Some decades back, people in the UAE were only able to buy offline, just like the world. However, advancing technology has made it possible for everyone to shop over the internet during 2024. You can start an eCommerce business in Dubai to drastically increase your share of online purchases.
Nowadays, all business sectors worldwide are adopting online technology at a very fast pace. There is consumer shift from brick-and-mortar retail to online and mobile shopping. Users are fulfilling all their purchasing needs online such as from buying grocery to high street fashion or electronics.
Increasing consumer demand has driven companies to opt for e-commerce in the UAE. It brings limitless opportunities for new entrepreneurs as they have space to excel in this sector. They can begin online retail businesses to serve the growing number of online buyers.
Especially, customers can purchase all these items online from the comfort of their homes. Therefore, the demand for online stores in the UAE is also rising. UAE’s e-commerce sector hit $10 billion in 2018, tremendously growing up from $2.5 billion in 2014.
Defining the electronic commerce (eCommerce)
What is eCommerce (electronic commerce)?
Electronic commerce (eCommerce) is the business activity which includes purchasing and selling of products or services through an electronic medium. Today, it is not necessary for companies to have a physical store to provide their customers with goods and services. Rather, users can buy items/services online, from their houses.
After the number of online users grew, Amazon and eBay chosen e-commerce for retail purposes. Thus, the use of electronic mediums grew for buying and selling retail items. eCommerce is an emerging sector and investors globally have put in billions of Dollars which are paying off.
Platforms like Walmart, Alibaba, Etsy, Target, etc. are really changing the world of retail. Businesses in the USA, Europe, Asia, Americas, and the world are managing their e-commerce websites. They are running these apart from the physical shops and outlets that they own.
Retail companies provide a larger variety of options on online stores. It helps create business activity on website, which leads to customers visiting their stores. Overall, this helps generate sales for the business.
Business activities performed with online portals
Which are the business activities that you can perform with online portals?
Globally, online portals let you perform various types of business activities. eCommerce is the driving force that enables these activities. Let us list some of them here for you.
- Online shopping is one of the biggest business activity.
- Some organizations use virtual stores to expand customer bases to areas where their stores do not exist in physical form.
- Businesses use only the electronic medium to operate their businesses, rather than investing in physical infrastructure.
- Consumers living abroad get access to the products and services of businesses that don’t have physical stores in their countries.
- Another important activity that you can perform through eCommerce is buying tickets online.
- Travelers do not have to stand in queues for long time for reserve tickets for tours.
- People can book tickets for enjoying entertainment shows and sports events.
- You can conduct virtual auctions with the help of e-commerce.
- Various websites allow sellers to upload their products and services for customers to buy.
- By using these web-portals, the sellers don’t have to worry about investing in their own physical or virtual stores.
Electronic payment systems provide users with the ease of making payments for utility bills. They also allow the user to pay phone, internet, and retail shopping bills etc. through online banking systems. It brings to light to the Internet banking system. This virtual banking system allows people to go about their regular banking activities without having to visit the physical bank branches.
Using electronic mediums to generate sales is also an aspect of the business that new business owners have to understand. The knowledge of these few factors can help push the business in the right direction. Make the most of the increasing online users to generate more sales.
Main kinds of eCommerce businesses
What are leading categories of eCommerce businesses?
These are the chief kinds of eCommerce businesses worldwide and in Dubai.
Now, we briefly look upon these categories of eCommerce businesses.
Companies can conduct e-trading (electronic trading) by creating an online shop with its own stock. Your company stores goods in its own warehouse. You can lease a warehouse where you will keep the stock at all times. Once, you receive the order, you can ship the products right away.
You can open a company where you will not hold any stock. Rather, you use drop-shipping to deliver products directly from the suppliers. In this type, you don’t have to maintain inventory.
Online exchange platform
A company can build an online exchange platform that brings together various buyers and sellers. You don’t have to keep inventory of the items. Essentially, you run an online system that allows the visitors to place orders on the website.
Once, you get an order, you forward the request to the manufacturers. They are fully responsible for arranging goods for shipment. Accordingly, they directly supply the items to the end customers.
Considerations before starting an eCommerce business in UAE
Which things you need to consider while opening an eCommerce business in UAE?
You have to think upon these factors to start an eCommerce business in Dubai and the UAE.
Here we take a look on these factors.
Choose legal form of business
You can select from different legal forms for your eCommerce business formation. Your options are LLC, one-person company, branch of a parent company, representative office, etc. Most common are the LLCs and branch offices as they offer plenty of benefits.
These are some deliberations in this regard.
- Limited Liability Company vs Foreign Branch
- Free Zone vs Onshore Company
- Costs and operational budgets
Let’s have a look on these matters.
Limited Liability Company vs Foreign Branch
In the UAE and Dubai, LLC (limited liability company) is the most common type of company formation. It provides flexibility and several rewards to businesses in terms of trade. This legal form is better for facing any future lawsuits.
A foreign investor can setup a branch of foreign office to bring a global eCommerce business to the UAE. Branch office acts on behalf of the parent company and gives 100% foreign ownership. Also, you must keep in mind several points while setting up branch office in Dubai.
