Setting up an e-commerce business in the UAE
The recent Digital in 2017 Global Overview report revealed some seriously impressive statistics; more than half of the world’s population now regularly use the internet, almost two thirds have a mobile phone, and one in five people globally have shopped online in the past 30 days. The implications of this staggering digital connectivity on businesses is huge, and the UAE is no exception. With more than 90% of the region’s population having access to the internet, e-commerce is now one of the fastest growing business sectors in the UAE. Cited on numerous occasions as an accelerator for this change, the ‘Souq.com effect’, goes some way to explaining how business in the UAE is changing, with Amazon’s recent acquisition of Souq.com after a deal worth over $650 million. Combine this with an increase in tech-related business hubs, incubators, and accelerators, and it is clear that there is a huge opportunity for e-commerce businesses in the UAE.
How do I set up an e-commerce business in the UAE?
- The key steps to setting up any business in the UAE generally follow the same pattern:
Determine the legal structure of your business; an Establishment, Limited Liability Company, or Foreign Branch
- Decide where to establish your business; in a Free Zone or On-Shore
- Register a trade name
- Apply for a commercial license
- Set up a business bank account
- Arrange an office space lease
Our recent blog “Business Set Up Information UAE” goes into more depth about each of these stages, but for the purpose of this article we will just concentrate on the specific considerations for e-commerce businesses in the UAE.
LLC vs Foreign Branch
A Limited Liability Company is the most commonly incorporated commercial entity type in the UAE, and once established, provides the most flexibility and scope to trade.
An alternative and popular option for foreign investors within e-commerce is to establish a branch of a foreign office. Provided that a national service agent (such as PRO Partner Group) is appointed, branches can be 100% foreign owned. When conducting business in the UAE, a branch office will be acting on behalf of the foreign parent company and as such be linked to all contracts entered into in the UAE. The critical points to consider when setting up a branch are:
- Tax: Depending on the parent company’s tax jurisdiction, all profits will be taxable in the home country.
- Activities: A branch office is only entitled to carry out the commercial activities of the parent company, although some activities, such as trading, are restricted.
- Bank guarantee: Foreign branch offices are required to deposit a refundable bank guarantee of AED50,000 for the duration of their licence. It is not possible to withdraw or use these funds as working capital
- National Service Agent: In order to establish a branch, you are required to appoint a National Service Agent or local sponsor- a UAE national or 100% UAE-owned company. The NSA does not have any rights within the company but is responsible for dealing with authorities to obtain official licenses and visas.
Employed as a National Service Agent, PRO Partner Group will quickly and efficiently handle all administration required to establish your foreign branch, whilst enabling the foreign investor to retain 100% financial and management Control.
Free Zone vs On-Shore Business Set-Up
Free Zones are a cost-effective solution to e-commerce company set-up in the UAE. Whilst each one will offer its own particular advantages, the same benefits are typically true for each of the UAE’s Free Zones, including 100% ownership, 100% repatriation of capital and profits, 0% corporation and personal tax, import and export tax exemption, and no currency restrictions.
In October 2017, Dubai CommerCity launched as the first Free Zone to be completely dedicated to e-commerce. The AED2.7bn project has been developed as a joint venture between Dubai Airport Freezone Authority (DAFZA) and Wasl Asset Management Group, and is well-connected to major local and national highways. Its benefits include cargo and logistics services and an integrated infrastructure with easy access to land and seaports, which will help minimize supply chain costs.
There is, however, one significant limitation to this form of business set-up, in that a Free Zone company is not permitted to trade outside of that Free Zone, and must appoint a local distributor in order to provide products or services on-shore.
In the long-run, therefore, establishing a business on-shore with a local or corporate partner is likely to be a much more favourable option. The main complexity for foreign investors to establish a business on-shore in the UAE is the necessity that at least one Emirati partner must be a shareholder in the business, with ownership of at least 51%. As a company formation specialist, not only will PRO Partner Group guide you through the task of setting up your e-commerce business in the UAE, but they can act as the secure local corporate partner to a foreign investor, and therefore remove the requirement to source an individual Emirati stakeholder.
Establishing a trade name that people will remember is obviously important regardless of the nature of your business, but it is arguably even more critical for e-commerce businesses who do not have a physical presence in the UAE. Once you have decided on a trade name, using this as your domain name will make your business easier to find online.
In order to establish an e-commerce business in the UAE you will have to obtain a commercial license from the Department of Economic Development. The type of license will depend on the nature of your business activities, and if you choose to set-up in a Free Zone, the license will be issued from the relevant authority of that Free Zone.
If you plan to trade solely online, leasing an office might not have even crossed your mind, however it is not possible to register a business without it. Wherever you choose to establish your business it is important to check the minimum office space requirements. For instance, in Abu Dhabi this is 14sqm, and in Dubai, the minimum requirement for office space is 200sqft.
If you choose to establish your business in a Free Zone, there may be virtual or flexi-desk rental options. Though these often appear to be a cheaper alternative at first, it is imperative to consider that the size of your office directly dictates the number of visas obtainable under your license, therefore potentially limiting your number of employees.
Online Payment Gateway
If you are selling anything online, whether tangible products or intangible services, you will need to set up a secure online payment gateway in order to receive safe credit card, debit card, and PayPal payments through your website. Whilst this is a large outlay of expense for any new e-commerce company, getting this wrong will be detrimental to the success of your business. With an increasing number of suppliers and online payment options in the UAE, it is important to take the time to research this, and consider how these will suit your business and your budget.
If you are importing products from outside of the UAE to sell online, a customs duty (usually of around 5%) will be applicable to the imported goods.
As we have already ascertained, companies established with a Free Zone are exempt from import and export taxes. However, this is only true if you are selling products or services within that Free Zone, either on or offline. So, if your e-commerce business is registered within a Free Zone and you wish to sell anything online to the UAE market (i.e. on-shore), then you will have to first appoint a local distributor as previously mentioned, in which case import taxes will be applicable.
As with any business set-up, it is imperative to first seek professional advice and guidance if you are considering establish an e-commerce business in the UAE. Appointing a company formation specialist such as PRO Partner Group will remove the complexity of setting up your business, ensuring that the process is handled correctly to save time and resources.
For further information about setting up an E-commerce business in the UAE, please contact one of our team members on firstname.lastname@example.org or call a member of the team on:
+971 (0)4 456 1761 (Dubai)
+971 (0)2 448 5120 (Abu Dhabi)
If you are looking to be part of this through setting up an e-commerce business in the #UAE, PRO Partner can guide you through the process.#Ecommerce #BusinessSetup #CompanyFormation https://t.co/QKPKwiDpw7
— PRO Partner Group (@PROPartnerGroup) October 18, 2018