Cryptoasset tradingFiat currency transactions
What rules and restrictions govern the exchange of fiat currency and cryptoassets?
Fiat currency exchanges involving the business of buying or selling foreign currency notes must be licensed as a money-changing business under the Money-Changing and Remittance Businesses Act, as must businesses that accept money for the purpose of transmitting it to persons resident outside Singapore must be licensed. When the Payment Services Act (PSA) takes effect, the licensing of these two activities will fall under the PSA regime.
Any entity that provides the service of dealing in or facilitating the exchange of digital payment tokens (DPTs), and any entity that provides the service of issuing e-money to any person for the purpose of allowing them to make payment transactions, must hold a standard payment institution licence or a major payment institution licence under the PSA, depending on whether the monthly average value of transactions accepted, processed or executed over a calendar year exceeds S$3 million or its equivalent in foreign currency.
Exchanges (whether electronic or otherwise) which facilitate offers to buy or sell cryptoassets that are considered to be derivatives contracts, securities or units in a collective investment scheme may be considered to be operating an ‘organised market’ under the Securities and Futures Act (SFA). Such exchanges must be conducted by an approved exchange or a recognised market operator before beginning operations.
Exchanges and secondary markets
Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?
There is currently no legislation prohibiting investors from trading cryptoassets. Whether cryptoasset exchanges must be regulated under the SFA to operate an organised market either as an approved exchange or recognised market operator, or as a digital payment token service under the PSA, depends on the kind of cryptoassets that are traded on these exchanges.
For the purpose of deciding whether a market operator should be approved as an approved exchange or recognised market operator, the Monetary Authority of Singapore (MAS) considers certain criteria, including:
- the likelihood that a disruption in the operations of such market operator could trigger further systemic disruptions to or affect public confidence in Singapore’s capital markets or financial system; and
- the ability of the market operator to meet the obligations of an approved exchange.
How are cryptoasset custodians regulated?
Depending on the business activity of the cryptoasset custodian, and if the cryptoassets amount to securities, securities-based derivatives contracts that are not futures contracts or units in a collective investment scheme, the custodian may be required under the SFA to hold a capital markets services licence (CMSL) for providing custodial services, unless otherwise exempted.Broker-dealers
How are cryptoasset broker-dealers regulated?
Depending on the business activity of the cryptoasset broker-dealer, and if the cryptoassets amount to securities, units in a collective investment scheme, derivatives contracts or spot foreign exchange contracts for the purpose of leveraged foreign exchange trading, the custodian may be required under the SFA to hold a CMSL for dealing in capital markets products, unless otherwise exempted.Decentralised exchanges
What is the legal status of decentralised cryptoasset exchanges?
If the cryptoasset offered on the exchange amounts to a DPT, the entity which facilitates such exchange must obtain a licence under the PSA. Service providers which deal in or facilitate the exchange of DPTs are, unless otherwise exempted or excluded, required to hold a standard payment institution licence or a major payment institution licence, depending on whether the monthly average value of transactions accepted, processed or executed over a calendar year exceeds S$3 million or its equivalent in foreign currency.
Depending on the structure and operations of a decentralised cryptoasset exchange, it may be considered to operate an organised market under the SFA and be required to obtain approval as an approved exchange or recognised market operator.Peer-to-peer exchanges
What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?
Subject to laws and regulations prohibiting crimes such as money laundering and counter-terrorism financing (AML/CFT), the transfer of cryptoassets between individuals is not regulated in Singapore.Trading with anonymous parties
Trading with anonymous parties
The MAS has issued its guidance on AML/CFT controls in trade finance and correspondent banking to address trade-based money laundering, where proceeds of crime are moved through the use of trade transactions in an attempt to legitimise their illicit origins. Financial institutions are expected to establish robust due diligence processes to identify, among others:
- the parties and vessels involved in a transaction;
- the nature of goods traded;
- the countries of origin; and
- the trade cycle.
Under the SFA and PSA regimes, regulated entities cannot transact with customers on an anonymous basis. Further, regulated entities must collect information such as the full names and residential addresses of their customers as part of the know-your-customer procedures.
Subject to laws and regulations prohibiting crimes such as AML/CFT, the anonymous trading of cryptoassets between individuals is not regulated in Singapore.Foreign exchanges
Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?
SFAThe extraterritoriality of the SFA may apply to foreign cryptocurrency exchanges which offer cryptocurrencies that are subject to the SFA regime.
Under Section 339 of the SFA, a person who carries out an action partly inside and partly outside Singapore which, if done wholly in Singapore, would constitute an offence under the SFA may be guilty of that offence. Further, a person who carries out an action outside Singapore which would constitute an offence if carried out in Singapore may be guilty of the offence if the act has a substantial and reasonably foreseeable effect in Singapore.
In considering whether an act is substantial, the MAS will consider:
- the number of persons that were made an offer of services or invitation to engage in any conduct that involves an activity regulated under the SFA;
- whether the act has a significant or adverse impact on the soundness, stability and safety of Singapore’s financial system or on public or investor confidence, or is detrimental to public interest or the protection of investors.
In considering whether an act is reasonably foreseeable, the MAS will consider whether:
- the above offer was made to persons in Singapore;
- any advertisements or published information was targeted at persons in Singapore; and
- the foreign entity accepts or appears willing to accept orders or applications from persons in Singapore.
MAS has also clarified that the good-faith sale or purchase of financial services would not typically attract the application of Section 339 of the SFA.
PSAForeign cryptocurrency exchanges that offer DPTs are prohibited from advertising to the Singapore public if they are not licensed under the PSA.
The draft regulations under the PSA offer an indication of what constitutes advertising to the general public. Relevant factors include:
- whether the relevant DPT is available for purchase in Singapore;
- whether the offer is denominated in Singapore dollars; and
- whether reasonable steps are taken to guard against persons in Singapore being provided digital payment token service.
Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?
Subject to the laws relating to extra-territoriality of the SFA, a Singapore citizen may lawfully exchange cryptoasssets on a foreign exchange.Taxes
Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?
Revenue earned in the form of cryptocurrencies from goods and servicesBusinesses that choose to accept cryptocurrencies as revenue or remuneration for goods and services are subject to normal income tax rules. The prevailing corporate tax rate is 17%.
Capital gains taxCapital gains derived from long-term investment holdings are not subject to tax. Businesses that buy and sell cryptocurrencies in the ordinary course of business will be taxed on the profit derived from trading in the cryptoassets. Businesses which mine and trade cryptocurrencies in exchange for money are also subject to tax on the profits.
Goods and services tax (GST)As of 1 January 2020, the use of DPTs to pay for goods or services will no longer give rise to a supply of those tokens and businesses need not account for GST on such use. A supply of DPTs in exchange for fiat currency or other DPTs, and the provision of any loan or credit of DPTs, will be exempt from GST. Hence, the supply of such tokens, being an exempt supply, will not contribute to a business’ annual taxable turnover for the determination of its liability for GST registration. The GST treatment for cryptocurrencies that do not qualify as DPTs remain unchanged (ie, the supplies of such tokens will continue to be regarded as taxable supplies of services, unless they fall under the prescribed list of exempt financial services).
Law stated dateCorrect on
Give the date on which the above content is accurate.
26 November 2019.