The UAE stands at the forefront of innovation in the virtual assets landscape, witnessing the thriving digital currency market. The Dubai Virtual Assets Regulatory Authority (VARA) plays a pivotal role in overseeing and regulating various virtual asset activities within the Emirate. In this comprehensive guide, we will explore the intricacies of VARA licenses and the diverse range of activities it regulates, shedding light on the permissions required to navigate the flourishing world of virtual assets in the UAE.
What is a Virtual Asset (VA)?
As per Article 2 of Law No. (4) of 2022 Regulating Virtual Assets in the Emirate of Dubai (Virtual Asset Law), a Virtual Asset is a digital representation of value that can be digitally traded, transferred, or used as an exchange or payment tool, or for investment purposes. This includes Virtual Tokens and any digital representation of other values as determined by VARA.
What is the Virtual Assets Regulatory Authority (VARA)?
Established in March 2022, following the enactment of the Virtual Asset Law, VARA serves as the regulatory authority entrusted with overseeing Virtual Assets (VAs) and VA Activities across all zones within the Emirate of Dubai. This authority extends to Special Development Zones and Free Zones, excluding the Dubai International Financial Centre.
Conducting Virtual Asset Activities in Dubai: Required Conditions
Article 15 of the Virtual Asset Law outlines the conditions for conducting virtual asset activities in the Emirate:
- No person may conduct the activity in the Emirate without obtaining a permit from VARA.
- The permit will be issued in accordance with the applicable legislation and relevant requirements and procedures approved by the Director General.
- The person wishing to conduct the activity must set up their business in the Emirate and have one of the legal forms approved by the competent commercial licensing authority in the Emirate.
- If they wish to conduct the activity in any of the free zones, they must first obtain the required approvals and permits from VARA before initiating licensing procedures by the competent commercial licensing authority.
- The activity will be conducted subject to the requirements, rules, and regulations stated in the permit.
Activities Regulated by VARA: What Requires a License?
Under Article 16 of the Virtual Asset Law, the following activities require permits under VARA in Dubai:
- Operation and Management of Virtual Asset Platforms: This activity involves operating and managing a platform that facilitates the exchange of virtual assets, which can be in the form of a website, mobile application, or any other electronic means.
- Exchange Services between Virtual Assets and Currencies: This activity involves providing exchange services between virtual assets and currencies, whether domestic or foreign.
- Exchange Services between One or More Forms of Virtual Assets: This activity involves providing exchange services between one or more forms of virtual assets, for example, exchanging Bitcoin for Ethereum.
- Virtual Asset Transfer Services: This activity involves providing transfer services for virtual assets, such as transferring Bitcoin from one wallet to another.
- Custody and Management Services for Virtual Assets: This activity involves providing custody and management services for virtual assets, like holding Bitcoin on behalf of a client.
- Services Related to the Portfolio of Virtual Assets: This activity involves providing services related to the portfolio of virtual assets, such as advising clients on the composition of their virtual asset portfolio.
VARA License Application Process in Dubai
To apply for a VARA (Virtual Asset and Related Activities) License, new firms in Dubai (excluding DIFC) need to follow a two-stage process.
- Applying for Initial Approval
Any firm seeking to carry on virtual asset activities in or from Dubai (excluding DIFC) must apply for Initial Approval to establish a legal entity and commence operational setup. The application process is completed in two stages:
- First, the firm must submit an Initial Disclosure Questionnaire (IDQ) to Dubai Economy & Tourism or a relevant Free Zone Authority. Additional documentation, such as a business plan and details of the firm’s beneficial owners and senior management, is required.
- Once the initial fees, usually 50% of the license application fee, are paid, the firm receives Initial Approval to finalize its legal incorporation and complete operational setup, including office space rental and employee onboarding. Note that virtual asset activities are not permitted at this stage. VARA reserves the right to deny Initial Approval if the firm's activities are outside the regulatory perimeter or do not meet appropriate standards.
- Applying for VASP License
After receiving Initial Approval, a firm can apply for a VASP (Virtual Asset Service Provider) License by preparing and submitting documentation according to the guidance provided by VARA. Feedback directly from VARA on the submission may include meetings, interviews, and the submission of further documentation. The remaining portion of application license fees and the first year’s supervision fees must be paid before receiving a VASP License.
Frequently Asked Questions (FAQs)
Q1. What is VARA, and why is it important for businesses in the UAE?
VARA, the Virtual Assets Regulatory Authority, is the regulatory body overseeing Virtual Asset services in the Emirate of Dubai (excluding the Dubai International Financial Centre). It was established to foster innovation through responsible regulation of the virtual asset industry. VARA’s role is crucial for businesses in the UAE as it provides a clear regulatory framework for virtual asset activities. Businesses engaging in virtual asset activities must obtain a license from VARA to operate legally.
Q2. What activities does VARA oversee and license?
VARA oversees and licenses activities such as operating and managing virtual asset platforms, exchange services between virtual assets and currencies, or between different forms of virtual assets, and virtual asset transfer, custody, and management services.
Q3. Who needs a license from VARA?
Any entity, be it a Virtual Asset Service Provider (VASP) or a traditional economy entity, seeking to offer virtual asset services must apply for and receive a license from VARA before engaging in virtual asset activities in or from the Emirate of Dubai.
Q4. How long does it take to obtain a VARA license for virtual asset activities?
The time required to obtain a VARA license for virtual asset activities may vary depending on the complexity of the application and the completeness of the documentation submitted. However, according to VARA’s website, the average processing time for a license application is 30 working days.
Q5: What are the penalties for operating virtual asset activities without a VARA license?
Operating virtual asset activities without a VARA license is a violation of VARA’s regulations. Penalties for such violations may include fines, imprisonment, or both. The exact penalty may vary depending on the nature and severity of the violation.
For more information related to VARA, don’t hesitate to contact HHS Lawyers.
Read More: Dubai publishes its first virtual assets law