Setting Up a Virtual Asset Business Under Dubai’s VARA: Mainland or Free Zone?

Choosing between mainland and free zone incorporation under Dubai’s VARA shapes a virtual asset firm’s market access, tax exposure, and operational flexibility, within a unified framework that regulates all crypto activities and ensures clear oversight across the emirate.

Dubai has emerged as one of the world’s most progressive jurisdictions for virtual asset regulation. Since the establishment of the Virtual Assets Regulatory Authority (VARA) in 2022, the Emirate has positioned itself at the forefront of digital finance, offering a dedicated framework for companies engaged in blockchain and cryptocurrency activities.

For investors, entrepreneurs, and compliance professionals, one of the most strategic decisions when entering the market lies in choosing where to establish operations, on the Dubai mainland or within one of the Emirate’s free zones. While both are governed by VARA for crypto-related activities, they differ in their legal setup, market access, taxation, and operational environment.

This article explains the regulatory architecture of VARA, compares the advantages and limitations of mainland and free zone setups, and outlines key practical steps for launching a compliant virtual asset business in Dubai.

The regulatory backbone: VARA and its mandate

The VARA was established under Dubai Law No. 4 of 2022 to oversee all virtual asset activities within the Emirate, excluding those conducted in the Dubai International Financial Centre (DIFC), which is governed separately by the Dubai Financial Services Authority (DFSA).

VARA is unique in that it focuses exclusively on the virtual asset sector, encompassing everything from crypto exchanges and token issuers to custodians and advisory platforms. Its regulatory structure aims to promote innovation while imposing stringent standards on governance, risk management, and anti-money laundering (AML) compliance.

VARA classifies virtual asset service providers (VASPs) into eight regulated categories:

• Advisory services;
• Broker-dealer services;
• Custody;
• Exchange;
• Lending and borrowing;
• Token issuance, investment and portfolio management; and
• Transfer or settlement services.

Each activity type carries specific requirements relating to capitalization, licensing, and internal controls. Activities involving anonymity-enhancing features or privacy coins are explicitly prohibited.

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In essence, any entity conducting virtual asset operations in Dubai (outside DIFC) must hold a VARA license. The regime’s unified rulebook ensures that compliance expectations are identical for both mainland and free zone companies, even though incorporation and tax procedures differ.

Mainland vs. free zone: Legal and operational distinctions

Dubai offers two main environments for setting up a VARA-regulated entity: the mainland, licensed through the Dubai Department of Economy and Tourism (DET), and several designated free zones, such as the Dubai Multi Commodities Centre (DMCC) or Dubai World Trade Centre Authority (DWTC). Both allow 100 percent foreign ownership, but differ significantly in business scope, taxation, and administrative procedures.

Scope of operations

A mainland company can conduct business across Dubai and the wider UAE without additional permissions, making it ideal for firms aiming to serve onshore clients directly. By contrast, a free zone company’s commercial activities are generally confined to its zone and international markets. Any attempt to engage directly with mainland clients typically requires additional steps — such as coordination with the Securities and Commodities Authority (SCA) or a no-objection certificate.

For firms targeting a UAE-based retail or institutional client base, a mainland setup offers greater flexibility. Free zone entities, however, remain a preferred choice for businesses prioritizing cross-border operations or global user bases.

Regulatory oversight

Both jurisdictions fall under VARA for virtual asset licensing. The difference lies in who handles general commercial registration: the DET for mainland companies and the respective zone authority for free zone entities. After obtaining VARA’s initial approval to incorporate, the founder completes company registration with the chosen authority before applying for the full operational license.

Corporate taxation

The introduction of the UAE’s 9 percent corporate tax in 2023 reshaped the economic calculus for business incorporation. Mainland companies are subject to the standard corporate tax rate on profits exceeding AED 375,000 (US$102,110).

Free zone entities, however, can enjoy a 0 percent tax rate on “qualifying income” if they meet the criteria for a Qualifying Free Zone Person, notably, by avoiding revenue derived from the UAE mainland.

Even so, all entities must register and file annual tax returns. Once a free zone firm earns mainland-sourced income, that portion becomes taxable at 9 percent.

The tax advantage therefore depends heavily on a company’s client geography. Firms serving international markets or engaging primarily in cross-border trading often favor free zones, whereas those anticipating significant domestic revenues may find limited benefit in such a structure.

Office and substance requirements

Regardless of jurisdiction, VARA requires licensed firms to maintain a genuine operational presence in Dubai. A physical office (not a virtual or shared desk) is mandatory, and the space must align with the company’s staffing plans. At least two “Responsible Individuals,” such as a Chief Executive Officer and a Compliance or Money Laundering Reporting Officer, must reside full-time in the UAE.

Mainland entities can establish offices anywhere in Dubai, while free zone firms must lease within their chosen zone. Free zones often tie visa quotas to office size and offer integrated service packages, but VARA insists that all licensed entities have enclosed premises to meet its “substance” criteria.

Ecosystem and market perception

Mainland firms operate across Dubai’s diverse commercial landscape and benefit from broad recognition among local banks and institutions, signaling a strong onshore presence.

Free zones, meanwhile, provide sector-specific ecosystems. For example, DMCC’s Crypto Centre hosts a growing network of blockchain startups, exchanges, and service providers. This clustering effect offers access to specialized consultants, potential investors, and peer collaboration opportunities.