For example, activities of branch office in Dubai, tax on profits in home country, appointment of national service agent, etc. Think about appointing a local sponsor to smoothly establish a branch in Dubai. Pick from LLC or branch office according to your use case.
Free Zone vs Onshore Company
Among these two, free zone company formation is more cost effective solution for e-commerce business. It gives complete ownership, complete profit repatriation, personal, corporate, import/export tax exemption, and no restrictions on currency. A limitation on free zone companies is that they can’t trade outside the respective free trade zones.
If they intend to, they must hire a local distributor for trading onshore. Therefore, onshore business setups are much more favorable option for eCommerce businesses. Because, e-commerce companies on mainland can freely trade with the users in Dubai and the UAE.
A free zone company formation is sufficient for a drop-shipping business, as it doesn’t require storage and delivery of goods. Also, free zone is suitable for online exchange platforms, as they just enable communication between the buyers and the sellers. E-trading businesses require a local or mainland company formation, as you need to distribute/deliver goods which you’ve sold online.
Costs and operational budgets
Along-with the type of business setup, your budget determines which option you can go for. The cost of a local eCommerce company setup is high in the UAE. Also, other operational costs are steep, as you have to lease a warehouse as well.
For an e-commerce startup in Dubai with no external funding, it is a little difficult to manage in the beginning. Incorporating an eCommerce company in a free zone is more feasible, as it requires minimum investments. Also, you can pick a free zone in one of the northern Emirates, to further decrease your expenses.
Secure online payments
Whether you are selling products or services, you must establish a secure online payment system. So that you can safely receive credit card, debit card, cash, PayPal, and other types of digital payments. It may sound costly for new startups but you have to invest proper time and money for this measure.
Because, getting it wrong is harmful for your business image. Also, the number of online payment options and digital finance partners are increasing in Dubai. Therefore, you have multiple options to consider which one suits your business and falls under your budget.
Think about customs duty
The UAE imposes 5% customs duty on the goods you import to the country. Free zone companies are exempt from import and export taxes. However, it is only applicable when you are selling your products in the respective free zone, whether online or offline.
In case, an eCommerce business setup in a free zone wants to sell online to the UAE market. It has to partner with local distributors for delivery of items to the users. Thus, import taxes will apply on it as well.
Procedure to obtain an eCommerce license in Dubai
What is the process to get an eCommerce license in Dubai?
Here are the steps to acquire a license to start an eCommerce business in Dubai.
- Select trade name for your business
- Apply for business license
- Get your initial NOC
- Prepare the MOA and LSA agreements
- Establish a business location
- Gather final approvals
Next, we have a look on this step-by-step process to start an eCommerce business in Dubai.
Select trade name for your business
Pick a unique trade name that people remember, and submit an application for its approval. This is important for online businesses in Dubai, as they do not have physical presence. Also, use your trade name as domain name, so that it is easier for people to find you online.
Apply for business license
The type of eCommerce license depends upon the nature of your online business. Normally, you have to provide a business plan for acquiring an eCommerce business license. You may have to describe the exact process of buying the product on your website.
So, you must have everything at hand as you go to register your eCommerce company in Dubai. To setup an e-commerce business in Dubai mainland, you have to acquire commercial license from DED (Department of Economic Development). A mainland company has to approximately pay AED 10,000 to DED for issuance of license.
For registering a free zone eCommerce company, you have to acquire license from the respective free trade zone. Additionally, free zone authority may request you to specify all the suppliers or manufacturers you will work with. Regulatory department may need you to fulfill some requirements as well.
Get your initial NOC
Receive your initial approval as a no objection certificate (NOC) from DED to start your eCommerce business in Dubai. Its validity is 6 months, and there is no renewal. You can apply for initial approval certificate at the same time while submitting your trade name approval application.
Prepare the MOA and LSA agreements
Draft a memorandum of association (MOA) and local service agent (LSA) agreement with the sponsor and submit it to DED. This step is necessary for incorporation of an e-Commerce business as a mainland company. eCommerce companies setting up in the free zones can skip this step.
Establish a business location
You may think that you don’t need to rent or lease an office space, if you intend to trade online. However, you must know that you cannot register an eCommerce business without it. DED has made it compulsory for a company to have an office so as to consider it a legal entity.
So, you have to establish an office in Dubai to legalize your eCommerce business. Check minimum office space requirements set by the authorities. For instance, minimum office space requirement is 200 square feet in Dubai.
In the event, you settle for free zone establishment, there are cheaper alternatives like virtual or flexi-desk rental options. Nevertheless, keep in mind that obtaining visas for employees depends upon office space. More office space means that you can get more visas.
Gather final approvals
Once, you complete all the above steps; you will get a business license within 1 week. After that, open corporate banking account in Dubai in a bank which most suits your needs. Gathering final approvals means that you are good to go ahead to run your eCommerce business.
This is advisable to seek professional advice from a consultant company, for any form of business setup in the UAE. It assists you along the way whilst saving your time and resources. For professional guidance in eCommerce business formation in Dubai, seek the help of expert business advisors.
Business consultants provide assistance in the complete process of setting up a new company in Dubai. KWS Middle East is here to make the process of starting a business setup in UAE as easy as possible for its clients. Connect with us today to make your journey as smooth as possible.