Dubai has emerged as a crucial hub for the growing virtual assets industry. It provides attractive tax incentives, a progressive regulatory framework and unique opportunities for growth and development.
At the heart of this emerging ecosystem is the Dubai World Trade Centre (DWTC) Free Zone, which offers a regulated virtual asset space and the perfect environment for businesses to grow within the virtual assets sector.
The Virtual Assets Regulatory Authority (VARA) regulates and supervises the provision, use and exchange of virtual assets from the Emirate of Dubai, including the DWTC. Any firm seeking to conduct virtual asset activities in or from Dubai, excluding the Dubai International Financial Centre (DIFC), must obtain a Virtual Asset Service Provider (VASP) Licence before initiating operations.
VARA’s Virtual Assets & Related Activities Regulations 2023 provide a comprehensive framework for virtual assets, which aims to ensure investor security, sustainable market growth and overall stability in the virtual assets sector.
This article provides a comprehensive guide to setting up a VA company in the DWTC Free Zone and applying for VARA approval.
This article provides a comprehensive guide on how to establish a company in the DWTC Free Zone, highlighting the significance and process of securing VARA approval.
Why set up a virtual assets business in DWTC?
DWTC is an ideal base for firms in the virtual assets space, providing a streamlined, single-point operation that caters to companies of all sizes, from start-ups and SMEs to large multinationals.
DWTC also offers a great deal of operational flexibility, giving businesses the option to set up as an onshore entity under a specialised free zone licence or to have dual licensing, enabling access to both the UAE mainland market as well as the free zone itself.
This adaptability, combined with advantages such as 100% foreign ownership, zero personal income tax and no restriction on currency and the repatriation of funds, have made it a key hub in Dubai’s digital economy.
Many global VA companies have already chosen Dubai and the DWTC Free Zone as their base of operations, including Binance, OKX, Komainu, GCEX, Hex Trust, and Crypto.com.
DWTC collaborated early on with VARA to establish an MVP ecosystem for VASPs, significantly accelerating the development of VARA’s regulatory framework and FMP for VASPs.
How to establish a company in DWTC
- Submit an Online Application: Applicants must submit an online application to DWTC. This initial step involves providing all necessary documents requested by DWTC. They will then conduct their due diligence and may request further information if needed.
- Secure DWTC Authority Initial Approval: Applicants are required to complete the Virtual Asset Service Provider (VASP) questionnaire and obtain pre-approval from VARA. At this stage, the applicant also needs to pay the DWTC authority fee and 50% of VARA’s fee.
This pivotal step lays the foundation for an initial readiness of a VASP to comply with the regulatory framework. VASPs will need to demonstrate that they can setup the necessary infrastructure, processes, and protocols to ensure that they can meet the regulatory requirements effectively. This includes implementing measures such as customer due diligence, transaction monitoring, risk assessment, and reporting mechanisms as outlined in the regulatory framework. By taking this key step, VASPs can demonstrate their commitment to regulatory compliance and contribute to the overall integrity and stability of the virtual asset ecosystem.
- Sign Corporate Documents: The applicant must then sign the Memorandum and Articles of Association. These documents, which detail the company’s structure and governance, must align with the capital requirements set by the DWTC Authority, establishing a legal basis for your operations.
- Submit Office Lease: All applicants are required to leasing physical office space within DWTC. A copy of the lease agreement, which evidences details of the premises to be used as the applicant’s registered office within the free zone, must be submitted.
- Obtain a Non-Operational Virtual Assets Licence: The DWTC Authority will issue a Non-Operational Virtual Asset Licence to the applicant of one-year validity. This preliminary licence is a precursor to full operational status and allows the applicant to set up necessary infrastructures and systems.
- Issuance of Operational Licence: The applicant must obtain the VASP Licence / Exemption from VARA to conduct Virtual Assets activities. The DWTC will not issue a full Operational Licence until VARA approval is obtained.
The fee for approval from VARA is AED100,000 (c. USD27,000), of which AED50,000 must be paid at the initial approval stage and the remaining amount upon final approval.
If the applicant does not obtain the VASP Licence from VARA within the one-year validity of the Non-Operational Licence issued by DWTC Authority, the non-operational licence will not be renewed – this is inclusive of visas and establishment cards, if applicable. Any fee or costs paid to DWTC Authority will be forfeited by the applicant.
