Taking the step to create virtual assets is a big one towards becoming part of the future and having more possibilities to do business.
Now, VARA (Virtual Assets Regulatory Authority) is the heart of establishing not only companies that offer services in this field but also virtual assets themselves. Located in Dubai, VARA is the free zone where you’re looking to form a virtual assets company.
We wrote this blog to tell you everything you know about how to get established in VARA, why it is a smart move, and what we do to help facilitate the process.
Introducing VARA
VARA was established in March 2022, making it the world’s first standalone regulatory authority dedicated to virtual assets. It is the competent entity in charge of regulating, supervising, and overseeing VAs and VA activities in all zones across Dubai. If your company is established in a free zone like the Dubai World Trade Center (DWTC), you will enjoy tax exemption too!
The Growing Interest in Digital Assets
Over 70% of institutional investors have shown interest in investing in digital assets; no doubt the world is going in that direction. UAE residents realized approximately $204 million in crypto gains in 2022, putting the country among the top 50 globally for these returns and second in the MENA region by total cryptocurrency value received.
Knowing these, we can have a firmer mindset before creating virtual assets and activating in this field.
VARA Owes It to Dubai
The agility and innovation demonstrated by the Dubai government in navigating the virtual assets domain is commendable and has set a global benchmark that remains unmatched.
The Dubai D33 Economic Agenda is an initiative aimed at effectively doubling the size of Dubai’s economy by 2033, consolidating the city’s position among the world’s leading business hubs. VARA (Virtual Assets Regulatory Authority) plays a crucial role in this effort.
VARA’s collaboration with trusted partners focuses on promoting the growth and stability of the virtual assets sector in the UAE. This partnership ensures the enforcement of anti-money laundering legislation and enhances confidence in the UAE’s investment ecosystem.
VARA’s Objectives
VARA’s main goals are to protect investors, set global governance standards, and promote Dubai as a leading center for virtual assets. Let’s find out a bit more about its objectives:
Growth as a Global Hub: VARA seeks to enhance Dubai’s reputation as a global hub for advanced technologies, such as blockchain, AI, and the metaverse. The authority’s proactive regulatory approach gives it a competitive edge over other jurisdictions.
Increased Market Participation: With clear regulations and supportive measures, VARA is anticipated to draw more virtual asset businesses to Dubai, enhancing economic diversification and innovation.
Global Influence: As more jurisdictions seek to create their own regulatory frameworks for virtual assets, VARA’s experience may act as a global benchmark for best practices.
How Do You Get Established in VARA? (The Process)
⦁ Submit an Online Application: Provide all documents requested by the DWTC Authority. Additional documents and further information may be requested based on the DWTC Authority’s due diligence.
⦁ Get the Initial Approval from DWTC Authority: Complete the Initial Approval VASP Questionnaire (VARA form), pay the DWTC Authority fee, and obtain pre-approval from VARA.
⦁ Sign the Corporate Documents: Sign the Memorandum and Articles of Association, fulfilling the capital requirement set by the DWTC Authority.
⦁ Submit Office Lease Agreement: Provide a copy of the lease agreement for a private physical office. This should detail the premises leased to be used as your registered office within the Free Zone.
⦁ Obtain a Non-operational Virtual Assets License: After completing the mandatory requirements, the DWTC Authority will issue a Non-Operational Virtual Asset License to you.
⦁ Issuance of Operational License: You must obtain a VASP License/Exemption from VARA to conduct virtual asset activities. Following this, the DWTC Authority will issue an Operational License.
Law Framework and Regulatory Authority
Regulatory Authority: VARA is established to regulate virtual assets and Virtual Asset Service Providers (VASPs) within Dubai, while the SCA oversees broader securities and commodities activities across the UAE, including virtual assets that fall outside Dubai’s jurisdiction.
Licensing Framework: Under the UAE’s Cabinet Decision No. 111/2022, any entity wanting to engage in virtual asset activities must obtain a license from either the Virtual Assets Regulatory Authority (VARA) or the Securities and Commodities Authority (SCA). VARA regulates the virtual asset landscape in Dubai, while the SCA provides a regulatory framework for the rest of the country. This creates a dual oversight system for virtual assets in the UAE.
Compliance Monitoring: VARA implements stringent compliance measures, which include protocols for anti-money laundering (AML), Know-your-customer (KYC) procedures, and counter-terrorism financing (CFT).
Market Surveillance: The authority monitors market activities to prevent manipulation and fraud.
Types of Digital Assets Covered in VARA
The word “virtual assets” consists of several assets that need to be specified. These three are the ones that VARA regulates:
⦁ Virtual Tokens: These include cryptocurrencies and tokens that can be used for payments or investments.
⦁ Non-Fungible Tokens (NFTs): VARA regulates the issuance and trading of NFTs, ensuring compliance with relevant laws and standards.
⦁ Stablecoins: While certain stablecoins may also fall under the purview of the UAE Central Bank, VARA has a role in regulating fiat-backed stablecoins within its framework.
Activities Regulated by VARA
VARA oversees a range of activities related to virtual assets, including:
⦁ Advisory Services: Offering expert guidance on virtual asset investments.
⦁ Brokerage and Exchange Services: Facilitating the purchase and sale of virtual assets. Custodial Services: Ensuring the safekeeping of digital assets for clients.
⦁ Token Issuance: Managing the regulatory process for issuing new virtual tokens.
