Back in June/July 2021, we collaborated with Gemini and CoinMarketCap to survey 4,348 people to delve deeper into what crypto holders and non-crypto holders in Singapore think about cryptocurrencies.
Here is one of the key insights that caught my eye:
This prompted me to create this guide and clear the air about the regulation of cryptocurrencies in Singapore.
If you are holding on to any cryptocurrencies in Singapore and are have concerns about security and regulation.
Then you’ll need to check out our guide to cryptocurrency regulation in Singapore!
TL;DR: Cryptocurrency Regulation in Singapore
- The Monetary Authority of Singapore (MAS) does not recognise cryptocurrencies as legal tender (i.e. cannot be used to make payment in Singapore). Cryptocurrencies are not regulated as well.
- The Payment Services Act (PS Act) is a key piece of legislation for the regulation of cryptocurrency in Singapore.
- Only DBS and the Australian cryptocurrency exchange Independent Reserve have gotten in-principle approval for a license to provide cryptocurrency services in Singapore.
- Businesses and individuals will not have to pay capital gains tax on their cryptocurrency holdings in Singapore.
- Businesses will also not pay GST if they provide a service for the exchanging of digital payment tokens (DPTs) for fiat currency or other DPTs services OR provide loans of DPTs.
- People who mine cryptocurrency as a hobby will not be taxed on their profits from mining. But, commercial cryptocurrency mining will be taxed.
- There are holding and annual spend limits of S$5,000 and S$30,000 for e‑money stored or transferred in and out of personal e-wallets when converting crypto to fiat money.
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Seedly does not recommend that any cryptocurrency should be bought, sold, or held by you. Readers should always do their own due diligence and consider their financial goals before investing in any investment product and consult your financial advisor before making any investment decisions.
What Are Cryptocurrencies (MAS Definition)
When it comes to cryptocurrencies or digital tokens as the MAS would call them, the central bank and financial regulatory authority’s stance is clear.
Cryptocurrencies are not considered legal tender (i.e. cannot be used to make payment in Singapore) and are not regulated by MAS.
FYI:. When you use cryptocurrencies to pay for stuff, MAS considers that you conducting a barter trade for goods and services.
MAS categorises digital tokens into three categories that MAS: securities tokens, utility tokens, and DPTs.
Securities tokens are digital representations of traditional securities like:
- Derivatives contracts
- Spot foreign exchange contracts for purposes of leveraged foreign exchange trading
- Units in a collective investment scheme.
In addition, Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS clarified in a parliamentary reply on 5 April 2021 that:
as for securities tokens, they are subject to the same securities laws as traditional securities. Hence, an exchange that enables trading in securities tokens is regulated under the Securities and Futures Act (SFA) and subject to the same rules, especially on fair, orderly and transparent trading, as any securities exchange.
There are also Utility tokens: digital tokens representing a right to a good or service (think your SingapoRediscovers vouchers).
They are usually issued by cryptocurrency platforms to raise funds for development through an Initial Coin Offering (ICO). These utility tokens can be then be later exchanged for a good or service provided by the platform.
Utility tokens have largely not been regulated as a financial product by MAS. But any entities dealing with such utility tokens will need to be licensed if such utility tokens take on the
attributes of capital markets products, such tokens would be regulated under the SFA.
Lastly, we have DPTs or cryptocurrency coins as they are known in the cryptocurrency world.
According to the Inland Revenue Authority of Singapore (IRAS):
A digital payment token refers to any cryptographically secured digital representation of value that is used or intended to be used as a medium of exchange.
These DPTs must have the following characteristics if they are to be considered DPTs.
To qualify as a digital payment token, the token must have all of the following characteristics:
- It is expressed as a unit.
- It is designed to be fungible.
- It is not denominated in any currency and is not pegged by its issuer to any currency.
- It can be transferred, stored or traded electronically.
However, DPTs do not encompass the following:
- Anything which, if supplied, would be an exempt supply of financial services
- Anything which gives an entitlement to receive or to direct the supply of goods or services from a specific person or persons and ceases to function as a medium of exchange after the entitlement has been used.
