E-commerce businesses in the United Arab Emirates: Key points to note

The e-commerce industry is expected to grow by almost $11 trillion between 2021 and 2025. During the unprecedented pandemic, for which nobody knew the beginning or end, business owners came online. Clearly, the COVID-19 pandemic demanded a reduction in visiting outdoors and increasing reliance on online shopping. Through a quick and frictionless buying experience, e-commerce resolved one of the pandemic’s major problems.

In the past few of years, the e-commerce industry in the UAE has also grown exponentially. Therefore, it is only logical for entrepreneurs to want to build an e-commerce business, and there has never been a better time to establish an e-commerce business than the present.

Upon understanding the ever-increasing need for setting up e-commerce businesses, we curated a list of certain factors and things to keep in mind which will certainly be helpful for anyone seeking to venture into this industry.

A. Right legal structure

The most essential consideration when incorporating a business in the UAE is ensuring that the form of business entity has the necessary licenses to conduct the required commercial operations. In addition, it is important to pay close attention to the UAE Commercial Companies Law’s limitations on foreign ownership. Although, the recent implementation of 100 percent foreign ownership in onshore (sometimes referred to as mainland) organizations has prompted several enterprises to question whether it makes sense to be established onshore, but one must always conduct an in-depth review of loopholes and understand the limitations that come with it. A major cause of limitation is the fact that e-commerce business is defined as “professional” activity rather than a “business” activity and under the new Commercial Company Law regime “professional” activities can only be conducted as follows:

1. Sole Establishment or Proprietorship which doesn’t offer limited liability and business owner is 100% personally liable for the debts and defaults of the business;
2. Civil company, which has the same limitations as a Sole Establishment and can only be held by a “natural person”.

In summary, you cannot setup a limited liability company for a “portal” which is a substantial limitation.

Despite structuring choices that convey complete managerial control and beneficial ownership to the foreign investor, many international investors seek to avoid a local stake in their business. There are options which include establishment in a free-zone jurisdiction (where 100% foreign ownership is permitted) or, in relation to onshore / mainland UAE jurisdictions (such as Dubai or Abu Dhabi), making an application under the UAE’s Foreign Direct Investment Law, which permits foreign ownership of up to 100% of the share capital in a limited liability company within certain sectors of the economy.

B. Identifying a correct business activity and checking permissibility in UAE

E-commerce is a catch-all term that encompasses all aspects of internet commercial activity and services. In addition to traditional trading operations, the Department of Economic Development and the Free-Zone Authorities (as the primary regulators of commerce in the UAE’s several jurisdictions) have developed licensing categories that cover e-commerce. Any company desiring to do e-commerce business in the UAE must choose the most applicable activity and obtain the relevant license.

It is also essential to investigate any additional licenses/approvals that may be required to market and sell specific goods or services in the UAE. For instance, an online ride-hailing service, such as Uber would need to submit an application to the relevant Road and Transport Authority in order to provide passenger transport services in the Emirate in which it operates. In summary, it is essential to consider sector-specific licenses before venturing into a business activity.

C. Getting an office space

Renting or leasing office space is one of the most crucial parts of launching a business in Dubai. Even if your business is entirely remote, you must have a registered address in Dubai in order to obtain a business license. It is illegal to conduct business in the United Arab Emirates without a license. Prior to obtaining a business license, it is essential to ensure that you have sufficient funds for an office. However, if you wish to launch an online business that does not require a physical location, such as a drop shipping firm, you might choose a virtual office. You can also hire a warehouse to meet this need if you own an e-commerce business.

D. Employment law considerations

It is essential to secure a visa quota in case a business is seeking  employ foreign workers and expect them to work physically from a location in UAE. The approvals shall be sought from Ministry of Human Resources and Emiratization.

E. Important commercial documents

• Seller Agreements- An e-commerce marketplace must have a robust agreement with its sellers. While drafting this agreement, one must ensure to include all commercial conditions and clarifications regarding the seller’s relationship with the aggregator, including the fact that the aggregator is not a party to the contract of sale between the buyer and the seller.
• Returns/Refund Policy- A returns and refunds policy should ideally include a window of time for returns or refunds, a list of return requirements, a description of the expected condition of returns, and a mechanism of reimbursement. In case if you are selling services online, it is highly advised to stipulate a scope of your liabilities as a service provider.
• Privacy Policy- Given the importance of data protection in the modern day and age, a website’s privacy statement must comply with UAE data protection legislation and clarify how the aggregator will utilize users’ personal information. Generally speaking, it is highly advised to consult a professional attorney with the right expertise to advice on the relevant legal terms and conditions to prevent any contractual obligations, moving forward.

Starting an e-commerce business in the UAE can be a complex process, but our team of leading UAE lawyers is here for you. We offer top-quality legal advice wherever you are in Dubai, Abu Dhabi, Saudi Arabia, or anywhere in the Middle East. Our attorneys have a deep understanding of the laws and regulations governing e-commerce in the UAE and can provide the guidance and support you need to set up and operate your business successfully. Contact us today to schedule a consultation and get started on the path to success