Tokenising Economic Rights via an SPV in the UAE: Regulatory Perimeter and Structuring Considerations

Kayrouz & Associates advises project sponsors, family offices, and fund managers on tokenisation feasibility, regulatory mapping, and SPV structuring across Dubai mainland, DIFC, and ADGM.

Introduction

Tokenisation has moved from concept to execution in the UAE. Projects are being structured, tokens are being issued, and capital is being raised through blockchain-based instruments.

But the regulatory picture is not simple.

The UAE has multiple regulators with overlapping but distinct mandates. What triggers licensing in one jurisdiction may fall outside the perimeter in another. And the characterisation of what you are tokenising, whether shares, economic interests, revenue participations, or something else entirely, determines which rules apply.

This article addresses the specific question many sponsors are now asking: can I tokenise economic rights in a project through an SPV, without tokenising the underlying asset, and what regulatory and structuring considerations apply?

Introduction

Tokenisation has moved from concept to execution in the UAE. Projects are being structured, tokens are being issued, and capital is being raised through blockchain-based instruments.

But the regulatory picture is not simple.

The UAE has multiple regulators with overlapping but distinct mandates. What triggers licensing in one jurisdiction may fall outside the perimeter in another. And the characterisation of what you are tokenising, whether shares, economic interests, revenue participations, or something else entirely, determines which rules apply.

This article addresses the specific question many sponsors are now asking: can I tokenise economic rights in a project through an SPV, without tokenising the underlying asset, and what regulatory and structuring considerations apply?

TLDR

• Tokenising economic interests (revenue share, profit participation) is distinct from tokenising shares or real estate, and may be treated differently by regulators
• Whether your token is regulated depends on its characteristics, not its label: tokens conferring investment returns are likely securities or investment tokens
• VARA governs Dubai mainland, DFSA governs DIFC, ADGM FSRA governs ADGM, and each has different frameworks, thresholds, and exemptions
• Private placements and qualified investor exemptions exist but have specific conditions
• SPV jurisdiction, token characterisation, investor geography, and marketing approach all affect regulatory exposure

What Are You Actually Tokenising?

The first question is definitional. Sponsors often say they want to "tokenise a project" but what that means legally varies significantly.

Tokenised equity (shares)

The token represents an ownership interest in a company. The token holder is a shareholder, with rights under the company's constitution and applicable corporate law. This is clearly a security under virtually all regulatory frameworks.

Tokenised real estate

The token represents a direct or indirect interest in real property. This is regulated in the UAE, with specific frameworks from the Dubai Land Department and free zone authorities. We have written separately on the legal framework for real estate tokenisation and fractional ownership in the UAE.

Tokenised economic interests

The token represents a contractual right to receive a share of revenues, profits, or other economic benefits generated by a project or asset, without conferring ownership in the underlying company or asset.

This third category is where many current projects sit. A sponsor wants to raise capital for a project, hotel development, renewable energy installation, mining operation, logistics asset, and offer investors a share of the economics without making them shareholders or property owners.

The legal wrapper is typically an SPV. Investors acquire tokens that represent contractual claims against the SPV, which in turn holds the project interest and distributes proceeds according to a defined waterfall.

Is a Tokenised Economic Interest a Security?

This is the central regulatory question, and the answer is: it depends on how regulators characterise the instrument.

In most jurisdictions, including the UAE's financial free zones, the test for whether something is a security or investment is functional, not formal. Regulators look at substance over label.

DFSA approach

Under the DFSA's regulatory framework, an "Investment Token" is a security token that confers rights and obligations similar to specified investments such as shares, debentures, or units in collective investment funds. The DFSA applies a substance-over-form analysis.

If your token confers a right to receive profits or income from an enterprise, and the return depends on the efforts of others, it is likely to be characterised as an investment.

ADGM approach

ADGM's Financial Services Regulatory Authority (FSRA) takes a similar approach. Virtual assets that have characteristics of securities, derivatives, or units in collective investment schemes fall within the regulated perimeter.

