How to set up an online e-commerce business or how to add e-commerce to your existing trade licence in UAE?

As we begin to adapt to a new way of life during the Corona Virus epidemic, working from home and managing daily life routine from the click of an app has never been more popular. Whether we are ordering our daily shopping online or purchasing personal products and services, we are now adapting to a lifestyle that demands the need for ecommerce platforms.

At a time when many physical industries are suffering from closures and uncertainly, we are now entering a new era whereby online industries such as ecommerce, internet services and e-logistic sectors are seeing a rise in demand. So if you are planning to start an e-commerce business or add ecommerce to your existing licence to provide products and services online then you may be wondering how and what is the best way to obtain a license in UAE that will allow you to sell products and services virtually.

Do I need to have a mainland UAE Onshore licence to provide ecommerce or can I work from a Freezone?

You may wish to consider the options of setting up on the UAE Mainland or in a UAE Free Zone. There are some considerations you should think about before deciding which will work best for your business.

Mainland vs Freezone

Setting up as a Mainland entity will provide more flexibility and allow you to distribute goods and services directly to the UAE market. A Mainland licence can be a good option that will ensure that you have access all areas as there are less restrictions as opposed to a Freezone. In addition there is less restrictions on visa eligibility and office location with a mainland company.

There are a number of Mainland structures, the most common being an LLC (which requires 51% Local Partner) or Foreign Branch (which requires a National Service Agent).

Mainland options:

1. LLC – 51% Local Partner 49% Foreign Investor

Requirement: An LLC must have a UAE National (individual or corporate) as the majority (51%) shareholder. This means that the Foreign Investor(s) may hold no more than 49% of the shares in the Company.

Advantages

• Ideal structure for trading in products & offers the full range of activities
• Allows your company to trade anywhere within UAE mainland
• Can import, store and distribute goods
• Taxed as a local UAE company

Disadvantages

• 51% Local Shareholder / Sponsor required – although risks can be mitigated here by using a Corporate Nominee

For more information on the Local Sponsorship options in UAE please see our article here

Note that some LLC companies can apply for 100% ownership under the new UAE FDI Law. For more information see our article here 

2. Foreign Branch – 100% Foreign Investor / National Service Agent

Requirement : 100% of its shares are owned by the Foreign Parent company and this Branch is an extension of that foreign company , a UAE National UAE Company is appointed as a National Service Agent (NSA).

Advantages

• 100% ownership – Full control operational and profit guaranteed
• Onshore presence and recognised by governments and large organisations

Disadvantages

• Activities are limited to those of the parent company – the Foreign Branch specifically cannot ‘Trade’ in products and cannot import goods. This structure can only therefore be used for the delivery of services or software and other virtual commodities
• A branch of parent company – taxes in home country may apply
• 50,000 AED bank deposit required with Ministry of Economy for the life of the branch
• Marginally higher Government fees

For a full detailed comparison of Mainland LLC vs Foreign Branch please view our article here

Setting up an e-commerce licence in a UAE Freezone

A Free Zone Licence is a cost-effective option, at least in the early stages, and allows full 100% ownership with no local shareholder required – the Freezone Authority itself acts as your local sponsor. The Freezone company is exempt from customs duty of goods imported from abroad, but these goods must remain in the freezone.

The key limitation of a Free zone however is that you are restricted to operating within the free zone only - you can import and trade within that zone only. Therefore if you wish to sell products or services to companies and individuals within mainland UAE you would need to use and onshore Agent (who has a mainland trading licence) – this agent or local distributor would be able to then distribute your goods or services onshore.

There are many Free zone authorities across UAE now offering E-Commerce activity licenses with attractive packages – please ask a member of our team for more details on the options within each freezone in the UAE.

Office Space Requirements and Logistics

Mainland licences will require a physical presence with minimum office space requirements which vary upon activities of the Licence. Minimum office requirements for a mainland Licence in Abu Dhabi start at 14sqm and in Dubai is 200sqft – there are a few options such as the Instant Licence in Dubai and the Tajer Licence in Abu Dhabi that remove the early stage requirements for a physical office space.

With most Freezones you can use a flexidesk or virtual office arrangement in the early stages, at least if the physical space is not required and you have a limited number of staff visa requirements.

You are likely to have to consider how the delivery and stock of your products will be managed. Will you require a warehouse to store products? Both Mainland and certain Free Zone Authorities can offer such facilities for logistic management.

For more details on the key differences between a mainland UAE company and setting up in a freezone see our article here

Summary

There are many considerations to think about before setting up an E-Commerce business, if you would like further guidance, Pro Partner Group have an experienced team to offer advice and support to find the best solution to your business needs.

If you need assistance in setting up an e-commerce company, an online shop or if you wish to sell your products and services online or through a platform such as Instagram then please do get in touch and our team of experts will be happy to assist you with the options and the steps and process required. Please do reach out to us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi, email us at info@ppg.ae or complete the contact form below and we will be delighted to assist with meeting your needs at this time.

Jade Wong is the Business Development Manager Abu Dhabi at PRO Partner Group. For further information on e-commerce licences or any other related company set up, local partner or PRO service matter in the UAE and wider Gulf, contact Jade on jade@propartnergroup.com or complete the contact form below.