The United Arab Emirates is a leader in the virtual assets domain, experiencing a boom in the digital currency market. At the heart of this development is the Dubai Virtual Assets Regulatory Authority (VARA), which is responsible for supervising and regulating a variety of virtual asset activities in Dubai. This detailed guide delves into the complexities of VARA licenses, covering the wide spectrum of activities it oversees. It highlights the necessary permissions for operating in the UAE’s burgeoning virtual assets sector.
What Defines a Virtual Asset (VA)? According to Article 2 of Dubai’s Law No. (4) of 2022, which governs Virtual Assets (Virtual Asset Law), a Virtual Asset is defined as a digital representation of value. This value can be traded, transferred, or used for exchange or payment purposes, or as an investment. It encompasses Virtual Tokens and other digital value representations as specified by VARA.
The Role of the Virtual Assets Regulatory Authority (VARA): Incepted in March 2022 with the introduction of the Virtual Asset Law, VARA is the designated regulatory body for managing Virtual Assets (VAs) and VA-related activities within Dubai’s jurisdiction. This authority spans across all zones in the Emirate, including Special Development Zones and Free Zones, with the exception of the Dubai International Financial Centre.
Conducting Virtual Asset Activities in Dubai: Essential Conditions Outlined in Article 15 of the Virtual Asset Law, the criteria for engaging in virtual asset activities in Dubai are:
- Requirement of a Permit from VARA: No individual or entity is allowed to conduct virtual asset activities in the Emirate without a valid permit from the Virtual Assets Regulatory Authority (VARA).
- Permit Issuance Based on Legislation: Permits are issued in line with the existing legislation, adhering to the requirements and procedures approved by the Director General.
- Establishment of Business in the Emirate: Entities wishing to engage in these activities must establish their business within the Emirate and adopt a legal form recognized by the relevant commercial licensing authority in Dubai.
- Approvals for Free Zone Operations: To conduct activities in any of Dubai’s free zones, obtaining prior approvals and permits from VARA is mandatory before commencing licensing procedures with the competent commercial licensing authority.
- Adherence to Permit Requirements: The conduct of virtual asset activities must comply with the stipulations, rules, and regulations detailed in the issued permit.
Activities Regulated by VARA: Licensing Requirements As per Article 16 of the Virtual Asset Law, activities requiring VARA permits in Dubai include:
- Virtual Asset Platforms Operation and Management: Managing and operating platforms that facilitate virtual asset exchanges, accessible through websites, mobile applications, or other electronic means.
- Virtual Asset-Currency Exchange Services: Providing services for the exchange of virtual assets with domestic or foreign currencies.
- Inter-Virtual Asset Exchange Services: Offering exchange services between different forms of virtual assets, such as trading Bitcoin for Ethereum.
- Virtual Asset Transfer Services: Providing services for the transfer of virtual assets, like moving Bitcoin from one digital wallet to another.
- Custody and Management of Virtual Assets: Offering services related to the custody and management of virtual assets, for example, holding Bitcoin for clients.
- Virtual Asset Portfolio Services: Providing services concerning the management and advice on virtual asset portfolios.
VARA License Application Process in Dubai For new companies in Dubai (excluding the Dubai International Financial Centre – DIFC) aiming to engage in virtual asset activities, the process of obtaining a VARA (Virtual Asset and Related Activities) License is divided into two primary stages:
Stage 1: Applying for Initial Approval
- Initial Disclosure Questionnaire Submission: Firms must first submit an Initial Disclosure Questionnaire (IDQ) to Dubai Economy & Tourism or the relevant Free Zone Authority. This is accompanied by additional documents such as a business plan and information about the firm’s beneficial owners and senior management.
- Payment of Initial Fees and Receiving Approval: Following the payment of initial fees, which typically amount to 50% of the total license application fee, the firm is granted Initial Approval. This approval allows the firm to finalize its legal incorporation and proceed with operational setup tasks like renting office space and hiring staff. However, conducting virtual asset activities is not permitted at this stage.
- Conditions for Approval: VARA maintains the discretion to refuse Initial Approval if the firm’s proposed activities fall outside the regulatory framework or fail to meet the required standards.
Stage 2: Finalizing Legal Incorporation and Operational Setup
- Legal Incorporation Completion: With Initial Approval, the firm proceeds to complete its legal incorporation process.
- Operational Setup: The firm also undertakes operational setup activities, which include securing office space and onboarding employees.
Throughout this process, it is important to note that actual virtual asset activities cannot commence until full approval and licensing by VARA are obtained. The process ensures that firms meet the necessary regulatory standards and are well-prepared to operate in Dubai’s virtual asset market.
Applying for a VASP License
- Documentation Submission: After obtaining Initial Approval, firms must prepare and submit the necessary documentation as per VARA’s guidelines to apply for a VASP (Virtual Asset Service Provider) License.
- Interaction with VARA: The application process may involve feedback from VARA, which can include meetings, interviews, and requests for additional documentation.
- Payment of Fees: Before receiving the VASP License, firms must pay the remaining portion of the application license fee and the first year’s supervision fees.
Frequently Asked Questions (FAQs)
- Q1: Definition and Importance of VARA: VARA, the Virtual Assets Regulatory Authority, oversees Virtual Asset services in Dubai (excluding DIFC). It is vital for UAE businesses for providing a regulated framework for virtual asset operations, ensuring legal compliance for businesses involved in virtual asset activities.
- Q2: VARA’s Oversight and Licensing Activities: VARA licenses activities such as operating virtual asset platforms, exchange services between virtual assets and fiat currencies, exchanges between different virtual assets, and services related to virtual asset transfer, custody, and management.
- Q3: License Requirement by VARA: Entities, including VASPs or traditional economy entities, offering virtual asset services must obtain a VARA license to operate legally in or from Dubai.
- Q4: Timeframe for Obtaining a VARA License: The time to secure a VARA license varies, but on average, it takes about 30 working days, contingent on the application’s complexity and documentation completeness.
- Q5: Penalties for Unlicensed Virtual Asset Activities: Operating without a VARA license incurs penalties, potentially including fines or imprisonment, depending on the violation’s nature and severity.