E-commerce has been on a steady rise, as customers turn to more convenient options to buy things they need – from clothes and gadgets to necessities such as food and groceries. The influx of online stores continues to provide customers with more platforms to buy whatever they want.
In the UAE, the annual e-commerce sales growth is estimated to be at 23 percent between 2018 and 2022. Having one of the largest B2C e-commerce markets in the Middle East and North African region, the UAE remains a hub of opportunities for businesses to enter and thrive in the online marketplace.
Like with any type of business, setting up an e-commerce business in the UAE requires a few things. One of this is an e-commerce licence.
What is an e-commerce licence?
An e-commerce licence serves as proof that the business can legally conduct commercial activities and transact with customers online. Businesses need to apply for the right licence before they can operate their e-commerce sites.
In Dubai, for example, businesses can obtain an activity code that provides them with a portal licence as an “e-marketplace service provider.” This means the business is licensed to run an online platform that allows products from third-party merchants and manages online transactions between sellers and buyers – think of businesses like Amazon. This type of licence is applicable for those that plan to run an online marketplace with items made and sold by third parties.
Whether you plan to sell through a website or on social media (Facebook, Instagram or WhatsApp), you need an e-commerce licence to carry out these types of commercial activities. You may face penalties if authorities find your e-commerce business operating without a licence.
What business activities can you conduct with an e-commerce licence?
With an e-commerce license, businesses can trade online without the need for direct human interaction. Your e-commerce licence will depend on the type of business activity you are planning to conduct. For instance, if you are planning to sell products online, an e-trader licence may be recommended. If you want to serve as an intermediary between buyers and sellers through an online platform, you may get a portal licence.
Some companies that import products from overseas and sell them online obtain a commercial licence for customs clearance. On the other hand, some simply hire a third-party logistics company to handle customs clearance using its own customs code for items to be imported within the country.
What other things do you need to consider when starting your e-commerce business?
Delivery is one of the important aspects that you need to think about when starting an e-commerce business. While some e-commerce businesses manage warehouse logistics and delivery on their own, handling it can be complex and costly. This is where third-party logistics companies come in.
Outsourcing warehouse logistics and delivery can be more cost-effective for several reasons. For one, you do not need to look for a warehouse and arrange for products to be delivered to customers by yourself. Some logistics companies like Aramex offer online retail platforms where you can create your own online storefront, manage orders and process payments. They also have e-commerce solutions for businesses that already have a website for convenient delivery of products.
Choosing a secure, efficient and flexible payment gateway is also important for your e-commerce business. Requirements for payment gateway solutions vary. You do not necessarily need an e-commerce licence for payment gateways; what you need is to match your business activity with what is written on your licence. For example, if you are planning to sell mobile phones online, this should reflect on your licence. Telr, one of the most recognised payment gateways in the UAE, may ask you to submit a trade licence based on the activity you are planning to undertake to get started.
When do you need an e-commerce licence?
This is a common question among those planning to get started with their online business. An e-commerce licence is required for those who are selling physical products in the UAE through online platforms. As these types of commercial activities are regulated, businesses need to obtain a licence.
It is important to note that not all online businesses may need an e-commerce licence. If a business plans to run a website that sells digital products, they do not need to obtain an e-commerce licence.
An example of when a business does not need to have e-commerce licensing is when they are offering consultancy services, such as online personal training, apps installation or coaching services. While these types of services still conduct transactions and have payment gateways, they do not have physical products that are delivered to customers. These businesses are simply categorised as online services or online education services.
To avoid confusion, you need to determine the type of business model and activity that you plan to execute before applying for an e-commerce licence.
What are the benefits of getting an e-commerce licence?
One of the key benefits of getting an e-commerce licence is having more opportunities and flexibility to tap into the local market. Obtaining an e-commerce licence ensures that you can legally promote your products on social media pages or websites. More importantly, this gives assurance to customers that they are trading with or purchasing from a legitimate business in the UAE.
Starting an e-commerce business in the UAE requires knowledge of the different regulations. Be sure to get advice from a professional regarding the processes, permits and other requirements before carrying out your e-commerce business. This will help you prepare the necessary documents and avoid delays when registering your e-commerce business and applying for a licence.
Are you planning to set up an e-commerce business in the UAE? Get in touch with our team to know how you can get started. Fill out the form below so our team can give you more information.