Licensing of VASPs
The licensing process for VASPs under VARA has been structured into multiple stages:
⦁ Initial Approval: VASPs are required to submit an Initial Disclosure Questionnaire (IDQ) along with a business plan and management details. This stage permits entities to begin legal incorporation, but they are not allowed to provide services yet.
⦁ Minimum Viable Product (MVP) License: Once they obtain initial approval, VASPs can apply for an MVP license, which permits them to test their services in a controlled environment under specific conditions. This phase ensures that businesses can demonstrate their operational readiness.
⦁ Full Market Product (FMP) License: The final stage requires obtaining a full operating license after the business demonstrates compliance with regulations and operational capabilities.
Licensing Categories
When applying for a VASP license, you must explicitly identify one or more virtual asset activities you wish to operate in from a list of seven categories:
⦁ VA Advisory Services
⦁ VA Broker-Dealer Services
⦁ VA Custody Services
⦁ VA Exchange Services
⦁ VA Lending and Borrowing Services
⦁ VA Management and Investment Services
⦁ VA Transfer and Settlement Services
Benefits of Setting Up a Business in VARA
While Dubai is gaining traction, it still competes with well-established hubs like the U.S., Switzerland, and Singapore that have longer histories in blockchain development. However, it has some strong points that make it an eye-catching investment option for entrepreneurs.
Strengths of VARA Compared to Competitors
⦁ Specialized Focus: VARA is exclusively focused on virtual assets, unlike many other jurisdictions where cryptocurrency regulation is integrated into broader financial oversight.
⦁ Legitimacy in the Market: Being licensed by VARA enhances business legitimacy and credibility with consumers and investors. This trust is crucial in the virtual asset space, where security and regulatory concerns are prominent.
⦁ Segmented Licensing: VARA provides a segmented licensing system that enables businesses to apply for specific licenses based on their services, such as advisory, exchange, or custodial services. This flexibility allows companies to operate legally while concentrating on their core activities.
⦁ Clear Licensing Process: VARA’s structured licensing framework enables businesses to show compliance gradually, making it simpler than navigating intricate regulations found in other countries.
⦁ Attractive Tax Environment: Operating in the Dubai World Trade Centre (DWTC) Free Zone allows businesses to enjoy zero personal income tax and unrestricted currency repatriation. These financial incentives greatly enhance profitability and operational flexibility.
⦁ Global Hub for Virtual Assets: Dubai is aiming to become a global hub for virtual assets, attracting a variety of international players in the industry. By establishing a business under the Virtual Assets Regulatory Authority (VARA), companies can position themselves at the heart of this dynamic market, gaining access to a diverse range of clients and partners.
⦁ Supportive Environment: Dubai’s favorable business environment, low taxes, and strategic location at the intersection of global markets enhance its appeal compared to other jurisdictions.
⦁ Regulatory Sandbox: VARA has created regulatory sandboxes where companies can test new products and services in a controlled environment, free from immediate regulatory pressures. This fosters innovation while ensuring that potential risks are carefully monitored.
Key Players of Virtual Assets regulatory bodies in the region
The following table shows the biggest regulatory bodies of virtual assets in the MENA region. As you can see, VARA stands strongly at the top.
| Rank | Regulatory Body | Key Features | Market Focus |
| 1 | VARA (Virtual Assets Regulatory Authority) | – First independent regulator for virtual assets – Comprehensive licensing framework – Focus on investor protection and innovation | Virtual assets and related activities |
| 2 | ADGM FSRA (Abu Dhabi Global Market Financial Services Regulatory Authority) | – Integrated crypto regulations into broader financial services – High standards for licensing and operational conduct – Risk-based approach to regulation | Financial services including virtual assets |
| 3 | SCA (Securities and Commodities Authority) | – Oversees securities and commodities markets – Developing regulations for digital assets | Securities and commodities including some digital assets |
| 4 | DIFC (Dubai International Financial Centre) | – Established financial hub with a focus on traditional finance – Regulatory framework for fintech and virtual assets | Traditional finance with fintech integration |
| 5 | Central Bank of Bahrain | -Comprehensive regulations for cryptocurrencies – Focus on AML/CFT compliance | Financial services including cryptocurrencies |
| 6 | DMCC (Dubai Multi Commodities Centre) | – Licensing framework for crypto businesses – Focus on commodities trading and related services | Commodities and crypto services |
| 7 | Saudi Arabian Monetary Authority (SAMA) | – Exploring regulations for digital assets – Developing frameworks but less comprehensive than VARA or ADGM | Traditional finance with emerging crypto focus |
Forward view
VARA is emerging as a promising platform for Web 3.0 development on a global scale. Its unique features attract developers seeking efficient solutions for building decentralized applications (dApps). With growing interest from international investors and developers, VARA is positioned to be a competitive player in the global blockchain landscape.
In summary, VARA stands out due to its innovative approach to Web 3.0 application development. It emphasizes user experience and developer accessibility while operating within a supportive regulatory framework in the UAE.
Conclusion
Not only it is located in the strategic emirate of Dubai, VARA lists virtual assets and facilitates the creation of companies that provide various virtual asset services. VARA is instrumental in developing Dubai’s advanced legal framework for virtual asset industry governance, focusing on investor protection, and supporting a borderless economy vision.
After discovering the fundamentals, consult an expert team with experience in the UAE to reduce the time and complexity of getting a VASP license.
