Building the Digital Economy: UAE Free Zones for Virtual Asset Companies

KEY TAKEAWAYS

• The UAE has become a global hub for virtual asset companies, offering a progressive regulatory framework, strategic location, and business-friendly environment.
• Key regulatory bodies include the SCA, CBUAE, VARA (Dubai), and FSRA (Abu Dhabi), providing comprehensive frameworks for investor protection and compliance.
• Free zones like DMCC, DWTC, and ADGM offer tailored benefits for virtual asset businesses, making the choice of jurisdiction critical to aligning with business objectives.
• The incorporation process involves selecting the right free zone, defining business activities, submitting a business plan, obtaining regulatory approvals, and setting up infrastructure with robust compliance measures.
• By leveraging the UAE’s regulatory environment and infrastructure, virtual asset companies can unlock growth potential and establish a solid foundation for success in the rapidly evolving digital economy.

INTRODUCTION

The United Arab Emirates (“UAE”) has rapidly emerged as a global hub for innovation and investment in the virtual asset sector. With its progressive regulatory framework, strategic geographic location, and business-friendly environment, the UAE offers compelling opportunities for entrepreneurs and companies seeking to establish their presence in this burgeoning industry. Central to this appeal are the country’s free zones, which provide a range of benefits tailored to support businesses in the virtual asset ecosystem.

INCORPORATION OF VIRTUAL ASSET COMPANIES IN UAE FREE ZONES

Regulatory Landscape

At the federal level, the Securities and Commodities Authority (“SCA”) plays a pivotal role in shaping the regulatory environment for virtual assets.[1] Complementing the SCA’s role is the Central Bank of the UAE (“CBUAE”), which oversees the broader financial ecosystem, including digital payments and tokenised assets. While the CBUAE does not directly regulate cryptocurrencies, its mandates cover areas like anti-money laundering and combating the financing of terrorism (“AML-CFT”), both of which are crucial for virtual asset transactions. Notably, the Central Bank has issued guidance on stablecoins, stored value facilities and retail payment services, which intersect with digital asset activities, particularly those involving stablecoins or tokenised fiat currencies.[2]

At the emirate level, Dubai and Abu Dhabi have established dedicated virtual asset regulatory bodies to cater to their specific markets. In Dubai, the Virtual Assets Regulatory Authority (“VARA”) regulates all virtual asset activities within the emirate (excluding the DIFC). Abu Dhabi, on the other hand, regulates virtual assets through the Financial Services Regulatory Authority (“FSRA”) of the Abu Dhabi Global Market (“ADGM”), which offers a robust framework under its virtual asset regulatory framework, catering primarily to institutional investors and financial services.

Types of Crypto-Friendly Free Zones and Process of Incorporation

Several free zones are particularly relevant for virtual asset companies. For instance, the Dubai Multi Commodities Centre (“DMCC”) is home to the DMCC crypto centre, which focuses on blockchain and crypto-related businesses. There are also free zones like the Dubai World Trade Centre (“DWTC”) which accommodates crypto-related activities. In the said free zones, there may be an additional requirement to obtain a no-objection certificate from the relevant authorities such as the VARA or SCA based on the type of the regulated business activity.

The ADGM is known for its robust legal framework overseen by the FSRA ensuring compliance with international best practices. Meanwhile, the Dubai International Financial Centre (“DIFC“), traditionally a financial hub, is evolving to accommodate fintech and crypto firms.

The regulatory framework for virtual asset companies varies depending on the chosen jurisdiction. In Dubai, VARA is the primary body overseeing virtual asset activities, excluding those within DIFC. VARA licences are available for various activities, including exchanges, custodial services, and advisory roles. ADGM, through the FSRA, provides a regulatory framework designed to ensure consumer protection and the integrity of the financial system.

The incorporation process begins with selecting the appropriate free zone that aligns with the company’s business objectives and operational needs. This choice is crucial as each free zone offers unique benefits and focuses on specific aspects of the virtual asset industry. Following the selection, the company must define the scope of its virtual asset activities, such as exchange services, token issuance, or custodial services. This definition is critical for determining the type of licence required.

Once the scope is established, the applicant submits a business plan, detailing the proposed operations, target market, and compliance measures, to the chosen free zone authority. Pre-incorporation approvals are necessary to ensure that the business activities comply with the relevant regulatory guidelines.

After receiving the necessary approvals, the company can proceed with formal incorporation. This step involves registering the legal entity, securing the relevant virtual asset licences, and completing administrative formalities such as leasing office space and obtaining residence visas for employees. Companies are also required to implement robust compliance frameworks, including AML-CFT measures.

CONCLUSION

Incorporating a virtual asset company in the UAE’s free zones presents a unique opportunity to leverage the region’s forward-thinking regulatory environment, strategic location, and regulatory infrastructure. The UAE has positioned itself as a global leader in blockchain and fintech, offering tailored solutions for virtual asset businesses to thrive. By navigating the regulatory requirements, choosing the right jurisdiction, and establishing a strong compliance framework, companies can unlock immense potential in this rapidly evolving industry. Whether serving local markets or expanding globally, the UAE’s free zones provide the ideal foundation for long-term growth and success in the virtual asset ecosystem.

***

TLP Advisors is a dynamic and forward-thinking consulting, strategy and law firm specialising in providing cutting-edge solutions to our diverse clientele. With our roots deeply embedded in financial services, gaming, web3, and emerging tech, we offer unparalleled knowledge and support tailored to these rapidly evolving sectors’ unique challenges and opportunities.

TLP Advisors has consistently been the firm of choice for L1 chains, DeFi protocols, gaming companies, fintech and payment companies, foundations, funds, and investors. We have built a reputation for excellence through frequent collaborations with regulators, funds, and technology incubators. Our deep understanding of the intricate regulatory landscapes and industry dynamics allows us to provide strategic guidance and innovative solutions that empower our clients to navigate complex challenges and seize emerging opportunities.

www.techlawpolicy.com

***

[1] https://www.sca.gov.ae/Content/Userfiles/Assets/Documents/8004151b.pdf

[2] Securing Digital Finance: An Overview of the UAE’s Payment Token Services Regulation – TLP Advisors