VARA approach

VARA (Dubai's Virtual Assets Regulatory Authority) regulates virtual asset activities in Dubai mainland. VARA's framework focuses on the activity (issuance, exchange, custody, transfer) rather than purely the characterisation of the token. However, if a token has characteristics of a security, the matter may also engage federal SCA jurisdiction.

The practical implication

A token conferring a contractual right to a share of project revenues, where investors contribute capital and expect returns based on the sponsor's management of the project, will likely be treated as an investment instrument by UAE regulators.

Calling it a "utility token" or "revenue participation" does not change the analysis if the substance is investment-like.

Which Regulator Governs Your Issuance?

The UAE does not have a single securities regulator. Jurisdiction depends on where the issuer is established and where the activity takes place.

VARA (Dubai mainland)

VARA regulates virtual asset service providers operating in Dubai, excluding DIFC. If your SPV is a Dubai mainland company and you are issuing tokens from Dubai, VARA's framework applies.

VARA requires licensing for various virtual asset activities including issuance. The licensing process involves detailed applications, compliance requirements, and ongoing supervision.

For more on VARA licensing, see our article on VARA licence requirements, costs, and application process.

DFSA (DIFC)

If your SPV is established in DIFC and you are conducting a token offering from DIFC, the DFSA's Investment Token framework applies. DIFC has a developed regime for security tokens, including prospectus requirements, exemptions for qualified investors, and rules on marketing.

ADGM FSRA (ADGM)

ADGM has its own virtual asset framework under the FSRA. Entities conducting regulated virtual asset activities from ADGM require appropriate licensing.

SCA (federal)

The Securities and Commodities Authority has federal jurisdiction over securities. For tokens that are clearly securities (shares, debt instruments), SCA rules may apply regardless of where the issuer is established. The interaction between SCA and the free zone regulators is an area requiring careful analysis.

Cross-border issuance

If you are marketing to investors outside the UAE, you must also consider the securities laws of those jurisdictions. Offering tokens to US persons, for example, triggers US securities law considerations regardless of where the issuer is based.

Private Placement vs Public Offering

One of the key structuring decisions is whether to conduct a public offering or a private placement.

Public offering

A public offer of securities or investment tokens triggers prospectus requirements, regulatory approval, and extensive disclosure obligations. This is the most onerous path and is typically only justified for large capital raises where broad retail participation is intended.

Private placement / exempt offers

Both DIFC and ADGM provide exemptions for offers to qualified investors, professional clients, or limited numbers of sophisticated investors. These exemptions allow token issuances without full prospectus requirements, though disclosure obligations still apply.

Common exemptions include:

• Offers to professional clients only
• Offers where minimum subscription exceeds a threshold (often USD 100,000 or equivalent)
• Offers to fewer than a specified number of investors
• Offers to existing shareholders or employees

The specific conditions vary by regulator and must be carefully mapped to your investor base.

Marketing restrictions

Even exempt offers are subject to restrictions on how they can be marketed. General solicitation, public advertising, and broad distribution of offering materials may disqualify an offering from private placement treatment.

SPV Structuring Options

The SPV is the legal vehicle that sits between the project and the token holders. It holds the project interest, receives revenues, and distributes to token holders according to the waterfall.

Jurisdiction options

Dubai mainland: Lower setup costs, but VARA licensing requirements for token issuance. Suitable where the project is Dubai-based and the sponsor has capacity to navigate VARA compliance.

DIFC: Established securities framework, clear Investment Token rules, international recognition. Higher setup and ongoing costs. Suitable for sophisticated capital structures and institutional investors.

ADGM: Similar to DIFC in regulatory sophistication. May be preferable for Abu Dhabi-linked projects or where ADGM's specific framework offers advantages.

