Singapore is a leading global blockchain hub, home to a healthy blockchain ecosystem comprising numerous players in areas such as asset tokenisation, cryptocurrency trading and custody, supply chain, insurance, digital identity, mobility and more.
This enviable position has not come about by accident. Building upon its strengths as a global financial centre, Singapore has fostered a balanced legal and regulatory regime for the blockchain space that seeks to encourage innovation while protecting participants, investors and the general public. The Monetary Authority of Singapore (MAS) provides clarity and guidance on the application of securities and commodities laws to cryptocurrencies, thereby encouraging new investments in financial technologies. The Infocomm Media Development Authority (IMDA) actively seeds blockchain challenges with funding and exposure, spurring innovation in support of Singapore’s Smart Nation policy objectives.
Despite the challenges posed by the global COVID-19 pandemic, Singapore’s blockchain market continues to thrive and grow, and offers an attractive destination to global projects seeking a jurisdiction to call home.
The use of blockchain in Singapore runs the full gamut from public to private enterprises, including:
In addition, Singapore has a thriving cryptocurrency trading, custody and investment market, with exchanges, venture capital funds, crypto hedge funds, and decentralised finance (DeFi) projects all contributing to an active market.
Singapore’s blockchain legal regime generally takes a technology-agnostic approach, with a focus on appropriately regulating the underlying activity, rather than on blockchain as the enabling technology. As such, there is no specific single piece of legislation governing the use of blockchain technologies in Singapore. Instead, existing legislation and regulations have been and are continually being expanded or clarified to address blockchain-related issues.
Central in this regime is the Securities and Futures Act (SFA), which is the main legislation governing the capital markets and financial investments sector in Singapore. With many blockchain protocols or applications involving the use of digital tokens carrying contractual and financial rights, the MAS has clarified that offers or issuances of such digital tokens will be regulated under the SFA if they carry the characteristics of capital markets products, as defined in the SFA. To aid in this analysis, the MAS has helpfully published “A Guide to Digital Token Offerings” (the MAS Guide), which provides case studies on the features of a digital token that would result in that token being deemed a capital market product under the SFA.
This year (2020) has also seen the introduction of the Payment Services Act (PS Act), under which companies providing account issuance, domestic money transfers, cross-border money transfers, merchant acquisition, electronic money (e-money), digital payment tokens, or money-changing services in Singapore, must obtain a payment-services licence. Together, the definitions of e-money and “digital payment tokens” under the PS Act would cover most cryptocurrencies and stablecoins in the market today, and as such many cryptocurrency firms and exchanges would require a licence. (Note, however, that there is a grace period for businesses which were in operation prior to the PS Act coming into force to comply with PS Act regulations).
Both the SFA and the PS Act also contain various anti-money laundering and counter-financing of terrorism (AML/CFT) regulations with which companies need to comply. Such operators may be required to set up cybersecurity systems to reduce technological and cyber risks.
Digital payment token services are considered by the MAS to carry higher money laundering and terrorism financing risks due to the anonymity, speed and cross-border nature of their transactions. This view is consistent with the international Financial Action Task Force (FATF) and the MAS has aligned with FATF standards for “virtual asset services providers”, as the PS Act covers entities that perform or facilitate the exchange of digital tokens, virtual assets custodial services and financial services related to the offering and sale of virtual assets by introducing AML/CFT requirements for such services. Where companies facilitate the transfer of digital payment tokens or provide custodian wallet services as part of their business, the MAS requires that they apply AML/CFT measures to mitigate the risks posed by such services in line with global FATF standards. These requirements are further detailed under the MAS's Notice to Payment Services Providers (DPT Service) on Prevention of Money Laundering and Countering the Financing of Terrorism.
To fully align itself with ongoing revisions to the FATF standards, the MAS has announced that it intends to propose legislative amendments and issue AML/CFT notices in the near future. The proposed changes will broaden the scope and regulatory burden of the AML/CFT requirements for service providers that provide either or both the following services: (i) transfer of digital payment tokens; or (ii) provision of custodian wallets for, or on behalf of, customers. In line with FATF standards, the MAS intends to set out that, as a minimum baseline, any entity which offers digital payment token services (whether offered in Singapore or otherwise) and is incorporated in Singapore will require a licence under the PS Act, and consequently be subject to AML/CFT regulation. The MAS expects to enter into public consultations on the proposed legislative and notice amendments by the end of 2020.
