Singapore is a key cryptocurrency industry player, positioning itself as a global hub for cryptocurrency and blockchain-based companies and start-ups. Singapore provides a well-regulated legal framework as well as all the benefits of a stable financial centre with a reliable reputation, excellent banking system and low tax rate.
Due to these factors, Singapore is one of the most optimal jurisdictions (probably only Hong Kong and Switzerland can сompete) for Initial Coin Offerings (ICO) fundraising. At the same time, according to the World Bank report, Singapore is also one of the easiest and safest places in the world for doing business.
The typical corporate structure used for an ICO in Singapore
The most typical corporate structure used for an ICO is a foundation, which in Singapore is usually conceptualised in the form of a company limited by guarantee, which is very often designed to carry out certain non-profit, socially useful activities. The ICO process itself is being organised by means of an “Operating Company” – a separate online platform, which is usually a separate legal entity. The Operating Company is usually structured as a Singapore private limited company and segregates the financial, legal and operational risks from the Issuer. It is essentially responsible for providing potential investors a platform for making investments. At this stage, the Issuer and the Operating Company enters into a software development and services agreement with each other. We need to mention that the above-mentioned foundation ICO model originates from Switzerland, where it was originally driven by the tax considerations of this particular jurisdiction. In Singapore, due to the difference in tax systems with Switzerland the foundation model, usage is a bit different. However is generally more reliable from a potential investors prospective and is more stable in the interest of perpetuity. At the same time, a simplified legal structure in Singapore may also be used for the ICO purpose, but the well-known foundation scheme still seems to be more reliable for potential clients.
Why carry out ICOs in Singapore?
- Singapore is the leading financial center for cryptocurrencies and ICOs with stable legal and tax systems, excellent fiscal reputation, strong infrastructure and an ecosystem of officially regulated service providers offering consulting, legal and accounting services.
- Singapore is an officially “crypto-friendly jurisdiction”; offering a clear framework for fundraising via ICOs. However, if “the digital tokens” were donated or can be identified as cryptocurrency-based forms of crowdfunding, they are currently unregulated. At the same time, if tokens are legal debt instruments (bonds, business trusts, collective investment schemes (CIS)) or offer returns on investments, then they fall under the Singapore securities regulation. MAS’s approach to ICO regulation of ICO activities and not ICO business itself, reduces compliance and operating costs significantly. For example, MAS AML and CFT regulations are very easy to comply with.
- Singapore offers an appealing and low tax regime to an ICO -17% corporate tax with no capital gains taxation.
- It is easy and cost-efficient to incorporate a company in Singapore for the purposes of ICO (ECS provides an all-inclusive company incorporation & maintenance solution).
- The Singapore government provide subsidies and incentives to Fintech businesses and start-ups.
The regulatory position on ICOs in Singapore
1. March 2014: MAS published an official statement that cryptocurrencies are not regulated unless they fall under the framework of regulated financial instruments.
ECS comments: Even though The Monetary Authority of Singapore (MAS) in March 2014, stated that the cryptocurrencies are not regulated, they noted that they view virtual currencies only as a particular class of digital tokens. At the same time, they clarified that if a digital token represents an ownership or security interest over the assets or property of an issuer; such tokens qualify as an offer of shares or units in a collective investment scheme, according to the Securities and Futures Act (Cap.289). In situations, when such tokens represent a debt owed by The Issuer, they can be considered a debenture, according to the Securities and Futures Act. The regulation of any specific digital token and any ICO offering depends on the terms of the token subscription. MAS officially recommends evaluating all the risks associated with ICOs and other investment schemes connected with digital tokens. MAS published the consumer advice, reminding potential investors on the risks with recommendations to report to Singapore authorities regarding any fraudulent investment experiences linked to digital tokens or cryptocurrencies. In March 2014, MAS also introduced specific regulations for intermediaries of virtual currencies and other digital tokens due to the high potential risks of money laundering and terrorist financing risks in this sphere of business.
2. August 2016: MAS introduced regulations for virtual currency intermediaries.
In August 2016, MAS introduced a statement regarding regulations on the virtual currency intermediaries (for example, token exchanges), which operate in Singapore. In addition, MAS also published a cryptocurrency policy consultation paper in August 2016 proposing a wide range of changes of the electronic payments regulatory regime in Singapore; including a notice on the potential introduction of a regulatory framework for activity-based payments.
3. August 2017: MAS clarified its regulatory position with respect to digital token offerings and published a consumer advisory notice in relation to investment schemes with digital tokens and virtual currencies.
In August 2017, a strong increase of interest in ICO offerings framework in Singapore amassed, and MAS made a clarification on its regulatory position with respect to the digital token offerings in Singapore and advisory notice in relation to the investment schemes involving digital token offerings and digital currencies, which was published in cooperation with the Singapore Commercial Affairs Department. It highlighted the risks associated with digital tokens which do not only function as cryptocurrencies. MAS later informed that in a situation when a digital token performs certain functionalities that fall within the financial market regulation framework, the MAS AML and Prevention laws may apply.
4. November 2017: MAS published an instruction on the Singapore securities regulation application to offers or issues of digital tokens and cryptocurrency in Singapore.
On the 14th of November 2017, MAS presented an additional explanation on the way the Singapore Securities Regulation controls digital tokens and cryptocurrency markets in Singapore. According to Singapore Law, the offer/issuance of digital tokens in Singapore is regulated in situations when digital tokens in Singapore fall under the category of capital markets financial instruments under the SFA (securities; futures contracts; contracts or arrangements for the purposes of foreign exchange trading or leveraged foreign exchange trading). Due to these regulations, the participants of the cryptocurrency/digital token markets, including operators of platforms on which digital tokens are being offered. Operators of token exchanges and similar platforms where digital tokens can be traded; specialists providing professional advice or fund management services in respect of digital tokens or virtual currencies may require obtaining a regulatory license in order to carry on such activities legally. As a result, the securities tokens remain as legal tender, however need to be licensed. MAS’s attitude shows that the ICO in Singapore is an officially accepted way of getting additional investments and are not likely to be banned by the authorities as has previously happened in China, South Korea and Vietnam.
How to sell digital tokens to ICO investors located outside of Singapore?
It is important during the process of marketing or promoting any ICO or digital token to investors externally to Singapore to stay compliant not only with the laws of Singapore, but also with the jurisdiction law of the potential investor residency. In the past, the issuers of digital tokens simply excluded investors from jurisdictions with potential risks by means of omitting to mention them in their ICO Terms and Conditions, as well as other documents.