Corporate tax and market access considerations

Taxation remains one of the decisive factors when evaluating where to establish a VARA-licensed company. Free zones continue to attract crypto entrepreneurs due to the potential 0 percent corporate tax rate and streamlined incorporation processes. Yet the trade-off lies in their limited onshore reach.

Mainland companies can directly market to and onboard UAE residents without additional approvals. Free zone companies, on the other hand, may operate globally but must ensure compliance when engaging the UAE mainland. A Dubai free zone entity wishing to serve clients in other emirates (such as Abu Dhabi) may need to coordinate with the SCA, the federal-level authority overseeing virtual asset activities outside Dubai.

For firms expecting to maintain an online-only model or focus on international users, a free zone provides an efficient base. For those pursuing physical retail operations, local partnerships, or UAE-focused services, mainland incorporation is often more practical.

The licensing journey: From application to approval

Obtaining a VARA license is a structured but resource-intensive process, typically divided into two phases: Initial Approval and Full License.

Initial Approval (Approval to Incorporate):

Applicants must submit a detailed Initial Disclosure Questionnaire (IDQ) outlining their proposed business model, ownership, governance, and risk controls. VARA may request supporting materials such as compliance frameworks or cybersecurity plans.

If satisfied, it issues an Approval to Incorporate (ATI), allowing the founders to formally register the company with DET or a free zone authority.

Company incorporation and capital requirements

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The ATI serves as a prerequisite for business registration. Companies must open a UAE bank account and deposit their paid-up share capital, at least AED 100,000 (US$27,229) for basic services and up to AED 500,000 (US$136,147) or more for higher-risk operations like exchanges or custodianship.

Securing a local bank account can be challenging for crypto entities, as banks often conduct extensive due diligence before onboarding.

Full License Application

After incorporation, the company submits the complete licensing package, which includes detailed AML/CFT policies, IT security protocols, governance structures, and profiles of senior management. VARA reviews these materials, often through multiple rounds of clarification. When the regulator is satisfied, it issues an In-Principle Approval outlining final preconditions before operational launch.

Final license and operational status

Once all conditions are met, such as hiring key personnel or implementing specific risk controls, VARA grants the operational license, listing the entity publicly on its register of authorized VASPs.

The full process can take between six and twelve months, depending on the complexity of the business model and the completeness of documentation. While Dubai’s authorities are generally responsive, applicants should plan for a lengthy pre-revenue phase.

Compliance responsibilities and ongoing obligations

Operating under VARA’s framework involves strict and continuous compliance. Licensees must adhere to extensive rulebooks covering governance, risk management, cybersecurity, advertising, and market conduct.

Firms are required to:

• Maintain up-to-date AML/CFT systems consistent with UAE and FATF standards;
• Conduct periodic audits and submit financial reports to VARA;
• Implement wallet security measures, including segregation of client and company assets;
• Obtain insurance coverage or compensation mechanisms for custodial assets; and
• Ensure transparency in promotional and marketing materials.

Violations can attract heavy penalties, including fines of up to AED 50 million (US$13.61 million) or 15 percent of annual revenue, suspension of operations, or public censure. Consequently, firms often engage external compliance consultants or legal advisors to design and maintain regulatory systems that meet VARA’s expectations

Key practical challenges

While Dubai’s policy environment is supportive, new entrants often face several operational hurdles:

• Banking Access: Traditional banks remain cautious toward crypto-related businesses, frequently requiring VARA pre-approval and extensive documentation before account opening;
• Talent Recruitment: The requirement for UAE-based responsible officers increases costs, especially for firms needing experienced compliance and technical professionals;
• Budgeting: VARA licensing fees, ongoing supervision charges, and mandatory capital requirements can be substantial, making the regime better suited to well-capitalized startups; and
• Timeline Uncertainty: Regulatory review periods can vary, and applicants should maintain open communication with VARA to address feedback efficiently.

Decision factors: Mainland or free zone?

Choosing the right jurisdiction involves aligning strategic goals with regulatory realities.

Mainland companies under Dubai’s Department of Economy and Tourism (DET) can operate freely across the UAE, offering broader market access and flexibility in office location. They are, however, subject to a 9 percent corporate tax on profits above AED 375,000 (US$102,110) but are generally viewed more favorably by local banks due to their onshore status.

Free zone entities, such as those in DMCC or DWTC, mainly serve clients within their zones or abroad and can benefit from a 0 percent tax rate on qualifying income. While they must lease office space inside the zone and may face additional scrutiny from banks, they gain access to dynamic crypto ecosystems and established networks that support innovation and collaboration.

For firms aiming at regional retail users or physical UAE operations, a mainland setup provides convenience and credibility. Those with global ambitions, operating primarily online, may find free zones more cost-efficient and tax-friendly.

Conclusion

Dubai’s virtual asset ecosystem represents a rare balance between innovation and regulation. Through VARA, the Emirate has created a unified and transparent system that allows both local and foreign firms to engage confidently in the crypto economy.

The choice between mainland and free zone incorporation depends largely on market strategy, tax planning, and operational priorities. Mainland companies enjoy unrestricted domestic reach, while free zones offer significant fiscal benefits and established digital finance clusters.

Regardless of location, success in Dubai’s crypto sector demands more than licensing compliance — it requires a sustained commitment to governance, cybersecurity, and regulatory engagement. By understanding the practical and strategic implications of VARA’s framework, virtual asset firms can position themselves to thrive in one of the world’s most dynamic digital finance jurisdictions.

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