Last Updated | December 24, 2020
UAE continues to remain one of the top business and ecommerce destinations in the region. The UAE has consistently seen an upward ecommerce trajectory for the past many years, and recently the authorities in UAE have undertaken various initiatives to further boost the ecommerce development activities in the country.
The Department of Economic Development, UAE, recently updated various laws aimed to cement the position of UAE as the hub of all ecommerce activities in the region. However, with the new regulations, individuals and businesses willing to initiative ecommerce businesses would require to obtain licenses to operate legally in Dubai. The introduction of license requirements has sparked a new debate in the ecommerce industry in UAE, with several online merchants wondering about the prospects of various online activities in the country.
And while the regulations for trade licenses may vary for different online activities, here in this blog we will exclusively be covering the future of dropshipping in UAE, and what are the legal requirements for dropshipping merchants to obtain trade licenses in UAE. So, let’s start our quest to see whom you can start dropshipping UAE business.
What is Drop Shipping?
If you aren’t well-versed with the term, dropshipping is an online business model where merchants are able to directly ship the retail items from 3rd party to the buyers. The 3rd party in this case can be a manufacturer, a wholesaler, or even a giant retailer. The key to dropshipping is the ability to merchant to source products at the best value from different manufacturers, wholesalers, or retailers.
What makes dropshipping a tempting online business is that this can be started with little to no upfront investment. That’s because the dropshipper doesn’t have to buy, stock, or warehouse the products, rather he is solely responsible to source the products from 3rd party and get them shipped to the buyer directly. It’s just like taking a retail order and getting it delivered from the wholesaler directly while keeping your commission.
The wholesaler from where the product is sourced will be solely responsible for shipping and logistics of the inventory, leaving merchants with no other responsibility than to find the best value source for the products and earn profits. Now if you are looking to start a business of dropshipping in UAE, the products shipped to buyers could be imports or exports, both of which are regulated differently by DED.
Is a trading license necessary for Shopify DropShipping in the UAE/Dubai?
Yes. According to Article 6 of 2011, all foreign companies looking to conduct commercial activities in UAE are required to obtain a trade license with the respective governing authority. Also, under Article 335 of the Commercial Companies Laws (CCL), any business found conducting commercial activities without a relevant trade license is liable to administrative, and financial penalties.
This simply means that if you are looking to start dropshipping in UAE business, you would require to obtain a trade license, else you may be subjected to hefty financial and administrative penalties.
Now, when we talk specifically about the Shopify web design and Dropshipping business, there’s a common misperception amongst the people that since the activity doesn’t require one to have a physical location or employees in the country, they may not be subject to any specific trade license.
Well, that’s a grave mistake to make. Because the UAE has a strict policy dictating all sorts of businesses involved in any commercial activities. In fact, the Federal Tax Authority (FTA) has recently rolled out a detailed Public Clarification for a better understanding of ecommerce activities and trade license requirements in the country. To put it simply, you would require to obtain a trade license to start Shopify dropshipping in UAE.
Now, that we are done giving you the legal requirements, it is important to mention that various Shopify dropshipping businesses are operating from UAE/Dubai without obtaining any valid trade license. And while such businesses have always been present and operating in the country, the authorities recently have started a crackdown against such violators and if found guilty, they can be fined or even send to jail as per the regulations specified.
So, if you are looking to start a Shopify store development then dropshipping in UAE, you probably should apply and obtain a valid trade license, irrespective of the fact whether you are located inside the country or not. Also, obtaining a trade license isn’t much difficult with the authorities being highly supportive and transparent in their approach. In fact, you can apply online for the trade license through the e-portal of the relevant authority and generally will be ready to get the license within two weeks.
Pros of dropshipping in the UAE if you’re a local
Dropshipping in itself is a promising and profit-making online activity (Read more about Dropshipping here). However, it becomes even more profitable if you are a local resident of the country. That’s because being a resident of the country, you would have a better understanding of the trends, traditions, economics, and buying preferences of customers. That means if you are a local resident of UAE, you have an even better chance to turn your dropshipping in UAE into a highly profitable business.
– You know the psychology of customers
In the ecommerce field, there’s a saying that each customer is unique, which is true to a certain extent. However, there are general relatable characteristics of people belonging to one group or country. That’s commonality is defined by their culture, their perception of trends, the economy, and various other general characteristics.
Thereby, when you start a dropshipping in UAE business with a valid trade license, you have a better understanding of the psychology of people, which you can use to work source better valued and high demand products, thus increasing your profitability chances.
– You know the local shopping trends
Apart from knowing the psychology, as a local resident, you would also be in a better position to understand the local shopping trends and buyers’ preferences.