The MAS, Singapore’s central bank and integrated financial regulator, oversees the enforcement of the SFA and the PS Act, as discussed in 2.1 Regulatory Overview.
Singapore is home to a number of trade groups, such as the Association of Cryptocurrency Enterprises and Start-ups Singapore (ACCESS) and the Blockchain Association of Singapore.
ACCESS has contributed to the regulatory environment in Singapore through its industry-driven Standardisation of Practice in Crypto Entities (SPICE) initiative, which promotes best practices to strengthen regulatory compliance for the digital asset industry. In furtherance of the SPICE initiative, which was facilitated by the MAS and developed in consultation with the Association of Banks in Singapore, ACCESS released a draft code of practice aimed at complementing Singapore’s PS Act by proposing a standardised set of best practices to tackle AML/CFT and know-your-customer (KYC) compliance, as well as other key issues relevant to crypto-asset and blockchain companies.
The recent Singapore Court of Appeal case of Quoine Pte Ltd v B2C2 Ltd  SGCA (I) 02 (the Quoine Case) applied existing laws on contract to cryptocurrencies. The court analysed the terms and conditions of the agreement between users of a digital token exchange and the digital token exchange operating entity, and recognised that a contractual relationship between buyers and sellers existed when a trade is executed on the digital token exchange even though that contractual relationship was represented by a smart contract. It was established that even though the contracts between the buyer and seller were smart contracts, ordinary contract principles such as the doctrine of unilateral mistake and equitable mistake at common law still applied. The court then proceeded to analyse the facts of the case utilising traditional legal principles.
In 2018, the MAS announced that it had warned eight cryptocurrency exchanges not to allow trading in digital tokens that were securities or futures contracts without its authorisation, and also warned an initial coin offering (ICO) to stop the offering of its digital tokens in Singapore because the tokens offered were considered to have represented equity ownership in a company. In 2019, the MAS announced that it had warned an ICO issuer not to proceed with its securities token offering until it could fully comply with SFA regulations.
The MAS offers its FinTech Regulatory Sandbox to encourage local projects to pursue innovative financial products and services within a secure, efficient, and low-regulatory-pressure environment.
Two options exist under this programme, Sandbox and Sandbox Express. The former is for more complex business models where customisation is required to balance the risks and benefits of the experiment. The latter is for activities where risks are low and well understood by the market, and is reliant on disclosures and pre-determined rules.
A successful use case of the Sandbox was iStox – a platform offering issuance, settlement, custody and secondary trading of digitised securities, which was admitted into the sandbox in May 2019 and graduated in February 2020, becoming a fully regulated platform in Singapore offering issuance and trading of digitised securities.
Taxation matters in relation to use of blockchain or cryptocurrencies are covered under existing tax legislation in Singapore, principally the Income Tax Act and the Goods and Services Tax Act. The Inland Revenue Authority of Singapore has also released specific “e-tax guides” outlining how the legislation applies to blockchain and cryptocurrency matters.
Revenue for Goods or Services Using Cryptocurrency
Businesses that accept cryptocurrency as consideration for goods or services are subject to taxes on their income as set out in the Income Tax Act. These transactions would be considered as barter trade and the relevant revenue based on the value of the goods or services provided. Taxation would be based on net profits (after deducting allowable expenses under the Income Tax Act). Currently, the general tax rate for businesses stands at 17% of taxable income.
Investing and Trading in Cryptocurrency
Individuals or businesses that buy and sell cryptocurrencies as part of their business will be liable for income tax on profits derived from trading in cryptocurrency. Profits derived by individuals or businesses which mine and trade cryptocurrency in exchange for money are also subject to income tax, as these would be considered “revenue”.
