Taxpayers can claim an input tax credit (ITC) against their VAT liability. However, the ITC claim may be reduced if the supplies are totally or partially exempt from VAT.

Further, non-resident entities making B2C supplies to KSA customers must register for VAT in the KSA regardless of their turnover.

Classification of Online Gaming Transactions

Under the KSA VAT Law, supplies related to the online gaming industry should generally be classified under “services” and should fall under “electronic services. The definition of electronic services is wide enough to cover different kinds of transactions in the online gaming sector – right from developing gaming software to supplying games to hosting online events and selling merchandise. Thus, generally, all supplies in this sector are taxable as electronic services. Globally too, many countries consider online gaming supplies as digital services or electronic services from a VAT perspective.

Place of Supply

KSA adopts the following principles to determine the place of supply of “electronic services” in the order provided below:

1. where the physical presence of the customer is required for the enjoyment of services, that place is considered as the place of supply;
2. in other cases, the place of residence of the customer is considered as the place of supply (determined by the billing address, IP address, credit card details, SIM card etc.); and
3. in all other cases, the place of the supplier is considered as the place of supply.

In certain cases, a combination of few parameters may be required, rather than relying on just one parameter. For example, the IP address may be traced to KSA, but the SIM card being used is of another country and the billing address is also outside KSA. It remains to be seen if ZATCA will look to tax such scenarios just based on the fact that IP address used is KSA based.

If electronic services are provided in the Kingdom through an online interface or portal acting as an intermediary for a non-resident supplier, the operator of that interface is presumed to be a deemed supplier in the KSA. In other words, the operator is deemed to purchase the services from the non-resident supplier and supply them in their own name, thereby being liable to pay VAT on that supply.

VAT Implications on Specific Transactions

Having said that, let’s examine some of the transactions in the online gaming sphere and the VAT implications thereon.

• Sale of advertisement space on game portals: The sale of advertisement space (or ad space) on game portals is clearly identified as an electronic service. If it is supplied to KSA customers, the place of supply is in the KSA, and the supply is considered as a taxable supply subject to KSA VAT Law.However, if the ad space is sold to non-resident advertisers, the place of supply is outside the KSA and the supply is considered as an out-of-scope supply in the KSA. This is subject to normal export of service conditions even though the supply of service is electronic in nature.

  In case of non-resident B2B transactions, the determination of the place of supply can be challenging in situations where the non-resident entity bears the cost of advertisement, but the advertisement is targeted to KSA customers.

• Sale of gaming merchandise: Like any sector, the gaming sector too supports allied sectors and one such burgeoning allied sector is that of merchandise. Gaming merchandise (or simply “merch”) attracts millions of fans and consequently, investments. The VAT treatment differs for both supplies – i.e., physical and digital merchandise.While the rules for determining supply of tangible goods are simpler, the supply of digital products can be complicated. Such supplies of digital merch (eg. skins, avatars, downloadable content etc.) is likely to be considered as a supply of electronic services, in which case the place of supply is the place of residence of the customer. For example, if a KSA supplier supplies digital merch to customers (B2C supplies) in KSA and overseas, it must register for VAT in the KSA. Potentially, there may be an obligation to register in other countries as well (where the customers are located). VAT registration in all the countries may pose practical difficulties; hence, the KSA supplier may evaluate the possibility of collaborating with intermediary platforms to execute B2B transactions that are subject to RCM in the recipient country.
• Virtual event booking fees: Determination of the place of supply of virtual events, and consequently, the right to tax, is a global challenge.Let’s say a KSA supplier hosts a virtual gaming event inviting bookings and participation from all across the world. The VAT implications would differ as follows:
  • for participants in the Kingdom, the KSA supplier must charge 15% VAT on ticket or access fees; and
  • for participants outside the KSA, the supply is treated as an export of electronic services. The applicability of tax depends on whether the tickets are booked by an intermediary (B2B supplies) or the customers directly (B2C supplies). While B2B is generally simpler, B2C supplies may potentially warrant a VAT registration obligation in the foreign country.

  On the other hand, if a non-resident supplier hosts the virtual gaming event and allows access to KSA B2C customers, the non-resident supplier will be required to register for VAT in the KSA.

The Way Forward

Globally as well as in the Kingdom, VAT regulations applicable to the fluid online gaming sector are evolving. Cross border transactions and global virtual events question the situs of taxation. Suppliers must often register and comply with local VAT regimes in multiple jurisdictions, manage data, invoice rules, foreign exchange, and keep up with divergent national laws. This makes global compliance a major challenge for e-gaming businesses The Organization for Economic Co-operation and Development (OECD) has been actively working with various countries on matters relating to the taxation of digital transactions globally.

The VAT policy for the online gaming sector will evolve at its pace. Regardless, it is important for the taxpayers to ensure that the tax positions they take under the VAT law must be substantiated by detailed agreements, consistent accounting policies, internal controls and VAT compliance. In addition to VAT, the tax heads of e-gaming operators and publishers should also be mindful of managing their corporate tax and transfer pricing obligations globally.

¹ For further details on the participants and their roles in the gaming ecosystem, see INSIGHT: Online Gaming—Play with VAT Carefully – Dhruva Consultants – Leading Tax Practice