Starting an E-Commerce Business in the UAE: 5 Things to Know

The growth of the e-commerce industry shows no sign of slowing down.

It’s expected that global e-commerce sales will continue to boom, increasing by 246.15% by 2021. This growth is expected to impact all markets, from emerging markets like the Middle East to its developed counterparts in Europe and North America.

For a country like the United Arab Emirates (UAE), e-commerce signifies new opportunities for economic growth and development. Already, several of the country’s Emirates are championing themselves as an e-commerce hub. Dubai and Abu Dhabi, for example, are setting ablaze the e-commerce trail for the Gulf Coast region.

Significant efforts have been made throughout the country to establish itself as a major player in the online retail space, according to business consulting services providers. The growth of broadband and improvements in logistics has further fueled the demand for e-commerce businesses in the UAE.

With more than half of the world’s population turning to the Internet to engage in online retail and other services, now is as good a time as any to launch an online business. Consumer demand across all demographics highlights the need for businesses to engage in the online retail space.

If you’ve been stalling in starting an e-commerce business, here are the key things to know that will simplify the e-commerce business setup process — so you’ll be up and running in no time.

1. Licensing procedure

If market research has been done, then the next step in launching your e-commerce business is obtaining the necessary licensing.

Before any business is carried out online, your new startup will be required to obtain the appropriate license from the Department of Economic Development (DED). Forming any business, from web-based to traditional retail stores, requires a visit to the DED, so visit them first.

Where you establish your e-commerce company will determine what other licenses and government approvals will need to be issued. Setting up your business in a free zone will require you to obtain a relevant license from the respective free zone authority.

For foreign investors and expats looking to launch an e-commerce company, the free zones offer multiple advantages.

Benefits include:

• Complete business ownership
• Zero tax (corporate, income, personal, etc.)
• Import and export tax exemption
• Complete repatriation of capital and profits with negligible custom duties

If you prefer to operate your e-commerce business outside of a free zone (say, on-shore or in the mainland), complexities may arise. Your established business will require at least one Emirati shareholder, and this partner will be required to own 51% of the business.

The nature of your e-commerce business will also determine the type of license issued by the DED and relevant free zone authorities.

2. Setting up a physical office

To be considered a legal entity, an online business is required to set up a physical office. While it may seem counterintuitive, it is impossible to register and trade online without leasing office space.

Dubai and Abu Dhabi even require that your office meets the minimum office space requirements, 200 sq ft and 150 sq ft, respectively.

Establishing your online business in a free zone gives you access to cheaper office alternatives like flexi-desk rental options. Be forewarned, though; the size of your office dictates the number of employees and visas you can obtain. So while it may be a cheaper alternative, it may negatively impact your business in the long run as it scales to meet demand.

3. Establishing your website

Website development and its hosting domain may be the most important aspect of your online business. There are many facets to consider when developing a website. An excellent user interface that is user-friendly is necessary to create a positive user experience.

Knowing your hosting needs is also necessary to ensure your web host is stable and has 24/7 server reliability.

To establish your online presence, the following steps will need to be taken:

• Registering a domain name

Finding the right domain name for your business is an important step in getting your business online. You will want a domain name that is easy to spell, unique, memorable, and relevant to your business. Most importantly, your domain name should be short and SEO-friendly.

Finding a domain name that fits every criterion highlighted above might be difficult. Luckily, there are online databases (WHOIS, for example) that can help you find the right domain name if the one you want is unavailable.

• Payment gateway integration

Depending on the nature of your business, your website may require a payment gateway. Online payment gateways enable your business to securely accept transactions for its products or services.

It’s important to research this process thoroughly as getting it wrong can be detrimental to the success of your business.

With numerous online payment gateway vendors and suppliers in the UAE, consider how each will impact your budget and suit your business needs.

Your merchant account for online payments must be certified through the Digital Protection program to safely secure various types of online payments. Your secure gateway payment options should include credit card payment, prepaid card systems like PayPal, and cash on delivery.

• Customs duty

Where your business is established and where its products are being sourced will determine the customs duty required.

Imported goods from outside the UAE will be subjected to a customs duty tax. This is usually around 5%, applicable to all imported goods. Companies established in a free zone though will be exempt from import and export duties.

This exemption is only applicable to products, goods, or services within the established free zone or outside the country. Customs duty will apply to online transactions if products or services are sold to the UAE market (in the mainland, for example).

A local commercial agent or distributor will also have to be appointed to sell products or services to the rest of the UAE market, outside of your business’s respective free zone.

Getting ready to start selling online

With internet and smartphone penetration rates some of the highest in the region, those looking to start an e-commerce business in the UAE should do so with haste.

The arrival of e-commerce giant Amazon to the Gulf region in 2017 has had a seismic impact on the e-commerce industry in the UAE. Amazon’s acquisition of Souq.com signified that the country was ready for a bigger share of the e-commerce market. With expectations high that the fledgling e-commerce sector is about to experience a major expansion, the UAE is an e-commerce entrepreneur’s dream.