What is The Payment Service Act?
In a bid to regulate the cryptocurrency industry in Singapore, MAS implemented the PS Act which came into effect on 28 January 2020.
This act requires that any person or business providing the following services in Singapore:
- Account issuance service
- Cross-border money transfer service
- Domestic money transfer service
- Digital Payment Token (DPT) service
- Electronic money (e-money) issuance service
- Merchant acquisition service
- Money changing services,
will have to be either licensed by MAS or granted the status of an exempt payment service provider.
Thus, as most cryptocurrencies and stablecoins fall under the category of either e-money or DPTs, the majority of cryptocurrency exchanges or companies would require a license to operate in Singapore.
On the same day, MAS rolled out MAS Notice PSN02 (Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service).
This notice outlined the extensive anti-money laundering (AML) and countering the financing of terrorism (CFT) requirements that DPT service providers had to comply with to prevent the illicit flow of funds in and out of Singapore via DPTs.
A year later on 4 January 2021, MAS passed the Payment Services (Amendment) Bill in parliament.
The amendments were made to comply with international standards and implement more robust AML and CFT measures.
In addition, the amendments expanded the definition of DPT services to include:
- Transfer of DPTs
- Provision of custodian wallet services for DPTs
- Facilitating the exchange of DPTs without possession of money or DPTs by the DPT service provider.
This is in addition to the previous definitions which classified DPT services as any service of dealing in DPTs and any service of facilitating the exchange of DPTs.
Thus, any DPT providers providing the above mentioned DPT services will require a license from MAS to operate in Singapore under the PS Act and comply with the financial authority’s AML/CFT regulations.
The amended bill also grants MAS power to implement:
- User protection measures on certain DPT service providers to ensure the safekeeping of customer assets held by the DPT service provider, where necessary
- Measures on certain DPT service providers where it is in MAS’ view necessary or expedient in the interest of the public or a section of the public, the stability of the financial system in Singapore, or the monetary policy of MAS.
And as mentioned earlier, if DPT providers deal in capital market products like securities tokens, they will have to comply with the SFA.
However, at the time of writing, the amendments to the PS Act have not taken effect will only come into operation on an unannounced date.
But currently, there is little to no legislative protection for consumers. MAS is not required to safeguard your cryptocurrency or ensure that each cryptocurrency transaction is processed in the right way.
This is made clear with this advisory that MAS requires DPT service providers to show to customers:
- Your DPT service provider is licensed by MAS to provide DPT services. Please note that this does not mean you will be able to recover all the money or DPTs you paid to your DPT service provider if your DPT service provider’s business fails.
- You should not transact in the DPT if you are not familiar with this DPT. Transacting in DPTs may not be suitable for you if you are not familiar with the technology that DPT services are provided.
- You should be aware that the value of DPTs may fluctuate greatly. You should buy DPTs only if you are prepared to accept the risk of losing all of the money you put into such tokens.
Regulation of Cryptocurrency Exchanges in Singapore
In another parliamentary reply on 26 July 2021, Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS stated that:
As part of the transitional arrangements, entities that were engaged in regulated activities before the commencement of the Act were exempted from holding a licence if they submitted licence applications before the end of a specified grace period.
The specified grace period for digital payment token (DPT) service providers ended in July 2020, six months after the commencement of the PS Act. The exemption remains in force until the applications are approved or rejected by the Monetary Authority of Singapore (MAS) or withdrawn by the applicant.
Mr Tharman added that there are currently about 90 such DPT service providers that operate under this exemption. In other words, they are currently not regulated by MAS.
The full list of these DPT service providers can be found here.
As of 26 July 2021, MAS has received over 170 applicants who have applied for a license to provide DPT services.
However, 30 DPT service provider applications have been withdrawn after consultation with MAS while an additional two applications have been rejected.
In an interview with The Business Times, a MAS spokesperson stated that ‘a number of DPT applicants have not met its standards in the area of money laundering and terrorism financing and technology risk controls.’
