Rules of the Game: E-Commerce & Shipping in the UAE
There is no better place in the Middle East to start an e-commerce company than the UAE. It has high per capita income, 90+ percent internet penetration, relatively efficient bureaucracy, first-rate infrastructure and office space, and a young, tech-savvy population. As a result, it ranks highly on the World Bank’s Ease of Doing Business scale. But before you go ahead and open a dotcom business in the UAE or make it the centerpiece of your online sales strategy, you have to know the rules.
New regulations set in place this year by the UAE’s National Media Council (NMC) require that websites (and even social media accounts) with online commercial activities such as e-commerce sites need to have a license to operate. Failure to obtain a license can result in a $1,300 (AED 5,000) fine.
Obtaining the license is fairly easy and can be done completely online through the NMC’s website, which lists all the documents that businesses need for the application. In fact, one of the advantages of the UAE is its ease of doing business. The country has established 45 free zones, places where foreign businesses can have 100 percent ownership, 100 percent repatriation of their capital and profits, 0 percent corporate and personal taxes, no currency restrictions, and exemptions from import and export taxes.
Businesses that prefer to set up shop outside of the free zones need to apply for commercial licenses from the UAE’s Department of Economic Development (which can be done online), where they must declare their business structures (Limited Liability Company or Foreign Branch). Foreign investors looking to establish a business on-shore in the UAE must have at least one Emirati partner and cannot own majority stakes in on-shore businesses. They also need to set up a local bank account, declare the size of their business, and show proof that they have office space.
Tax regulations and implications for shipping
In 2017, the UAE introduced a value-added tax (VAT) of 5 percent, which was implemented on January 1, 2018. The new tax prompted anxiety and confusion when it was announced, but the government has made the process of VAT registration easy online, a move that benefits e-commerce companies used to working in the digital sphere.
If you are supplying a good or a service in the UAE via an electronic device, you are responsible to collecting VAT— even if you are using the services of a third-party e-commerce service provider. VAT is collected on both goods and services. So, for example, if you order a hard copy of a book online, whether from an international or local retailer, and it is shipped to a resident in the UAE, you have to pay VAT. Alternatively, if you pay for the online, digital copy, it is considered a service — but VAT still applies.
VAT is also collected at each step of the supply chain. You have to pay the tax if the supplier and the goods are in the UAE. However, if the goods are re-exported from the UAE, then no local tax will be collected. You need to have the export documents — the parcel posting receipt and courier number, as well as the invoice to the customers in your end market. Destination of delivery is the important thing. When it comes to B2B business, the destination will be treated as belonging to the UAE if the company or business already has a branch in the UAE. Noncompliance is a serious offense and can mean penalties that range from $270 (AED 1,000) to $13,600 (AED 50,000).
The VAT Registration Threshold is $102,000 (AED 375,000) a year. So a seller only has to register for VAT if your business will have annual turnover of that amount or more. Once you register, you will get with a tax registration number (TRN). Only the authorized signatory of the business can apply for this.
You will need the name of your business in English and in Arabic, and you need to provide your Trade License Number and upload a scanned copy of it as well as the Certificate of Incorporation. You will also be asked to upload the identification documents such as passport or Emirates ID (if a UAE resident) of the owner and manager of the business. Finally, you will be asked to provide your banking information. Again, all this can be done online.
Despite the new taxes and regulations that came into effect this year, e-commerce is booming in the UAE and will soon hit $10 billion in annual revenue, a four-fold increase from 2014, according to Frost & Sullivan. To further accelerate digital sales growth and establish itself as the region’s e-commerce hub, the UAE is establishing the first free zone dedicated to e-commerce, CommerCity. Construction begins in 2019.