If some years back everyone was mostly buying offline, growing technology made it possible to shop online and drastically increased the share of online purchases. But even then, until several years back, to have an online shop one had to spend sufficient funds on its development and then in a course of a year fixing of all possible bugs took place. To build an online store one required significant financial investments and even more time. But it was like that until recently. Today you have an unlimited number of opportunities in terms of the online trade: to use Alibaba, to trade on Amazon, to use Souq.com, to use platforms to construct your online stores in a matter of days and have them immediately connected to various payment service providers. You no longer spend that much time on creating infrastructure, because it is already there for you and you just need to choose the one you are more comfortable with. As such, we will discuss now an e-commerce business in Dubai and UAE, what steps you shall take to register a company in the UAE, where you shall register it, license type and activities you shall choose for your business in Dubai or UAE, as well as a lot of other additional information on the subject will be provided.
One shall distinguish two most common types of e-commerce businesses. First of all, you can start a company, where you will not hold any stock. Instead, you will just operate IT infrastructure, allowing web-site visitors to place orders online. Once the order is placed, you will be forwarding online requests to manufacturers, which will be fully responsible for preparing goods for shipment, arranging shipment and shipping the product directly to the end-customer in the UAE. Secondly, you can lease a warehouse, where you will keep the stock at all times so that once the online order is received, you can ship the products right away. In other words, you can either provide an infrastructure only and be an online platform for one or multiple trading companies or you can operate the online store completely on your own, being involved in all of the processes down the supply chain. As you can understand, the option number two with your warehouse requires several times more investments and efforts, to manage the structure. Therefore, most start-ups do not opt for it from the start and instead commence their journey by using a ready-made structure.
It is worth mentioning that both structures may require completely different set-ups. Option number one perfectly fits into the concept of e-commerce businesses working in free zones, while option number two will definitely require from you a set-up of a local/mainland company.
The cost of a local company set-up in the UAE, as well as other operational costs you will need to incur, will be discussed in other articles. As such, same set-up costs should apply, if you decide to proceed with e-commerce business, where you will lease a warehouse. These costs will be definitely high for a start-up with no external funding.
At the same time, option one with just IT infrastructure is most commonly used today not only in the UAE but worldwide in general. On the one hand, it requires minimum investments, as you can be set up in a free zone. Moreover, you can choose a free zone in one of the northern emirates, which will further decrease your investments. On the other hand, this option is well perceived by free zones in the UAE, as you are not involved into trade yourself, there is no physical goods exchange at any stage and you are not dealing with your buyers offline, because they receive shipments directly from the manufacturer. So you are purely operating an online platform. You shall also bear in mind, that if you decide to proceed with this option, setting up a company in a free zone in Dubai or other UAE emirate, you will be most probably requested to provide a business plan. The whole purpose of the business plan will be to ensure that you will be not involved into trade yourself, there will be no physical goods exchange at any stage and you will be not dealing with your buyers offline. Additionally, free zone authority may request you to specify all the suppliers or manufactures you will work with and outline the exact process of buying a product on your website. So you must have everything at hand, as you go to register your company in a free zone of your choice in the UAE.
What is often seen is that, once you decide to proceed with e-commerce business set-up in a free zone, the question arises, which free zone to choose for this incorporation. Earlier the concept of e-commerce was not very familiar to the UAE in general, therefore, until recently only a few free zones had a business activity in their list that was exactly titled as an e-commerce. If you would have come to other free zones at that time, you would be suggested to take a regular commercial license or a general trading one. Today e-Commerce activity is listed in Umm Al Quwain Free Trade Zone, Ajman Free Zone, Fujairah Creative City Free Zone and others. DMCC in Dubai offers an activity e-Marketplace. As such, today there is an abundance of free zone options to choose from and most entrepreneurs base their decision on the amount of investments involved, as registration costs vary from free zone to free zone. For example, Umm Al Quwain Free Trade Zone would offer you a complete registration package with a flexi-desk and a quota for 3 visas at a fee of AED 27,500 in the first year and AED 25,500 from the second year onwards. Ajman Free Zone offers its customers set-up at a fee of AED 28,085 with certain small additional costs for a 2 visa quota package, Fujairah Creative City allows you to start an e-Commerce business at a fee of AED 20,000 with a quota for one visa only. As such, depending on the number of business partners you have and the number of visas you will require, you can review the costs offered by free zones for set-up and choose that free zone, which you find within your budget.
The two e-commerce schemes we just mentioned and discussed are not the only ones used by entrepreneurs. Some businessmen, as they grow, decide to take over certain steps in the supply chain process and open, for example, office in China and start managing shipments on their own. Others, move away from an online marketplace to distribution. There are also worldwide known brands, which allow entrepreneurs to use their infrastructure to trade without the need to have a warehouse, access to buyers and spend funds on online advertising. Amazon is just one example. There you do not need to even store goods or distribute them, you simply determine which goods are in demand on Amazon, you order them from a certain Chinese manufacturer, goods are being delivered straight from China to the warehouse of Amazon, from where Amazon itself distributes goods, as soon as your products are ordered by someone via Amazon website. On your part, you just manage your pages on Amazon, placing nice descriptions of the products and encouraging positive reviews. Souq.com has pretty much the same concept, as you might know, and now the company has been acquired by Amazon.
What is also important to mention is that today you do not require to spend a lot of time on building your website or your online store and to enter into an endless fight with the IT company you engage to assist you on that. Today you can use almost any website builder and your store will be up and running within a week maximum. You can use such platforms as Shopify and alike not only to build your e-commerce website but also efficiently connect to a payment gateway and solve the problem of receiving payments.
Now that you have all the options in front of you and you know, how to start an e-commerce business at a minimum cost, it is time to act and have your online store running in the next weeks already.
Business Boutique | UAE-Consultants.com has an expertise in company formations and all business consultancy matters within Dubai and the UAE. We would be happy to assist you with any follow-up queries within our competency. You can contact us via [email protected] or via our office phone no. +971 4 368 48 84.
Prepared by Business Boutique | Published on Oct 4, 2018
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