Governmental fees for incorporation in DWTC
The following is a breakdown of DWTC’s costs for the first year and subsequent year:
- Registration Fee: A one-time fee of AED2,000
- Licence Fee: AED25,000 for the first year, which increases to AED27,000 in the second and following years.
- Establishment Card (Annual): An annual fee of AED2,300, which is required to maintain the company’s formal status.
- Security Deposit: A refundable fee of AED3,500.
- Executive Office 6-Visa Quota: For reference, an executive office with an allowance of six employee visas is available at AED70,000 per year or
- Executive Office 3-Visa Quota: For reference, an executive office with an allowance of three employee visas is available at AED 49,000 per year
The total cost in the first year therefore amounts to AED102,800, reducing to AED99,300 in subsequent years by excluding the one-time registration fee and security deposit fee.
It is important to note that additional activities related to virtual assets incur an annual fee of AED8,000 per activity, enabling businesses to expand their service offerings under the same licence.
The VARA approval process
The Virtual Assets Regulatory Authority (VARA) was established to oversee and regulate the virtual assets sector in Dubai. It aims to provide a secure and progressive environment for virtual assets, recognising the need for a regulatory framework that evolves alongside the rapidly changing VA industry.
VARA has identified eight distinct VA activities within its regulatory perimeter. VASPs seeking to offer these activities must apply for and receive a licence from VARA before undertaking VA activities in Dubai:
- Advisory services.
- Lending and borrowing services.
- Broker-dealer services.
- Management and investment services.
- Custody services.
- Transfer and settlement services.
- Exchange services.
- Other specific activities like proprietary trading and VA issuance.
These VA activities are designed to be flexible and evolutionary as the sector grows and develops over time. The categories are intended to provide space for innovation while offering a solid foundation for industry standards.
It should be noted that a VASP can apply to be licensed for multiple activities and aggregate them under a single overarching licence. VASPs that are licensed to undertake multiple activities must meet the requirements for each activity in full and maintain compliance at all times.
An exception applies to VASPs undertaking Custody Services activities. Due to specific requirements to segregate activities and/or demonstrate independence of governance, VASPs undertaking Custody Services must be set up as a distinct legal entity with a standalone licence.
Licensed VASPs are prohibited from undertaking VA proprietary trading or trading their group’s portfolio of assets under the regulated activity(ies) licence. A separate company must be set up for proprietary trading, which will be required to obtain a No Objection Certificate (NoC) from VARA to confirm that the activity may be undertaken with regulatory oversight without a VA licence.
How to obtain a VASP licence
VASPs seeking a VARA Licence must complete a two-stage application process.
Stage 1: Initial Set-up
The first stage is to apply to set up the legal entity – through Dubai Economy & Tourism [DET] for mainland firms or any Free Zones in the Emirate of Dubai (excluding the DIFC). The application should broadly follow the procedure outlined in the ‘How to establish a company in DWTC’ section above.
The DWTC Authority – or other relevant registrar authority (RA) – will issue an ‘Initial Approval’ that allows the applicant to establish the company’s legal structure and proceed with setting up operations, including renting office space and hiring staff. set up necessary infrastructures and systems.
Conducting VA activities at this stage is not permitted. VARA reserves the right not to issue an Initial Approval if the firm’s activities fall outside the regulatory perimeter or it does not meet regulatory standards.
Stage 2: Acquiring a VASP Licence
Following receipt of an Initial Approval, a firm can apply for a full VASP Licence as follows:
- Documentation Submission: Compile and submit the required documentation as advised by VARA, which may include detailed operational plans and compliance strategies.
- Feedback and Communication: VARA will review the submission and may request additional meetings, interviews or documentation.
- Final Fees: Applicants must pay the remaining licence application fee and the first year’s supervisory fee.
- Licence Issuance: Successful applicants will receive a VASP Licence, which may be subject to operational condition.
This structured approach ensures that only qualified entities can offer VA services in Dubai, maintaining the integrity and security of the market.
How can Sovereign assist?
Establishing a company within the DWTC with VARA approval can be a complex process. It requires a thorough understanding of Dubai’s regulatory environment, as well as the specific standards set by VARA for the VA sector.
Sovereign Corporate Services Dubai can assist by providing comprehensive support and direct access to government entities and regulatory bodies throughout the application process. We can guide you through the process of establishing your business within DWTC and then obtaining VARA approval by ensuring that your business meets all regulatory requirements.
