15th December 2014, Updated 2nd January 2018
According to Euromonitor International, 'rising consumer confidence in online retailers, the security of online transactions and the lower prices of various products through online retailers such as Souq.com has led to growth of internet retailing in the United Arab Emirates'. Back on 13th December 2014, The National reported that online sales via mobile devices increased a massive 170% in the UAE during that year. During 2016, online retailing in the UAE was dominated by three players, Souq.com, Amazon, and Ebay. In 2017 Amazon purchased Souq.com and Noon.com is now expected to add its footprint to the playing field. According to Euromonitor International internet retailing is 'expected to grow at a CAGR of 24% at constant 2016 prices and reach AED14.1 billion in 2021'.
Whether your business is through a website or a physical shop, it is still necessary to be licensed correctly in Abu Dhabi. Failure to register and set up the company correctly to obtain a commercial license will result in fines and potential closure of the operation.
On 26th December 2017, Abu Dhabi's Department of Economic Development (ADDED) announced two new trade license activities for the Emirate which will regulate online trading:
E-Commerce Through Websites
E-Commerce Through Social Media
10 Reasons for the new E-Commerce licenses in Abu Dhabi
- enhancing the Emirates' electronic business environment
- expanding the scale of services across many fields
- providing greater protection for e-commerce work
- facilitating the protection of intellectual property rights of business owners
- providing support to businesses in order for them to carry out their trade activity properly
- creating trust between consumer and seller
- reinforcing entrepreneurship
- creating solutions for the violation of unlicensed online trade
- providing a legal framework for electronic business practice
- contributing to the development of the digital economy of the UAE.
Will the new E-commerce activities benefit start-ups and entrepreneurs?
Whilst, the two new activities are welcomed, it should be noted that they need to be added to existing licenses with either retail or wholesale trade activities. As such, for entrepreneurs wanting a cost-effective solution to start a small online business in Abu Dhabi, it will still be necessary to obtain a commercial license for the specific trade activity, which in turn will require the mandatory commercial premises. This is often the main obstacle as a physical shop is not necessarily required and therefore creates an additional cost burden.
How to register for E-commerce activities in Abu Dhabi
For existing Abu Dhabi-registered companies engaged in online trade activities, it will be necessary to add the appropriate new activities to your license. This is a relatively straightforward process of submitting an application to add a new activity to the trade license via ADDED's web portal or app - Abu Dhabi Business Centre. Approval will be required by the Telecommunications Regulatory Authority (TRA) prior to the new license being issued. Furthermore, companies adding either of the new activities to their licenses will be given an "Electronic Tajer" mark along with a serial number to use when promoting their products online. This is intended to build consumer trust by confirming that the company is legally licensed.
5 considerations when setting up an online company in Abu Dhabi
1) Commercial License Activities
Setting up an online business is very much like setting up any other company from a licensing perspective. It is necessary to determine the nature of your business and select the most appropriate activity for your license. E.g. if your are selling consumer products then a ‘General Trading’ activity might be the most appropriate.
2) Free zone or mainland?
If setting up a business in an Abu Dhabi free zone, then the relevant free zone authority will issue the appropriate license. The standard free zone rules and regulations will apply for each free zone - make sure the restrictions are fully understood (especially around trading).
If setting up a business on the mainland, Abu Dhabi’s Department of Economic Development (ADDED) will be the license issuing authority. Again, the incorporation process is the same as any other business setup and the various legal structures, ownership regulations, and approvals requirements will be the same.
3) Importing and Exporting – Customs Duty
It will also be necessary to consider costs involved with import and export duty. Whilst importing products into the Abu Dhabi free zone does not incur customs duty, as soon as the products are distributed onto the mainland, duty is incurred at 5%.
If starting a company on Abu Dhabi's mainland the intention is to import goods from overseas, an ‘Import’ activity will be required on the license and it will be necessary to arrange an import code to receive the goods through customs. Duty will be applicable on all imported goods.
Setting up a trading company in an Abu Dhabi free zone, it will be necessary consider how the products will be distributed to any clients on the mainland. It will be necessary to appoint a distributor or commercial agent rather than selling directly to those clients. Always seek legal advice before entering into such a contract – traditionally, such contracts can be extremely difficult to terminate.
Setting up a business onshore in Abu Dhabi allows for the business to distribute its goods directly to its mainland clients across the Emirate of Abu Dhabi.
5) Commercial Premises
This is generally where people get caught out. Although the online business will be promoted through the Internet and orders will be placed online, all Abu Dhabi trade licenses, whether onshore or in a free zone, require a commercial premise. If your website is an information-based site, then an office space is likely to be sufficient (free zones also offer hot desking); however, if your business is trading products, then a shop or warehouse will be required to store the goods.
Don’t get caught out. Research the market and develop a business plan for your proposed online business. Be sure to understand the legal implications. Be careful to obtain all of the costs involved so that you can make an informed decision to set up your company in Abu Dhabi smoothly and successfully.
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By providing company formation guidance and implementation, nominee corporate sponsorship and efficient PRO services, award-winning Gateway Group help foreign companies expand into the Abu Dhabi market correctly and securely so that they can focus on developing their business rather than unnecessarily diverting their attention to regulations and compliance. For assistance with your Abu Dhabi business set up, visa processing and ongoing Trade License renewal requirements, Email us: info@GatewayToAbuDhabi.com