What’s the difference between an e-commerce license and an e-trading license?

Understanding business licenses is extremely important when trying to open a business in the United Arab Emirates, especially when setting up your business in the digital space. 

In this case, there are two types of licenses used very frequently: an e-commerce license and an e-trade license. While they would both enable running a business online, they target different scopes of commercial activities and have different requirements.

An e-commerce license usually targets businesses selling their products online. It encompasses everything from physical items to digital products and involves the operations of managing inventory, logistics, and customer service on a more complicated level. The business typically has an online store or platform with an e-commerce license where customers can browse and directly buy products.

E-trading licenses, on the other hand, are usually applied for by those businesses that strictly sell their products online and do not hold any stock. These businesses are usually acting as intermediaries or resellers, whereby they enable a transaction between the buyer and a third-party supplier. 

E-trading licenses are usually used by businesses that engage in activities like dropshipping or affiliate marketing, whereby they list products on their platform but do not directly manage the stock.

The main difference falls within the underlying business model; an e-commerce business is usually responsible for maintaining its inventory and shipping, whereas an e-trading business is obliged only to provide services in the facilitation of third-party transactions. 

In addition to the other differences mentioned above, an e-commerce license tends to involve more infrastructure aspects such as warehousing and logistics, while licenses for e-trading are usually easier and light on businesses that do not deal with physical products. 

That said, understanding such key differences will go a long way in helping you select an appropriate license for your online business.

How to Choose the Right License for Your Online Business?

Business Model: If your business model involves direct sales of products by switching ownership of the goods from the seller to the buyer, then an e-commerce license is ideal.

If the business is a reseller or intermediary that enables the suppliers to sell directly to the clients their goods without giving the ownership of goods to the intermediary, then it comes under an e-trading license.

Inventory Management: If the business needs to keep an inventory and manage the logistics then it would be advisable to take up an e-commerce license.

Apply for an e-trading license if you're a lot into a dropshipping model, or if your suppliers are in charge of the stock and dispatching on your behalf.

Product/Service Type: An e-commerce license would be best fitting for physical products, such as those relating to electronics, fashion, or home decor.

An e-trading license would be suitable for digital products, online services, and platform-based businesses that supply intangible goods and services.

Level of Control Over Customer Experience

If you want full control over the customer's journey in terms of website design, types of payment options, and post-sales customer support, then an e-commerce license is ideal. 

For businesses whose core function involves matching buyers and sellers without necessarily handling all areas concerning customer service, then an e-trading license is sufficient.

Budget and Setup Costs

A trading license often involves lower set-up costs and less infrastructure, hence affordable to a thrifty entrepreneur.

While an e-commerce license may require further investment in warehousing, logistics, and digital storefronts, the scalability potential is much greater. 

Expansion Plans and Business Scale

If you want to set up a full-fledged e-store offering various categories of products and have enormous growth potential, then you must opt for an e-commerce license. 

To initiate small-scale enterprises or niche businesses, which are probably catering to a test market, a license in e-trading will suffice. 

Compliance and Regulations

Due to the physical nature and most times cross-border shipment involved in e-commerce business operations, the regulatory requirements might be higher. 

On the other hand, an e-trading business generally has simpler compliance needs, especially if it is purely online and thus not dealing with physical goods.

Cost of Starting an E-Commerce vs. E-Trading Business

The setup of an e-commerce business in Dubai involves the license cost which starts from AED 10,000. Additional setup costs will include warehousing, logistics, and a digital storefront.

A Dubai e-trading license is quite affordable to set up, particularly for those entrepreneurs seeking a lean setup. The cost of an e-trading license typically starts from around AED 5,750. The extra costs towards the license will involve additional visa fees, registration fees, and approvals wherever necessary.

Note that these are estimated costs and will vary in reality. For an accurate cost breakdown, get in touch with our consultants!

Contact us via mail at info@radiantbiz.com or WhatsApp & call us at  +971 55 234 7124!

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