However, individuals or businesses that invest in cryptocurrency for long-term investment purposes may be exempt from income tax on the disposal of these cryptocurrencies, as these would be considered capital gains rather than revenue. As there are no capital gains taxes in Singapore, these gains are not subject to tax.
Distinguishing these two situations depends on the facts and circumstances of each case. Factors such as purpose, frequency of transactions, and holding periods are considered when determining if such gains from the disposal of cryptocurrencies are taxable.
Taxes on Proceeds of an ICO
Taxes on ICO proceeds are dependent on whether the proceeds are considered as revenue and sourced in Singapore.
Generally, for an ICO of a utility token, ICO proceeds will be treated as deferred revenue (and hence taxable under the Income Tax Act). Whereas for an ICO of a security token, ICO proceeds will be capital in nature and thus not taxable.
To ascertain if the activities giving rise to the ICO proceeds are carried on in Singapore and if the income would be determined to be sourced in Singapore, the following factors (among others) would be considered:
Goods and Services Tax on the Sale of Cryptocurrency
Singapore has a value-added tax regime under the Goods and Services Tax Act, whereby goods and services tax (GST) is levied on the supply of goods and services in Singapore and the import of goods into Singapore. GST is an indirect tax applied to the selling price of goods and services provided by GST registered business entities in Singapore. The current rate of GST is 7%.
With effect from 1 January 2020, the supplies of cryptocurrency that fall within the MAS’s definition of “digital payment tokens” are no longer subject to goods and services tax. Specifically, the use of cryptocurrency as payment for goods or services will no longer give rise to a supply of such tokens and thus the user need not account for GST on the use. Furthermore, a supply of digital payment tokens in exchange for fiat currency or other digital payment tokens, and the provision of any loan, advance or credit of digital payment tokens will be exempt from GST.
The Singapore government has expressed its intention to support digital innovations such as blockchain. Aside from the MAS, the IMDA also plays a key role (see 1.1 Evolution of the Blockchain Market). Government-linked investment entities have taken investment positions in blockchain-related businesses such as digital and security token exchanges alongside Singapore’s main capital markets exchange, the SGX.
The nature of digital assets has not yet been legally or judicially defined in Singapore. Thus, the concept of “ownership” of a digital asset under Singapore law cannot be definitively determined at this time.
Nevertheless, following the approach of the Singapore Court of Appeal in the Quoine Case (see 2.5 Judicial Decisions and Litigation), we would anticipate that ownership of digital assets will be determined by analogy to other assets. Thus, a person who has acquired knowledge and control of a private key by some lawful means would generally be treated as the owner of that digital asset, in the same way that a person lawfully in possession of a tangible asset is presumed to be the owner.
Existing laws would then apply to each fact-specific scenario, for example:
Digital assets in Singapore can be broadly characterised as follows.
As discussed above (see 2.1 Regulatory Overview), while Singapore does not regulate digital assets generally, digital assets carrying certain characteristics may incur regulatory and/or legal liability on the part of the issuer. Each digital asset would have to be examined on a case-by-case basis to determine its specific characteristics and their corresponding regulatory requirements.
For example, digital assets which are deemed to be securities or other capital markets products under the SFA will be subject to licensing and prospectus requirements. These include tokens representing interests in:
Similarly, asset-backed tokens may also be regulated under the Commodity Trading Act for persons or businesses engaged in the buying and selling of tokens, which may be construed as spot commodity trading.
Payment tokens, too, are regulated as “digital payment tokens” under the PS Act. Under the PS Act, a “digital payment token” is defined as, “ ... any digital representation of value (other than an excluded digital representation of value) that: (a) is expressed as a unit; (b) is not denominated in any currency, and is not pegged by its issuer to any currency; (c) is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt; (d) can be transferred, stored or traded electronically; and (e) satisfies such other characteristics as the [MAS] may prescribe”. Cryptocurrencies such as bitcoin (BTC) and ether (ETH) would generally be regarded as “digital payment tokens” under the PS Act.
It is useful to note here that the following types of digital assets are exempted from regulation under the PS Act:
The PS Act regulates stablecoins (in distinction to other cryptocurrencies) through a separate definition of e-money (as opposed to a digital payment token) where:
Thus, stablecoins that are pegged to a fiat currency and are exchangeable for fiat currency at the value of the peg would fall under the definition of e-money under the PS Act.
