Are you operating legally with your business activity on your social media page?
These past years, we have seen businesses multiply on social media. Mostly stay-at-home mothers selling cakes, clothes, hand-made crafts, beauty products, marketing services, etc. through their social media pages.
Nowadays, selling these garments on social media pages like Instagram, Snapchat, Facebook and WhatsApp has become all too common, but it is also illegal if you are doing it without a business license. Authorities are watchful to catch this kind of illegal activity.
A five minute search on social media would discover dozens and dozens of pages advertising and selling these types of goods. Unfortunately, many of these entrepreneurs are misinformed about the possible consequences of their activities.
How to legally run a business from home on social media
In fact, selling on social media platforms is not very different than traditional trading and you need a trading license to legally operate.
Social media has provided small businesses a cost-effective way to develop their business. And if you have a license, you are legally entitled to sell on Facebook, Instagram, or any other social media platform you like. But anyone failing to obtain the relevant license to conduct business in the UAE may face huge penalties of up to AED 500,000, have their stock confiscated, and even face jail time.
In 2018, the government took some majors steps regarding all this type of illegal e-commerce, making it mandatory to have a trade license to conduct business on social media. In collaboration with the Telecommunication Regulatory Authority, they have shut down hundreds of unauthorized e-commerce website and social media pages.
The law is clear, anyone selling online needs a trade license.
The Department of Economic Development (DED) issues the business license to anyone trading in the country. Any kind of business, online or offline must get this license from the DED to operate legally in the UAE.
The new E-trader license
The DED has recently introduced the E-Trader license to support social media based businesses, a necessary step to regulate the market.
However, only UAE and GCC nationals can sell goods like home-made food with this e-trader license, expats cannot. A non-GCC expat can only sell services on its social media with the E-trader. If a non-GCC expat needs to sell goods, then they must hold a regular trade licenses from the DED, which is more expensive than the E-trader license. This trade license also needs to be related to the specific products being sold.
A cheaper way to do this kind of businesses is to open a company in a Free Zone. However, having a license issued by a Free Zone authority does not allow you to sell outside your Free Zone directly. Your products should be distributed to customers by an onshore distributor located on the mainland.
Covid-19 and illegal businesses
Because of the Covid-19, we have seen the social media businesses explode last year. Most of these sellers are expats who have been laid off from their jobs and find themselves in critical situations without income to survive this pandemic. And for them, social media selling was the only easy way to generate income to stay afloat and not sink.
Selling online is not an issue, but every industry needs to comply with rules to protect customers who buy online. For example, home cooking and selling online needs to comply with health and sanitation standards, selling cosmetics or beauty products needs to comply with cosmetics regulations, etc.
In a nutshell, any activity involving money transactions (selling products online) need to be declared and the business should be registered with the competent authorities (accounting and auditing must be done). For these online activities, they at minimum need an e-commerce license as they are trading online and the transaction of money is involved.
Entrepreneurs need to understand that these rules are not implemented to punish them, but to protect both the entrepreneur and the customers.
- Just imagine the scenario where a housewife prepares pastries at home and sells them online without the proper license or permits from a regulatory body. A customer buying it from her could risk food poisoning, allergic reactions, or other health problems. This housewife would face serious legal consequences and hefty fines for selling online without permit.
The scenario is also totally unfair to other entrepreneurs who comply with the law and pay a license to the authorities annually to run their business legally.
If you are already selling on social media without a license or thinking about starting a business on social media, contact Merritt Middle East: firstname.lastname@example.org and book your free consultation today!
One of our experts will help you understand the full implication of selling goods on social media and which solution is best for you.