The rise of the internet has seen a surge of e-commerce companies such as Amazon, Alibaba, eBay, Shopify, etc., gain significant success. Additionally, the COVID-19 pandemic has drastically impacted the retail industry, requiring companies to take immediate steps to protect their businesses and fortify their web presence, building an online business. With a vast majority of the population moving towards digital platforms, there have to be regulations that govern the market and frameworks to support the e-Commerce industry. If an individual needs to establish an online business in the UAE, they must apply through the Department of Economic Development (DED) in the respective Emirate. The Telecommunications Regulatory Authority (TRA) requires every eTrade license to be approved in the UAE as they are in charge of overseeing the framework for e-Commerce in the region. The e-Commerce industry aspires to represent the UAE at an international and regional altitude and is actively promoted by the UAE Government. The UAE has been established as the key regional hub for the setup and growth of an online business. The example can be noted with the landmark acquisition of souq.com by Amazon, now known as Amazon.ae.
The UAE government authorities, including the free zones such as the Dubai International Financial Center (DIFC), have provided companies with an optimal business-friendly climate to operate. The Dubai Financial Services Authority (DFSA) is the regulator and licensing authority for financial services in the DIFC, and it provides the framework for the development of regulated activities, including e-Commerce businesses. These initiatives aim to bring established and start-up entities to the UAE that spans all multiple industries, including the e-Commerce industry.
When structuring a business in the UAE, the key issues are making sure the entity possesses all of the requisite licenses to permit it to practice its desired commercial activities. Furthermore, it is to be noted that there are restrictions on foreign ownership in the UAE as set out in the UAE Commercial Companies Law 2015 (CCL) and requires a UAE national (an Emirati citizen or a company own by wholly by an Emirati citizen) to own 51% of the share capital. This restriction on foreign-owned companies is applied to companies registered as limited liability companies (LLC) under the CCL and are licensed by the Department of Economic Development. Many foreign investors would prefer to avoid a local shareholding structure, therefore setting up an establishment in a free zone jurisdiction where a 100% foreign ownership is permitted, or applying 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 a certain sector.
The Department of Economic Development and the Free-Zone Authorities are the main regulators of commerce in the UAE. These authorities have developed licensing categories that cover e-Commerce services. Any company that ought to undertake an e-commerce business in the UAE must identify the most appropriate activity and acquire the correct license. The Dubai Multi-Commodities Center Free-Zone Authority (DMCC Authority) has initiated an activity code that licenses an E- Market Service Provider. This is described as a company that provides an online platform which promotes third party products and services and facilitates easy commercial transactions between buyer and sellers. This new category of activities is introduced explicitly by the DMCC Authority to allow a company to provide an online marketplace in the UAE.
Establishing any corporate entity in the UAE brings forth an abundance of legal issues that need to be addressed. These include:
The UAE passed the Electronic Commerce and Transaction Act in 2006, and it covers the scope of electronic records, documents, and signatures that is related to Electronic Transactions. The Act is based on the UNCITRAL (United Nations Commission on International Trade Laws) Model Law on E-Commerce and is a comprehensive statute on public and commercial use of E-Communications. The objective of the Act is portrayed as:
The Act also provides for penalties that are limited to digital documents under Articles 26 to 33, consisting of temporary imprisonment and a fine. Article 28 protects confidentiality clauses and states that the penalty for obtaining and disclosing information regarding E-Records, Documents, or Communications shall face imprisonment for a period not less than six months and shall face a fine between AED 20,000 to AED 200,000. It is to be noted that Article 32 of the Act mentions that foreign nationals that are guilty of violating the laws can be subject to deportation at the court’s discretion.
Dubai CommerCity is a free zone that is designated to support the growth of the eCommerce market in the Middle East and North Africa (MENA) region. DCC is an innovative initiative for a non-traditional economy based on Smart transformation. It promotes e-Commerce as a key driver for sustainable economic growth and aims to boost Dubai’s leading position in global trade. It offers a distinctive eCommerce ecosystem set out to assist global and regional businesses in operating in the MENA region. DCC offers:
DCC is a joint venture between Dubai Airport Free zone Authority (DAFZA) and Wasl Asset Management Group, and this free zone is divided into three clusters, which are the business cluster, the logistics cluster, and the social cluster, which are designed in a modern and innovative manner in order to strategically achieve investment and environmental sustainability. It provides no corporate or income tax; hence it is optimal for foreign businesses to build a foundation in the Middle East because it provides 100% foreign company ownership and no currency restrictions.
The UAE’s rise to internet dependency has led to a surge of digital businesses in the E-Commerce industry. Some laws and regulations monitor the e-Commerce activities conducted by businesses and free zones that offer an optimal business environment and support to foreign nationals wishing to have a commercial footprint in the region. Despite so many challenges, the online industry in the UAE is expected to rise further. It will improve the quality of the retail market in the region and provide the region with much stricter regulations of the digital platform as a consolidated law. And while setting up the eCommerce company in the UAE, approach the competent incorporating advisors who are well-informed about all legalities that we just discussed above.