However, this taxonomy is challenged by the emergence of new variants of stablecoins, which:
In response, the MAS has conducted a public consultation on the scope of definitions for e-money and digital payment tokens in relation to stablecoins (whether pegged to a fiat currency or another digital asset), and whether the existing references to a single fiat currency and the claim on issuers are appropriate as distinguishing features. The consultation paper also sought views on stablecoin regulation. The consultation closed on 28 January 2020.
Singapore permits the use of cryptocurrencies as a means of payment. For example, in 2019, a food court operator in Singapore offered to accept cryptocurrencies such as Bitcoin and Ether as payment for meals purchased. There have been instances of M&A transactions and equity investments where the purchase consideration was settled in digital tokens, as well as secured financing transactions with security packages that included digital tokens. There are no notable limitations on the use of cryptocurrencies for payment, after recent GST reform (see 2.8 Tax Regime).
Non-fungible tokens (NFTs) would generally be regarded as “limited purpose digital payment tokens” under the PS Act, and as such would be exempted from those regulations.
However, if the NFTs can be returned to the issuer, transferred or sold in exchange for money, the exemption will not apply.
Cryptocurrency exchanges may be sub-divided into the following categories.
Cryptocurrency exchanges will require licences under the PS Act. To date, the major cryptocurrency exchanges operating in Singapore have all applied for licences.
Fiat on/off ramps (ie, businesses facilitating fiat-to-crypto exchanges (or vice-versa)) will be subject to regulation under the SFA and/or the PS Act (see 2.1 Regulatory Overview). They will also be subject to enhanced KYC/AML requirements, as they are considered by the MAS to carry higher money laundering and terrorism financing risks due to the anonymity, speed and cross-border nature of their transactions (See 4.3 KYC/AML).
There is a general obligation under Singapore law for businesses to carry out a reasonable standard of KYC and due diligence measures pursuant to various pieces of legislation, including the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, the Terrorism (Suppression of Financing) Act, and the Monetary Authority of Singapore Act (with additional requirements for financial institutions). Businesses should take reasonable steps to satisfy themselves that the property received was not owned or controlled by or on behalf of any terrorist or terrorist entity. It is also mandatory for a person, in the course of his or her business or employment, to lodge a “Suspicious Transaction Report” if he or she knows or has reason to suspect that any property may be connected to criminal activity. The Terrorism (Suppression of Financing) Act imposes a duty on all to provide information pertaining to terrorism financing to the Commissioner of Police in Singapore, with potential criminal penalties for the failure to do so.
For digital assets specifically, the PS Act places additional AML/CFT requirements on payment services licensees that are digital payment token service providers who deal in or facilitate the exchange of digital payment tokens for fiat currency or other types of digital payment tokens. These measures include policies, procedures and controls in relation to customer due diligence, transaction monitoring, screening, suspicious transactions reporting and record-keeping. Enhanced measures should be undertaken where higher money laundering or terrorism-financing risks are identified. The requirements also include monitoring the implementation of policies, procedures and controls, and enhancing them if necessary.
If the token in question is a security defined in the SFA, the MAS guidelines on KYC, AML and CFT will apply to the issuer instead.
The MAS is the single regulator of the market for digital assets, and has jurisdiction to enforce the regulations set out in the SFA and the PS Act (see 2.1 Regulatory Overview).
Aside from AML/CFT and KYC measures, the MAS has the power to revoke licences granted under the SFA or the PS Act for licensees or their controllers or directors should they be convicted for an offence involving fraud or dishonesty. SFA licensees involved in false trading, market manipulation, and providing false or misleading statements to induce others or the sale of securities, securities-based derivatives contracts or units in a CIS may also be subject to criminal and/or civil liability under the SFA.
There are no specific regulations targeting the ability of a digital asset exchange to re-hypothecate to third parties the digital assets they hold for customers. However, digital asset exchanges licensed under the SFA would be required to abide by the MAS guidelines set out for the re-hypothecation of client monies generally.