But recently, two entities, DBS Vickers (DBS’s brokerage arm) and Australian cryptocurrency exchange Independent Reserve announced that they have received in-principle approval from MAS to offer DPT services in Singapore.
Currently, the Independent Reserve exchange is up and running and you can trade cryptocurrencies there. But, DBS Vickers which is part of DBS’s (SGX: D05) Digital Exchange (DDEX) will not be able to provide DPT services until it receives the full operating license from MAS.
Do You Have To Pay Tax on Your Cryptocurrency in Singapore?
What about tax obligations?
Unlike other countries, Singapore does not have a capital gains tax for individuals and businesses. This means that you will not be taxed when you profit from your cryptocurrency holdings appreciating in value.
For that, we will have to look at IRAS’s Goods and Services Tax (GST) guidelines for DPTs:
Businesses will not need to pay GST if they provide the following supplies of DPT:
- Exchange of digital payment tokens for fiat currency or other DPTs.
- Provision of loans of digital payment tokens.
In other words, individuals will not have to pay GST when you use these exchanges to trade or loan DPTs as well.
But, you may need to pay GST on stablecoins which are not considered DPTs as they are “denominated in any fiat currency or with a value pegged.” This exception is in place to prevent people from exploiting stablecoins to avoid paying taxes on cash transactions.
In addition, if your company is in the business of trading cryptocurrencies and gains profits from this venture, you will need to pay taxes.
Do contact IRAS or your tax advisor to confirm your company’s tax obligations.
Tax on Cryptocurrency Mining
First the good news.
Unlike the cryptocurrency miners in China, cryptocurrency mining is not illegal in Singapore.
In a guidance piece published on 17 April 2020, IRAS clarified that
The taxability of a miner’s profits from the disposal of payment tokens (including those obtained from a mining pool) depends on whether the miner performs the mining activity with an intention to profit. Miners may perform mining as a hobby or to hold the tokens mined as a long-term investment. If so, the disposal gains/ losses of the payment tokens are not taxable/ deductible.
On the other hand, gains/ losses from the disposal of payment tokens by a miner assessed to be trading in nature would be taxable/ deductible.
But, if IRAS discovers that you are making ‘a habitual and systematic effort to make a profit from the activities’ it is highly likely that IRAS will consider it that you are ‘carrying on a vocation of a miner.’
Thus, businesses and individuals alike who are carrying out commercial mining activities will be taxed on the profits made at the time of the token disposal.
How much tax exactly?
With effect from Year of Assessment 2010, a company is taxed at a flat rate of 17 per cent on its chargeable income regardless of whether it is a local or foreign company.
Holding and Annual Spending Limits
Also, as part of the Payment Services Act, MAS has implemented holding and annual spend limits for e-wallets/personal payment accounts that you have to take note of.
From 22 January 2020, any payment institutions operating in Singapore that provide account issuance services are required to make sure that the e‑money stored or transferred in and out of personal e-wallets do not exceed the holding and annual spend limits of S$5,000 and S$30,000.
This annual limit starts from your first transaction at these payment institutions after 22 January 2020 and refreshes on a 365-day rolling basis.
An example of this would be payments platform Xfers, a company that provides payment solutions for cryptocurrency providers.
First, there is a holding limit of S$5,000 (Digital Goods Wallet + General Wallet) for your Xfers account.
Any amount above the holding limit will be placed in your temporary holding balance.
Also, you can only withdraw the temporary holding balance to the bank account you have linked with Xfers.
Let’s say you have a balance of S$4,000 in your Xfers account. You can only deposit S$1,000 more into your Xfers account.
In addition, there is an annual spend limit of S$30,000 and a daily withdrawal limit of S$10,000.
But, do check with your respective exchanges as the withdrawal limit policy varies between exchanges.
This means you can only top up S$30,000 over 365 days to your Xfers wallet.
You can only withdraw the temporary holding balance to the bank account you have linked with Xfers.
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Disclaimer: Seedly and Singsaver will never ask you for your crypto wallet address nor instruct you to transfer any crypto to us throughout any of the campaigns.