As mentioned earlier, the key to success in the dropshipping business is your ability to source the right products at the best value. Now, while the idea of dropshipping may appear too easy on the surface, in reality, sourcing the best value products isn’t the easiest task, especially if you don’t know the market preferences.
In this regard, your market understanding and awareness about buyers’ preferences will come great as you will be able to source fewer products that are in high demand in the market, thus increasing your business profitability.
– You are good at legal issues
Lastly, as a local UAE/Dubai resident you will be better versed with the legal requirements like a trade license for dropshipping in UAE. Most foreigners fail to understand the complexities of the legal requirement to carry out business in a foreign land. However, as a local, you would have first-hand knowledge and access to all the legal issues, thus better positioned to create a legal dropshipping business in UAE.
Dropshipping in UAE: FAQs you need to know!
Do you require to register your dropshipping business in UAE/Dubai?
Yes. As mentioned earlier, all commercial activities conducted within the UAE/Dubai require specific trade licenses to be carried out legally and Shopify dropshipping is no exception. The authorities have dedicated regulations to govern online business activities in the UAE, which should be consulted before you initiate a dropshipping in UAE business.
Also, it’s important to note that trade licenses in UAE can be expensive. The actual value of trade licenses varies greatly depending upon the type of activity, business region, and other factors. As a starter, you may expect to pay anywhere around $4000 or more for a drop shipping trade license.
Also, it is highly recommended to obtain a trade license before carrying out a Shopify dropshipping in the UAE business. Any dropshipping business being run without a legal license may be subjected to hefty penalties that can range from $1,500 to $15,000.
Do I need to know about thing specific about taxation in the UAE?
UAE/Dubai maintains one of the most transparent tax policies, which means you really don’t have to worry about tax accounting in the country. However, if you aren’t already aware, UAE has imposed a 5% standard Value Added Tax (VAT) on the majority of commercial activities in the country. The Federal Tax Authority (FTA) is responsible for the registration and collection of VAT in the country and the authority frequently publishes clarification about the scope of VAT on different activities for better business understanding. We recommend businesses willing to start Shopify dropshipping in UAE to read through the FTA’s Public Clarification for Ecommerce Activities to better understand the scope and treatment of VAT on dropshipping activities.
How much time it takes to obtain a trade license in UAE?
Again, UAE is one of the few countries that maintains an exceptionally fast and efficient trade license process. The country maintains a transparent and single window operation for licensing purposes. You can have your trade license for Shopify dropshipping in UAE in two weeks or more, depending upon the procedures and your ability to submit all relevant details.
It’s also important to remember that besides registration and obtaining a trade license for your Shopify dropshipping business, you would also need to set up a bank account in the country to comply with the regulations.
What payment gateways are available for Shopify dropshipping in UAE?
As the hub of ecommerce activities in the UAE, you will have access to all major ecommerce payment gateways for your Shopify dropshipping business. Some of the more famous payment gateways to choose from include PayPal, Paytabs, BlueSnap, Tap (only for the Middle East region), and others.
Is it possible to dropship to other countries from UAE?
As a Shopify business owner, you are not limited to any specific target audience to UAE only. And while the population of UAE is over 10 million which is a big enough market to gain high profits, there is no reason to limit your reach to the country.
With a registered Shopify dropshipping in UAE business, you would be able to dropship products across the world. And when the world is the limit, why you should restrict yourself to only one country?
How to get a trade license copy online in Dubai?
As with most of the trade licenses, you can obtain a trade license for dropshipping in UAE business electronically. For this, you would have to visit the DED website and register on the official e-portal. From there you can follow the simple steps mentioned on the website and submit all relevant details required like email, project details, trade name, etc. Once the required info and payment are submitted, you will receive the trade license electronically.
Is Shopify Dropshipper Business successful in Dubai?
Dubai remains the ecommerce and business hub in the region. Recently, the authorities in Dubai have also made it legal to own 100% business ownership for foreign owners. This makes the market for Dubai even more competitive for global entrepreneurs and investors. To add to the lucrativeness of the market, Dubai is home to expats from around the world, and thereby, it’s certainly a great destination to start Shopify dropshipping business.
Do we need a trade license or permit to start an online store in order to sell products via dropshipping in Dubai, the UAE?
Yes. According to the Ecommerce regulations set by the authorities, all commercial activities including dropshipping businesses are required to register and obtain a trade license to be able to sell products via dropshipping in Dubai/UAE.
I want to start dropshipping in UAE, are there any regulations?
Yes. There are specific Ecommerce rules that apply to dropshipping and other ecommerce activities in the country. You should consult a tax expert to have a better understanding of the regulations governing ecommerce businesses in the country.