The MAS requires capital markets intermediaries (including digital asset exchanges under the SFA) to provide risk disclosure to customers and to obtain customer’s consent in respect of their existing customers (excluding customers who are institutional, expert or accredited investors, or related entities of the intermediary) whose assets are mortgaged, charged, re-hypothecated or otherwise used by the intermediary. Further, any sum re-hypothecated may not exceed the sum owed by the customer to the holder. The MAS does not prescribe the form of risk disclosure but encourages industry associations to consider developing standard formats appropriate for their respective industries.
The PS Act also provides for clear segregation of customer monies for entities that require a Major Payment Institution licence, and the licensee must not withdraw any monies from the customer’s segregated trust account except for the purpose of reimbursing the licensee relevant monies paid to or advanced to the account, and any interest accrued from the relevant money in the segregated trust account.
Singapore does not currently have regulations specifically governing online or offline storage solutions for private cryptographic keys that control the ability to give instructions with respect to digital assets. However, such wallet providers may require a licence under the PS Act and be subject to the regulations thereunder.
As discussed above, under Singapore’s purposive-based approach, whether ICOs constitute securities/capital markets products (and will hence be regulated under the SFA) will depend on the nature and characteristics of the digital tokens being offered. The MAS Guide sets out various case studies on digital token features that would result in such tokens being deemed capital market products under the SFA.
In the MAS Guide, "digital tokens that constitute capital market products" are defined as digital tokens representing equity in a corporation, a debenture of the issuer, a securities-based derivatives contract, or a unit in CIS.
Any offer of digital tokens that constitute securities will be required to file a prospectus, in accordance with the SFA, unless an exemption applies. The exemptions under the SFA include:
Issuers of digital tokens that are classified as e-money under the PS Act (typically stablecoins) will require a PS Act licence, as such activity will constitute an e-money issuance service. The MAS has stated that where a particular token is regulated as e-money under the PS Act, its stance is to not regulate the token as a capital markets product (thereby excluding the token from SFA licensing).
In respect of initial exchange offerings (IEOs), the MAS has observed that one or more of the following types of intermediaries typically facilitate offers or issues of digital tokens:
Primary platform operators in Singapore that offer digital tokens which constitute any kind of capital markets product may be carrying on business in one or more regulated activities under the SFA, and will thus require a licence.
A person providing financial advice in Singapore for any digital token that is an investment product must be authorised to do so in respect of the type of financial advisory service by a financial adviser's licence, or be an exempt financial adviser, under the FAA. This includes a person based overseas who engages in any activity or conduct that is intended to or likely to induce the public, or a section of the public, in Singapore to use any financial advisory service provided by the person.
A person who establishes or operates a trading platform in Singapore in relation to digital tokens which constitute securities or futures contracts, may be establishing or operating a market, which must be approved by MAS as an Approved Exchange or recognised by MAS as a Registered Market Operator under the SFA, unless otherwise exempted.
See 5.1 Initial Coin Offerings.
See 5.2 Initial Exchange Offerings.
The enforceability of smart contracts has not been determined in case law, legal precedent or legislation in Singapore. However, the judgment in the Quoine Case does not preclude a smart contract from being a legally binding contract, provided that the elements typically required to constitute a legally binding contract are present. These elements are offer, acceptance, and the intention to create legal relations.
Assuming a smart contract constitutes a legally binding contract under Singapore’s legal system, there may also be various formality requirements which must be fulfilled. For instance, Section 6 of the Civil Law Act prescribes that a contract for sale of immovable property has to be in writing and signed in order to be enforceable. This requirement that the contract be in writing could be challenging to fulfil in the context of a smart contract for sale of immovable property, with the consequence that the enforceability of that smart contract could be uncertain.
It also remains to be judicially determined whether the writing component for smart contracts may be fulfilled, by way of Section 7 of the Electronic Transactions Act (ETA), which provides that an electronic record will constitute “writing”. An electronic record in turn is defined under the ETA as “a record generated, communicated, received or stored by electronic means in an information system or for transmission from one information system to another”. Thus far, the ETA has only been judicially discussed when applying it to recognising e-mails as forming a valid and legally enforceable contract, or in recognising that electronic contracts may be formed in the context of internet transactions. It remains unclear if the definition of electronic records under the ETA can be extended to encompass smart contract program codes.