Offshore (BVI, Cayman): Traditional project finance structures often use offshore SPVs. However, if the token issuance activity occurs in the UAE, UAE regulatory requirements still apply. Offshore structuring does not avoid UAE regulation if the activities are conducted from the UAE.

Corporate form

SPVs are typically limited liability companies or special purpose companies. The constitution and shareholder arrangements must be drafted to accommodate the tokenised structure, including mechanisms for token holder rights, voting (if any), and distributions.

For background on SPV governance, see our article on shareholder agreements in the UAE.

Governance and Investor Rights

Token holders have contractual rights, but those rights must be clearly defined and enforceable.

What rights do token holders have?

This depends entirely on the documentation. Common rights include:

• Right to receive distributions according to the waterfall
• Information rights (periodic reports, financial statements)
• Transfer rights (subject to restrictions and AML controls)
• Voting rights on specified matters (optional)
• Tag-along or exit rights in certain scenarios

What rights do token holders typically not have?

Token holders are not shareholders unless the tokens represent equity. They typically do not have:

• Board appointment rights
• Statutory minority protections
• Direct claims against project assets

Enforceability

Token holder rights are contractual. The governing law and dispute resolution mechanism matter. Most sophisticated structures specify DIFC or ADGM courts, or arbitration under recognised rules, rather than Dubai mainland courts.

We address governance and investor protections in detail in our companion article on real-world asset tokenisation governance and investor rights.

Cross-Border Investor Considerations

If your investors are outside the UAE, additional considerations arise.

Securities law in investor jurisdictions

Offering securities or investment instruments to investors in other countries may trigger registration or prospectus requirements in those jurisdictions. The US is particularly strict: offers to US persons generally require SEC registration or reliance on specific exemptions (Regulation D, Regulation S).

Tax treaty and withholding implications

Distributions to foreign investors may be subject to withholding tax depending on the structure and applicable treaties. UAE domestic entities benefit from the UAE's tax treaty network.

AML and sanctions screening

Token transfers must incorporate AML controls. Whitelisting, KYC verification, and sanctions screening are standard requirements and are mandated by UAE regulators for licensed virtual asset activities.

Feasibility Checklist

Before proceeding with a tokenised SPV structure, sponsors should assess:

• What exactly is being tokenised (equity, debt, economic interest, hybrid)?
• Which UAE regulator has jurisdiction based on SPV location and activity?
• Is the token likely to be characterised as a security or investment token?
• Does the offering qualify for private placement exemptions, or is a prospectus required?
• Where are the target investors located, and what are the securities law implications in those jurisdictions?
• What licensing is required for the issuer and any intermediaries (platforms, custodians)?
• How will token holder rights be documented and enforced?
• What ongoing compliance obligations apply (reporting, AML, audit)?
• What is the realistic timeline and budget for regulatory approvals?
• Is there a viable secondary market, or will tokens be illiquid?

Common Pitfalls

Assuming "economic rights" means "not a security"

The label does not determine regulatory treatment. If the instrument has investment characteristics, it will likely be regulated as one.

Underestimating licensing timelines

VARA, DFSA, and ADGM licensing processes take months, not weeks. Budget accordingly.

Offering to investors without jurisdiction analysis

Marketing to investors in multiple countries without analysing each jurisdiction's rules is a common and costly mistake.

Inadequate documentation of token holder rights

If rights are not clearly documented, disputes will arise. Token holders need to understand exactly what they are buying.

Ignoring secondary market constraints

Issuing tokens is one thing. Trading them is another. Secondary trading of investment tokens requires additional licensing and platform infrastructure.

Treating offshore structuring as a regulatory bypass

Establishing an offshore SPV does not avoid UAE regulation if the issuance activities occur in the UAE.

Book a Consultation

If you are considering tokenising economic interests in a UAE project and need clarity on regulatory perimeter, licensing requirements, or SPV structuring, contact our corporate team for an initial consultation.

We advise sponsors, family offices, and funds on tokenisation feasibility and implementation across Dubai, DIFC, and ADGM.

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