Now-a-days, online technology is being adopted by all business sectors worldwide at a very fast pace. There is consumer shift from brick and mortar retail to smart phone shopping by consumers; which fulfills all our needs such as from buying grocery to high street fashion or electronics, you can purchase all that online at the comfort of your home. The demand for online stores in UAE is also rising. It is expected that UAE e-commerce sector will hit $10 billion in 2018. This increase in value is tremendous as in 2014, online trading was at $2.5 billion.
Increased consumer demand has driven businesses to opt for e-commerce in UAE. This brings a huge pool of opportunities for new entrepreneurs as they have space to grow in this sector.
E-Commerce Business License in Dubai
If you are looking to setup an online business in Dubai, we have listed down several steps that you have to execute for your company formation. Of course, KWSME provides its services for business incorporation in Dubai and we encourage you to contact us for developing a sound business model as well as all the documentation and legal work required to obtain business license in Dubai.
Step 1: Decide legal structure of your business whether to setup Limited Liability Company, branch office, representative office etc.
Step 2: Choose the area for your business whether to setup Free Zone or Mainland Company.
Step 3: Registration of trade name
Step 4: Application for commercial license
Step 5: Open business bank account
Step 6: Arrange lease for office premises
We have thoroughly explained these steps in our article 6 steps to start business in Dubai. Here we will focus on specific consideration regarding e-commerce business in Dubai.
Limited Liability Company vs. Foreign Branch
Limited Liability Company formation is the most common type of company formation in Dubai and it provides flexibility and benefits to businesses in terms of trade. There is another popular option for foreign investor is to setup branch of foreign office. Branch office acts on behalf of parent company and gives 100% foreign ownership. Few considerations must be kept in mind while setting up branch office in Dubai such as tax on profits in home country, activities of branch office to be performed in Dubai and appointment of National Service Agent or local Sponsor in Dubai in order to establish branch.
Free Zone vs. Onshore Company Formation
Amongst these two, free zones company formation is more cost effective solution for ecommerce business. It gives complete ownership, complete profit repatriation, personal, corporate, import and export tax exemption and no restrictions on currency.
A limitation on free zone setup is that they are not allowed to trade outside respective free zone. If they intend to, they must hire a local distributor for trading onshore.
Onshore business setups therefore are much more favorable option for e-commerce businesses but they do require a UAE national to own 51% of shares in the company. Our experts at KWSME will guide you more regarding benefits of each of these forms of business and which will suit you most. Read more about the difference between both these forms of business in our blog.
Choose a name that people remember. This is even more important for online business in Dubai because they do not have physical presence. Use your trade name as domain name so that it is easier for people to find you online.
In order to setup e-commerce business in Dubai, you will have to acquire commercial license from DED (Department of Economic Development). In case of free zone, respective free zone authority will issue business license. License type depends upon nature of your business operations.
Lease for Office Space
It may not have crossed your mind to lease an office space if you intend to trade online completely, but you must know that you cannot register without it. Check minimum office space requirements from the authorities e.g. in Dubai minimum office space requirement is 200sqft.
In case of free zone establishment, there are cheaper alternatives like virtual or flexi-desk rental options. But do keep in mind; obtaining visas for employees depends upon office space. More office space, more visas you can obtain.
Secure Online Payment
Whether you are selling products or services, you must establish a secure online payment system in order to receive safe credit card, debit card and paypal payments through your website. This may sound costly for new startups but you have to invest proper time and money for this measure as getting it wrong would be harmful for your business image. Also the number of suppliers and online payment options are increasing in Dubai, you have multiple options to consider which one suits your business and falls under your budget.
UAE imposes 5% of customs duty to the imported goods. Free zone companies are exempt from import and export taxes. This is true in the case when you are selling your products in the respective free zone only whether online or offline.
If you have setup e-commerce business in free zone and also want to sell online to UAE market, you will have to get services from local distributor and import taxes will also be applicable for you.
With any form of business setup in UAE, it is advisable to seek professional advice from a consultant company who assists you along the way whilst saving your time and resources. As company formation specialist, KWSME will guide you through the task of setting up an e-commerce business in Dubai. Contact our business agents for further guidance.