There are no regulations specifically addressing the liability (if any) of developers of blockchain-based networks.
Nevertheless, following the approach of the Singapore Court of Appeal in the Quoine Case (see 2.5 Judicial Decisions and Litigation), we would anticipate that any such liability would be determined by ordinary legal principles, in the first instance with regard to any contractual or agreed relationship between the developers and other participants in the network.
There are no regulations specifically regulating decentralised finance (DeFi) platforms that match borrowers and lenders of digital assets. However, general laws on the conduct of lending as a business will apply (such as the Moneylenders Act and the Banking Act).
Note that PS Act licence holders that are providing an e-money issuance service are specifically prohibited from lending to customers, or granting any credit facility to any individual in Singapore. This limits PS Act licence holders to conducting payment-related activities only, and prevents them from engage in banking or other regulated activities, such as consumer lending.
The use of tokens as security has not been explored in case law, legal precedent or legislation in Singapore.
Nevertheless, following the approach of the Singapore Court of Appeal in the Quoine Case (see 2.5 Judicial Decisions and Litigation), we would anticipate that security over digital assets will be determined by analogy to other assets. Thus, traditional common law forms of security interests such as the assignment, mortgage, charge, and pledge may be considered. Assignments, mortgages or charges could all be applicable to tokens categorised as securities or currency (when stored in online wallets). Physical digital asset wallets could also be pledged as security, to the extent that such physical wallets can be considered goods or personal chattels.
There are no regulations specifically governing the custodisation of digital assets in Singapore.
However, the custodisation of securities in general is regulated under the SFA, where “providing custodial services” is a regulated activity in relation to securities, specified securities-based derivatives contracts or units in a collective investment scheme. Thus, custodians providing these services have to hold a capital markets licence and are required to adhere to SFA regulations. Other holders of capital markets service licences would be required under the SFA regulations to maintain a custody account, into which they deposit customers' assets (including digital assets), or, for the same purpose, an account directed by an accredited investor.
Entities providing custody of digital assets classified as e-money under the PS Act may be considered as providing an “account issuance service” under the PS Act and thus require a licence.
See 8.2 Data Protection.
The main legislation governing privacy and data protection in Singapore is the Personal Data Protection Act (PDPA).
Under the PDPA, companies have an obligation to protect personal data in their possession or control by making reasonable security arrangements to prevent unauthorised access, collection, use, disclosure, copying, modification, disposal or similar risks against that data. Personal data may cover different types of data about an individual, including data from which an individual could be identified, even if that data was false and regardless of the form in which it is stored. Hence, the storage, collection, provision of access to, or otherwise control of personal data belonging to natural persons, whether through the use of blockchain technology or otherwise, could attract PDPA obligations. The reasonableness of security arrangements on an objective basis, which would include people and processes factors, could be relevant in assessing PDPA compliance.
There has been no case law or enforcement action to date, on the application of the PDPA to blockchain networks. However, it is useful to note that unlike the EU’s General Data Protection Regime (GDPR), the PDPA does not contain a “right to be forgotten”, which is one of the key conflict points between “immutable” blockchain networks and the GDPR. As such, it is anticipated that with careful planning, and the incorporation of data protection by design considerations early in the system architecture and design stage, blockchain-based products and services will be able to fully comply with the PDPA.
There are no regulations specifically governing the mining of cryptocurrency in Singapore.
However, miners should be aware of tax liabilities arising from income from mining (see 2.8 Tax Regime). The Inland Revenue Authority of Singapore has noted that profits derived by businesses which mine and trade virtual currencies in exchange for money are subject to income tax.
There are no regulations specifically governing the participation by entities or individuals in a “Proof of Stake” consensus protocol.
However, companies providing “staking as a service” or “staking pools” may be deemed to be providing financial services, or offering a collective investment scheme under the SFA, and would require an appropriate licence from MAS.