Singapore Cryptocurrency Laws Regulation of Digital Currencies: Cryptocurrency, Bitcoins, Blockchain Technology
In Singapore, neither the cryptocurrencies themselves nor custodianship of such cryptocurrencies is specifically regulated. Cryptocurrency exchanges and trading are legal in Singapore, although cryptocurrencies are not considered legal tender. For this reason, Singapore’s Ministry of Law has urged market participants to do due diligence before accepting them as forms of payment. Cryptocurrencies may be legally purchased from ATMs, exchanges, and some banks.
On August 1, 2017, the city-state’s central bank and financial regulator, the Monetary Authority of Singapore (MAS), clarified that it had regulatory authority over the offer and issue of digital tokens in Singapore, so long as the digital tokens fell within the definition of “capital market products,” such as securities, collective investment schemes (CISs), derivatives contracts, and spot foreign exchange contracts for purposes of leveraged foreign exchange trade, under the Securities and Futures Act (SFA). Furthermore, the offer and issue of digital tokens were required to comply with all SFA, anti-money laundering (AML), and combating the financing of terrorism (CFT) laws and requirements, including the production of a prospectus.
In addition, the MAS has also issued the “Notice on Prevention of Money Laundering and Countering the Financing of Terrorism (AML/CFT)” for intermediaries in the business of digital tokens governed by the SFA. Intermediaries must:
3.2.1 take appropriate steps to identify, assess and understand their money laundering and terrorism financing (ML/TF) risks;
3.2.2 develop and implement policies, procedures, and controls – including those in relation to the conduct of customer due diligence and transaction monitoring, screening, reporting suspicious transactions and record-keeping – in accordance with the relevant MAS Notices, to enable them to effectively manage and mitigate the risks that have been identified;
3.2.3 perform enhanced measures where higher ML/TF risks are identified, to effectively manage and mitigate those higher risks; and
3.2.4 monitor the implementation of those policies, procedures, and controls, and enhance them if necessary.
Likewise, initial coin offerings (ICOs) are generally regulated by the MAS through the SFA and require a Capital Market Service (CSM) license first.
Singapore’s Payment Service Act of 2019 allows the MAS, to oversee cryptocurrency exchanges and issue the requisite licenses. In fact, the MAS now requires all cryptocurrency exchanges to adhere to all applicable AML/CFT requirements and maintains the ability to ban those individuals deemed unsuitable for engaging in the business. It regulates the following seven types of payment services:
(a) an account issuance service; (b) a domestic money transfer service; (c) a cross-border money transfer service; (d) a merchant acquisition service; (e) an e-money issuance service; (f) a digital payment token service; (g) a money-changing service.
Cryptocurrency exchanges must also adhere to the Financial Advisers Act, Insurance Act, Securities and Futures Act, and Trust Companies Act. In Singapore, cryptocurrency exchanges are referred to as “digital payment token service providers” or “DPT service providers.”
For the most part, there are three licenses that DPT service providers may apply for, conditioned on the scope and activities of their business: a money changer license for those providing only money-changing services; a standard payment institution license for those with average monthly transactions of under three million dollars, or five million dollars in digital currencies per day; and a major payment institution license for those with higher average monthly transactions than those qualifying for standard payment institution licenses. In order to obtain a license, a DPT service provider must have a “meaningful presence” in Singapore, meaning that it maintains an office in Singapore; complies with the “Crypto Travel Rule” recommendation by the Financial Action Task Force (FATF); complies with all AML/CFT requirements, which include record-keeping, due diligence, know-your-customer procedures, reports of suspicious transactions, and more; pays annual fees; reports duties; and maintains a CEO, chairperson, and board of directors.
Licenses may not be controlled twenty percent or more by one individual or entity at a time, even existing twenty percent controllers. In fact, any existing twenty-percent controllers must cease being one if the MAS raises an objection, giving the MAS significant power over DPT service providers. Similarly, the MAS must approve the appointment of any CEOs or partners by a licensee and may conduct investigations in secret, assuming control over the business, if necessary.
On the other hand, DPT service providers that only work with limited purpose, central bank, or financial institution digital payment tokens are not required to be licensed under the Payment Services Act, since they are already sufficiently regulated.
On January 1, 2020, the Inland Revenue Authority of Singapore (IRAS) also ruled that goods and services (GST) taxes, the local equivalent to value-added taxes, would no longer apply to cryptocurrencies. Instead, businesses that trade digital tokens in the ordinary course of their business are liable for tax on the profit obtained by either trading or mining. On the other hand, there are no capital gains taxes in Singapore, so businesses that purchase digital tokens as long-term investments are not liable for taxes on capital gains obtained by disposing of them. The IRAS has clarified that “[f]actors including purpose, frequency of transactions, and holding periods are considered when determining” whether gains from the disposal of digital tokens constitute trading, which is taxable, or capital gains, which are not. The Income Tax Act (ITA) imposes a low rate of only seventeen percent on net profits, making Singapore a popular jurisdiction for cryptocurrency market participants.
P.S. Insights on Cryptocurrency Legal Issues
Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies, meaning that, for most countries, the legality of crypto mining remains unclear.
Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters, so they may be subject to the laws that govern that activity. In Israel, for instance, crypto mining is treated as a business and is subject to corporate income tax. In India and elsewhere, regulatory uncertainty persists, although Canada and the United States are relatively friendly to crypto mining.
However, apart from jurisdictions that have specifically banned cryptocurrency-related activities, very few countries prohibit crypto mining.
Our Freeman Law Cryptocurrency Law Resource page provides a summary of the legal status of cryptocurrency for each country across the globe with statutory or regulatory provisions governing cryptocurrency. The globe below provides links to country-by-country summaries:
https://www.loc.gov/law/help/cryptoassets/singapore.php; http://www.mas.gov.sg/~/media/MAS/Regulations and Financial Stability/Regulations Guidance and Licensing/Securities Futures and Fund Management/Regulations Guidance and Licensing/Guidelines/A Guide to Digital Token Offerings last updated on 30 Nov 2018.pdf