Crypto-asset dealings in Singapore are regulated by the following Acts: the Commodity Trading Act (CTA), the Securities and Futures Act (SFA) and the Payment Services Act (PSA). Registering a cryptocurrency company in Singapore involves trading cryptocurrencies under the Commodities Trade Act, dealing in capital markets products under the SFA, and dealing in digital payment tokens (DPT).
What is a digital payment token
A crypto-asset that is a digital representation of value expressed in units, not denominated in any currency or tied to any currency and intended for exchange is likely to fall under the definition of a digital payment token (DPT).
Examples include Bitcoin and Etherium. Any business that deals in digital payment tokens or offers any service that facilitates the exchange of tokens is said to be providing a digital payment token service, which is a regulated activity under the PSA regime.
Other crypto-assets, such as security tokens or crypto-assets that give the holder rights similar to those of shareholders and debt holders or other economic rights, or that derive their value from transactions such as commodities, financial instruments, may be treated as securities or forward contracts under SFAs. Persons handling such crypto-assets or providing corporate finance advice must obtain a Capital Markets Services Licence (CMSL) for regulated activities relating to capital market products and corporate finance advice, respectively.
The Monetary Authority of Singapore (MAS) administers the Securities and Futures Acts (SFA) and the Payment Services Act (PSA) regime and Enterprise Singapore administers the Commodity Trade Act (CTA) regime.
The resolution of a cryptocurrency dispute, in the absence of any contractual provisions defining jurisdiction, is conducted in Singapore. The District Court has jurisdiction over claims of less than $250,000, while the High Court has jurisdiction over claims of less than $250,000. The District Court has jurisdiction over claims in excess of $250,000, while the High Court has jurisdiction over claims in excess of $250,000. THE COURT HAS JURISDICTION OVER CLAIMS IN EXCESS OF $250,000.
Legal regime for cryptocurrencies in Singapore
There are currently no laws prohibiting the ownership of cryptocurrencies, their use in commercial transactions or the exchange of cryptocurrencies for local paper currency. Registering a Singapore cryptocurrency company is also a legal matter.
However, once the Payment Services Act 2020 comes into force, buying and selling cryptocurrencies for fiat currency and facilitating the exchange of cryptocurrencies for fiat currency could constitute a digital payment token service, which will become a regulated activity.
Accredited cryptocurrency investor
Under the SFA, there is also a different regulatory regime for expert investors and institutional investors. Under the PSA regime, there is no classification of investors.
“Accredited investor” under the SFA and CTA is typically a person who:
- Has net personal assets with a value in excess of $2,000,000 (where the value of the person’s principal residence is $1,000,000 or the fair market value of the residence less any credit line calculated behind the person’s principal residence);
- whose income in the preceding 12 months is not less than US$300,000;
- a corporation with net assets in excess of US$10,000,000.
In general, retail customers are afforded the most protection and businesses must meet most regulatory requirements (compared to regulatory requirements for other categories of customers) to be able to offer any products or services to customers, including providing financial services in Singapore.
Businesses must comply with fewer regulatory requirements in order to offer services or products to sophisticated investors, accredited investors and institutional investors (for example, prospectus exemption provisions that apply to accredited and institutional investors).
Rules and restrictions that govern initial coin offerings (ICOs) and investments
The issuance of utility tokens is not regulated in Singapore. For companies listed on the Singapore Exchange (SGX), the Singapore Exchange has developed the following guidelines for companies considering an ICO: Listed issuers intending to sell digital tokens in Singapore must first consult the SGX Regulations (SGX RegCo) and disclose all relevant information. Issuers will also be required to provide a legal opinion on the nature of the digital tokens and an audit report on the accounting treatment of the ICO.
The issuer must disclose details of the following information to its shareholders:
- The rationale for the ICO;
- the risks (operational and cybersecurity) arising from the ICO;
- the use of the funds raised;
- accounting and valuation procedures for the ICO;
- Know Your Client system checks the risks of AML/CFT breaches;
- accounting and valuation procedures for ICOs;
- use of existing issuer funds for the ICO;
- the financial impact on the issuer as a result of issuing the token;
- any impact on the rights of existing shareholders.
Following the ICO in Singapore, registered issuers are expected to inform their shareholders of material information, the development of the ICO and digital tokens and the use of ICO proceeds in a timely manner.
In addition, these companies must also agree to their statutory audit scope to provide assurance that the ICO has been properly accounted for in their financial statements and that the relevant risks have been appropriately addressed.
Security token issuance
“Securities” has a broad meaning under the Securities and Futures Act (SFA) and includes shares, units in a business trust or any instrument giving or representing a legal or beneficial interest in a corporation, partnership or limited liability partnership; this excludes collective investment scheme units.
The classification of tokens in Singapore needs to be considered. Where tokens are deemed to be securities, securities-based derivative contracts or units in a collective investment scheme, the issue of digital securities analogues in Singapore is subject to the prospectus requirements under Part XIII of the SFA unless otherwise provided. The prospectus disclosure must comply with the Securities and Futures (Offers of Investment) (Shares and Debentures) Regulations. Where tokens are deemed to be units or derivative units in a business trust, no offer of such tokens may be made unless the business trust is a registered or recognised business trust.
Depending on the business activities of the issuer and whether the token is a capital markets product, the issuer must obtain a Capital Markets Services Licence in Singapore (CMSL) to deal in capital market products that are securities under the SFA unless otherwise provided.
Issuance of stablecoins (Stablecoins) in Singapore
The issue of stablecoins (stablecoins) in Singapore is also subject to the SFA.
Service providers who engage in the exchange of DPT or facilitate its exchange are required to obtain a payment institution license in Singapore or a major payment institution license, depending on whether the average monthly value of transactions in a calendar year exceeds USD 3 million or the equivalent in foreign currencies is accepted, processed/executed.
An e-money service provider must be licensed as a major payment institution in Singapore if the average daily float in a calendar year exceeds USD 5 million or its foreign currency equivalent. USD or its equivalent in a foreign currency.
Cryptocurrency tax in Singapore
Businesses that accept cryptocurrencies as income or remuneration for goods and services are subject to normal income tax rules. The prevailing corporate tax rate is 17%.
Capital gains derived from long-term investments are not taxed. Companies that buy and sell cryptocurrencies in the ordinary course of business will be taxed on profits derived from crypto-assets trading. Businesses that mine and trade cryptocurrencies in exchange for money will also be subject to income tax.
From 1 January 2020, the use of DPT to pay for goods or services will no longer result in the delivery of these tokens, and businesses do not need to account for goods and services tax (GST) on such use. The supply of DPT in exchange for local currency or other DPTs, as well as the extension of any loan or credit to DPTs will be exempt from GST. Consequently, the supply of such tokens will not contribute to the annual taxable turnover of the business to determine its GST registration liability.