E-commerce business in the UAE is rapidly evolving. The UAE was recognized as the fastest growing e-commerce market in the Middle East and North Africa (MENA), according to a joint study by Dubai Economy and global payments technology company Visa.E-commerce transactions in the UAE reached total $16 billion (Dh59 billion) in 2019 and forecasted to grow 23 per cent annually till 2022.
This percentage may grow even faster as more and more businesses will consider moving online due to the global pandemic that hit the traditional old-style businesses heavily.Growth in e-commerce comes as digital becomes the future in the UAE. UAE residents also are among the top 10 globally when it comes to spending time on the internet and social media, averaging seven hours and 54 minutes daily.
Wow! With the digital transformations are ongoing in every sector and consumers’ trust on online shopping is building up, we can certainly believe that consumer spend via online retail platforms will see significant growth in the coming years. In this article I will explain how to start e-commerce (online) business in the UAE using simple explanations.
What Is E-commerce?
First let us understand what E-commerce business is.E-commerce, also known as electronic commerce or internet commerce, refers to the buying and selling of goods or services using the internet. It also involves making or accepting payments online.In UAE, from business setup perspective, e-commerce can be divided into two categories:
1) operating an e-commerce portal for others, and
2) selling your own goods or services using the internet.
What Types of E-commerce Activities Exist?
The first category of e-commerce is operating an online portal, where you as a provider link buyers and sellers as well as services providers and users together to make deals through your portal (e.g. website or mobile app). Under such license, you will not be able to sell goods or services yourself. Some of the examples a portal is amazon.com, Alibaba.com or eBay.
There is a special license called “Portal” in the Mainland and in most of the Free Zones in the UAE to conduct this type of e-commerce activity. The second category of e-commerce is selling your own goods or services through your own website, mobile app, or other online channels. For such type of e-commerce, you do not necessarily need a special -e-commerce license, but you need a simple trading or service license. For instance, if you sell mobile phones online, then you need to get a license for mobile phones trading.
Where to Register: Free Zone or Mainland?
For the first category of e-commerce, i.e. operating an online portal for others, you can setup your company in one of the Free Zones where such license is available or on the Mainland. Free Zones offer 100% foreign ownership and there is no requirement to tie up with a local partner or a local service agent.
Nevertheless, the Portal license falls under a professional license category on the Mainland, and therefore, can be established with full ownership too. Broadly speaking, the UAE laws allow 100% foreign ownership for companies that provide professional services. You will need to appoint a local service agent for the professional services company. Local service agents simply act as liaison between the company and the various government departments, without any ownership rights in the company.
So, from the ownership viewpoint, there is no difference between the Free Zones and the Mainland, to operate a portal – in both cases 100% foreign ownership can be secured.However, professional company on the Mainland may not provide limited liability protection as opposed to Free Zone companies, which are largely limited liability companies.
For the second type of e-commerce, i.e. if you are selling your own products or services using the internet, then you need to choose between the Fee Zone and the Mainland depending on your business model. This will depend on what type of customers will you have and territorial coverage of your business. Also, preferred jurisdiction may vary between services and trading sectors. In following paragraphs, we will discuss these in more details.
E-commerce for a Service Sector
Scenario 1: If you provide services and such services can be provided remotely without physical presence on the Mainland, then you can setup your company in any of the Free Zones where service license is available for your type of service. For instance, if you sell e-books or software programs that can be downloaded from internet for a fee, then you can go for a Free Zone option. Or if you provide consulting or advisory services that can be carried out remotely, then Free Zone company is still a viable option.
Scenario 2: If physical delivery or performance of the services is done on the Mainland, then you need to register a Mainland company. For instance: delivery services, moving services, fixing services, and cleaning services. Alternatively, you can setup a Free Zone company to own the website and IP right and setup a separate company or outsource third-party company on the Mainland to carry out the services on the Mainland.
E-commerce for a Trading Sector
In trading businesses, it is important to consider who are you customers and what your business model is: Business to Business (B2B) or Business to Customer (B2C).
Scenario 1: If you are in a wholesale business and sell your goods primarily to other businesses in UAE or overseas, you can go for a Free Zone company and sell your goods to your distributors. Goods sold from Free Zone companies to companies on the Mainland needs to go through the customs clearance and applicable custom duties must be paid.
Scenario 2: If you are in a retail business or if you sell goods online primarily on the UAE mainland, then setting up a company on the Mainland would be a preferred option. Otherwise, you can setup a Free Zone company to own the website and IP rights and outsource customs clearance and distribution on the Mainland to a trading company licensed on the Mainland.
What is a Payment Gateway?
Another important aspect of an e-commerce business is a payment gateway. A payment gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card, debit card or direct payments processing through online channels. There are several payment gateway providers are available in UAE like Telr, Checkout, MIGs, MPGS, Cyber Source, Payfort etc.Each payment gateway provider has its own fee structure. One payment gateway provider can be a good option for one type of business but may not be the best one for the other type, therefore, it is important to compare between different types of payment gateways.
One you know the license type, then you can select the jurisdiction and the legal form of your business. After forming your company and getting the required license, a business bank account in UAE can be opened. Parallelly, you need to develop your website and select the payment gateway provider. Once all these steps are completed, you can launch your e-commerce business.
You can also watch my YouTube video on this topic through this link.