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Guide to Dubai VARA License Application

The UAE is at the forefront of innovation in the virtual asset sphere, witnessing a thriving digital currency market. The Dubai Virtual Assets Regulatory Authority (VARA) holds a central role in the supervision and regulation of various virtual asset activities within the Emirate. In this comprehensive guide, we will delve into the nuances of VARA licenses and the wide array of activities they govern, shedding light on the necessary permissions to navigate the flourishing realm of virtual assets in the UAE.

What is a virtual asset (VA)?

According to Article 2 of Law No. (4) of 2022 Regulating Virtual Assets in the Emirate of Dubai (Virtual Asset Law), a virtual asset refers to a digital representation of value that is capable of digital trading, transfer, or use as an exchange or payment medium, or for investment purposes. This encompasses virtual tokens and any digital representations of other values as determined by VARA.

What is the Virtual Assets Regulatory Authority (VARA)?

Established in March 2022, after the enactment of the Virtual Asset Law, VARA functions as the regulatory body entrusted with overseeing virtual assets (VAs) and VA activities throughout all zones within the Emirate of Dubai. This authority extends to Special Development Zones and Free Zones, except the Dubai International Financial Centre.

Requirements for Engaging in Virtual Asset Activities in Dubai

Dubai’s Virtual Asset Law, as detailed in Article 15, lays down the prerequisites for engaging in virtual asset activities within the Emirate:

1. Acquisition of a Permit: Before commencing any virtual asset activities in the Emirate, it is imperative to secure a permit from VARA (Virtual Asset Regulatory Authority).

2. Compliance with Applicable Legislation: The permit will be granted in strict adherence to the relevant legislation, along with the requisite procedures and criteria established by the Director General.

3. Establishment in the Emirate: To conduct virtual asset activities, individuals must establish their business within the Emirate and select a legal structure approved by the competent commercial licensing authority in Dubai.

4. Free Zone Operations: If individuals intend to operate within any of Dubai’s free zones, they must first secure the necessary approvals and permits from VARA. Only after obtaining these approvals can they initiate the licensing procedures through the competent commercial licensing authority.

5. Adherence to Permit Requirements: Once the permit is granted, all virtual asset activities must be carried out in full compliance with the requirements, rules, and regulations specified within the permit.

VARA Regulated Activities: What Requires Licensing?

Article 16 of the Virtual Asset Law in Dubai mandates licenses for the following activities under VARA:

1. Operation and Management of Virtual Asset Platforms: This entails the operation and management of platforms that enable the exchange of virtual assets, which may take the form of websites, mobile applications, or any other electronic means.

2. Exchange Services between Virtual Assets and Currencies: This involves offering exchange services between virtual assets and currencies, whether they are domestic or foreign.

3. Exchange Services between One or More Forms of Virtual Assets: This activity covers the provision of exchange services between different types of virtual assets, such as exchanging Bitcoin for Ethereum.

4. Virtual Asset Transfer Services: This includes providing transfer services for virtual assets, such as transferring Bitcoin from one wallet to another.

5. Services Related to the Portfolio of Virtual Assets: This encompasses services related to the management of virtual asset portfolios, such as advising clients on the composition of their virtual asset holdings.

VARA License Application Process in Dubai

The process for obtaining a VARA (Virtual Asset and Related Activities) License in Dubai for new firms (excluding DIFC) consists of two stages.

Stage 1: Initial Approval Application

To engage in virtual asset activities within or from Dubai (excluding DIFC), any firm must initiate the Initial Approval application process to establish a legal entity and initiate operational setup. This process is comprised of the following steps:

1. Submission of an Initial Disclosure Questionnaire (IDQ) to Dubai Economy & Tourism or the relevant Free Zone Authority. This submission must be accompanied by supplementary documentation, including a comprehensive business plan and information regarding the firm’s beneficial owners and senior management.

2. Payment of the initial fees, typically equivalent to 50% of the total license application fee. Upon receipt of the initial fees, the firm is granted Initial Approval, enabling it to proceed with the legal incorporation process and complete operational setup, including securing office space and hiring employees. It is important to note that virtual asset activities are not permitted at this stage. VARA retains the right to decline Initial Approval if the firm’s activities fall outside the regulatory boundaries or fail to meet the required standards.

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Stage 2: VASP License Application

After obtaining Initial Approval, the firm can move on to the second stage of the process by applying for a VASP (Virtual Asset Service Provider) License. This entails the preparation and submission of documentation by the guidelines provided by VARA. The submission may involve interactions with VARA, such as meetings, interviews, and the provision of additional documentation. Before being granted a VASP License, the firm is obligated to settle the outstanding portion of the application license fees and the first year’s supervision fees.

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Frequently Asked Questions (FAQs)

Q1. What is VARA, and why is it essential for businesses operating in the UAE?

VARA, which stands for the Virtual Assets Regulatory Authority, serves as the governing body responsible for overseeing Virtual Asset services within the Emirate of Dubai (excluding the Dubai International Financial Centre). Its primary objective is to encourage innovation by implementing responsible regulations within the virtual asset industry. VARA plays a pivotal role for businesses in the UAE by offering a well-defined regulatory framework for engaging in virtual asset activities. Any business involved in virtual asset operations must secure a VARA license to ensure compliance with legal requirements.

Q2. Which activities fall under VARA’s supervision and licensing?

VARA’s scope of authority extends to activities such as the operation and management of virtual asset platforms, exchange services involving virtual assets and currencies, as well as exchanges between various forms of virtual assets. Additionally, VARA regulates services related to virtual asset transfer, custody, and management.

Q3. Who is obligated to obtain a license from VARA?

Any entity, whether categorized as a Virtual Asset Service Provider (VASP) or a conventional economic entity, that intends to provide virtual asset services must initiate the license application process with VARA before participating in virtual asset activities within or originating from the Emirate of Dubai.

Q4. What is the typical timeframe for acquiring a VARA license for virtual asset activities?

The duration required to secure a VARA license for virtual asset activities can vary, contingent upon the complexity of the application and the comprehensiveness of the submitted documentation. Nonetheless, by VARA’s official website, the average processing period for a license application stands at 30 working days.

Q5. What are the consequences of conducting virtual asset activities without a VARA license?

Engaging in virtual asset activities without obtaining the necessary VARA license constitutes a breach of VARA’s regulations. Violations of this nature may result in penalties, including fines, imprisonment, or a combination of both. The specific penalty imposed hinges on the nature and severity of the infringement.

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