Is ecommerce profitable in the UAE?
The latest statistics show that ecommerce is booming in the United Arab Emirates. Research from Merchant Machine in September 2022 found that of 25 regions internationally, the UAE ranked number 1 as the fastest-rising ecommerce
country.
The same report highlighted an impressive statistic for ecommerce in the UAE. In 2021, the UAE's ecommerce spending as a percentage of GDP increased by 1.10%.
The UAE ecommerce market is forecast to be worth USD 9.2 billion by 2026, says a report from the Dubai Chamber of Commerce. They found that ecommerce sales doubled from USD 2.6 billion in 2019 to USD 4.8 billion in 2021.
What types of ecommerce business can I run?
We know that ecommerce is a smart venture in the UAE, but what business activities does this involve? These are popular ecommerce business models:
-
Dropshipping
- Business-to-consumer (B2C)
- Business-to-business (B2B)
- Affiliate marketing
- Subscription service
Dropshipping in the UAE is a great option with extremely low start-up costs. Warehousing, stock, and shipping of customer orders are managed by a supplier, giving you more time and finances for marketing and running the
business.
6 steps to set up an ecommerce company in the UAE
The procedure to set up an ecommerce company in the UAE involves the following steps:
1. Decide what type of company
2. Choose to operate in a free zone or UAE mainland
3. Register the company name
4. Rent an office
5. Apply for a trading licence and registering
6. Open an Emirati business bank account
Here are the full details to help you get started.
1. Decide what type of company
The type of company you choose for your business is also known as your business legal structure or business entity. This will affect:
- Tax rates
- Paperwork requirements
- Fundraising
- Whether you need a board of directors
- How much liability your company faces during lawsuits
Types of business structures to choose from:
- Sole proprietorship
- Partnership
- Limited liability company
- Corporation
- Cooperative
In a free zone, it is permitted to set up either one of these business entities:
- Free zone limited liability company (FZ LLC)
- Free zone company (FZ Co.)
- Free zone establishment (FZE)
It is recommended to consult a chartered accountant for advice on which is the best option for your business. The most common type of business structure in Dubai is a limited liability company due to the benefits it can receive.
2. Choose to operate in a free zone or UAE mainland
There are more than 40 free zones in the UAE, over half of which are in Dubai. The benefits of operating in a free zone include:
- 100% foreign ownership
- 100% repatriation of capital and profits
- No corporate or income tax
- No customs duty
- Developed business communities
- No requirement to have a physical office space
- Not all free zones request financial audits
- Three-year visa for non-UAE nationals
Drawbacks of business in a free zone:
- It is prohibited to do business outside of a free zone with the rest of the country unless hiring a commercial agent or distributor onshore
- Similarly, there are restrictions on expansion onshore
- Each free zone has its own jurisdiction which can limit business activities
- Free zone office rental can be more expensive than the mainland
- A free zone company cannot be transferred to the mainland
- There is a minimum capital requirement in certain free zones
The benefits of operating in the UAE mainland:
- The right to do business anywhere in the UAE and globally
- No corporate or personal taxes
- 100% foreign ownership
- 100% repatriation of capital and profits
- No currency exchange restrictions
- More options for business activities than in a free zone
- No minimum capital requirement
- No limitations on the number of visas on the mainland licence
- Permission to take on UAE government contracts
- Two-year visa for non-UAE nationals
Drawbacks of operating in the UAE mainland:
- It is legally required to rent an office space
- Some commercial activities are prohibited in the UAE
- Mandatory to prepare a financial audit at the end of the fiscal year
3. Register the company name
Apply for a trading name through the online economic department of the emirate you will operate in. The application requires you to submit 3 name choices.
Check with the free zone authority you will be based in for any restrictions on trade names and availability. In general, these are some guidelines from the Department of Economic Development:
- Must not violate the public morals or public order of the country
- Must be followed by the legal form of the company (LLC, FZE, DMCC)
- Has not been previously registered
- Is compatible with the required type of activity and legal status
- Should not contain names of any religion, governing authority, names or logos of any external bodies
For inspiration, read our post: How to choose a name for your dropshipping store.
4. Rent an office
To establish an ecommerce business, it is a legal requirement that you have a physical office as your business address if you choose to operate in mainland UAE. The space must be at least 200 square feet. However, if you will be
based in a free zone, it's not mandatory to have an office space.
5. Apply for a trading licence and registering
An ecommerce business will need to apply for an ecommerce licence. For businesses that wish to operate in the UAE mainland, applications for a licence are through the Department of Economic Development.
To operate in a free zone it is necessary to apply with the corresponding free zone authority.
Application for initial approval will require documents such as:
- Business plan
- Completed application form
- Passport copies of company shareholders and directors
- 2 years' audited financial reports
- No objection certificate (NOC) from the current sponsor
- Letter of intent
- Registry identification code form (RIC)
Once the initial approval is complete, there will be registration and licence fees to pay. After this, further information will need to be submitted:
- Completed registration form
- Board resolution appointing the director
- Power of attorney given to the director
- Memorandum and articles of association
- Specimen of signature of the director
- Passport-size photo of the director
- Share capital information
As the procedure is very strict with documentation, you might want to consult a professional who offers legal support, especially for company formation.
6. Open an Emirati business bank account
All companies need a business bank account to monitor cash flow, track business expenses, assess taxes, and apply for business loans or credit cards.
Popular banks in the UAE for corporate accounts include:
- HSBC
- Emirates NBD
- First Abu Dhabi Bank
- Commercial Bank of Dubai
- Abu Dhabi Commercial Bank
