Fundamental Research on Singapore's Cryptocurrency Tax and Regulatory System (2)
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Fundamental Research on Singapore's Cryptocurrency Tax and Regulatory System (2)
Singapore has established a relatively comprehensive dual framework of taxation and regulation in the governance of crypto assets.
Navigating Web3 tides with focused insightsBy: FinTech
Link to the first half: Fundamental Research on Singapore's Cryptocurrency Tax and Regulatory System (I)
IV. Fundamental Research on Singapore’s Cryptocurrency Regulation
(I) Basic Framework
In recent years, Singapore has continuously strengthened and refined its standardized regulation of crypto assets, gradually forming a legal framework centered around the Payment Services Act 2019 (PSA) and the Financial Services and Markets Act 2022 (FSMA). The former establishes licensing requirements for Digital Payment Token (DPT) services, anti-money laundering and counter-terrorism financing (AML/CFT) obligations, and operational compliance; the latter supplements provisions on market integrity, cross-border cooperation, and enforcement powers within a broader scope of financial services. Together, these two laws provide clear legal foundations and compliance boundaries for the issuance, trading, custody, payment, and related services involving crypto assets.
Under this framework, the Monetary Authority of Singapore (MAS) has significantly tightened license approvals and business conduct standards in recent years, backed by strict enforcement. With key licensing provisions under FSMA taking effect this year, MAS now requires all crypto firms established in Singapore but serving only overseas clients to obtain licenses within a specified period—or face heavy fines and criminal liability. For instance, the exchange Tokenize Xchange announced its exit from Singapore and shifted operations to Malaysia and Abu Dhabi due to difficulties in obtaining a license. Meanwhile, Binance has chosen to retain its local team to continue pursuing a license, while Bitget and Bybit are considering relocating parts of their operations to jurisdictions with relatively looser regulations.
(II) Key Provisions
The PSA is the first comprehensive law to systematically incorporate Digital Payment Token (DPT) services. It was originally designed to address risks arising from fintech (FinTech) innovations and the rise of crypto assets in payments and fund flows.
Adopting a "function-based regulation" approach, the PSA brings any activity involving fund movement or payment functions under regulatory oversight, regardless of technological form. Specifically, the PSA categorizes payment services and introduces a dedicated category—"Digital Payment Token Services"—covering activities such as token-to-fiat exchange, token-to-token exchange, token custody, wallet services, and brokerage. This system mandates that all relevant institutions must obtain a license before entering the Singapore market. Common license types include Standard Payment Institution (SPI) and Major Payment Institution (MPI) licenses. The former applies to smaller-scale operators, while the latter imposes higher capital, risk management, and compliance requirements. To mitigate systemic risks, the PSA also sets strict compliance and operational rules, including Know-Your-Customer (KYC), AML/CFT procedures, client fund protection and segregation, prohibitions against misleading advertising and market manipulation, and regular submission of business and financial reports to MAS. In recent years, as licensing thresholds have risen, many well-known international exchanges (e.g., Binance, Bybit, Crypto.com) have faced rigorous scrutiny during application processes, with some even exiting the Singapore market—clearly reflecting the PSA’s high-barrier, strong-regulation orientation.
The FSMA was introduced primarily to address gaps in the PSA concerning cross-border operations, market integrity, and enforcement.
As Singapore evolves into a regional crypto hub, numerous foreign service providers offer DPT services online to Singapore residents. The FSMA extends regulatory reach accordingly. Its key provisions include: (1) Cross-border regulation—entities operating overseas must still comply with local laws if they serve Singaporean clients, or face civil or criminal penalties; (2) Market integrity—grants MAS greater authority to combat market manipulation, false statements, and insider trading to uphold market credibility; (3) AML/CFT—requires both domestic and foreign providers to meet international standards, enhancing cross-border information disclosure and reporting; (4) Enforcement powers—empowers MAS to impose fines, issue prohibition orders, restrict operations, or initiate criminal prosecution directly. These clauses have reshaped the industry landscape: unlicensed offshore exchanges unable to legally access Singaporean users are forced to withdraw, while licensed entities face heightened capital and transparency demands—such as establishing robust internal compliance and risk control frameworks. Notably, certain key provisions of the FSMA were implemented in phases and became fully effective by June 30, 2025.
(III) Specific Regulations
1. Licensing
Singapore enforces a strict licensing and permitting regime for Digital Payment Token Service Providers (DPTSPs), based primarily on the Payment Services Act 2019 (PSA) and its amendments, along with Part 9 of the Financial Services and Markets Act 2022 (FSMA).
DPT Licensing under the PSA
Under the PSA, Class 6 “Digital Payment Token Services” is formally brought under regulation, covering services such as exchanging digital payment tokens with fiat currencies, exchanging between tokens, custody, wallet services, and brokerage. Institutions offering these services must apply for one of the following two licenses:
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Standard Payment Institution (SPI) license: intended for small to medium-sized DPTSPs. Requirements include incorporation in Singapore, a local place of business, records accessible for regulatory inspection, at least one manager who is a Singapore citizen, permanent resident, or holds an employment pass; minimum paid-up capital of SGD 100,000; and risk management capabilities commensurate with business scale.
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Major Payment Institution (MPI) license: intended for firms with high transaction volumes or multiple payment services. This license imposes higher requirements, typically involving larger capital reserves, client fund segregation, and stronger security mechanisms.
In 2023, MAS further tightened application requirements: all new license applicants or existing licensees seeking to add DPT services must submit a legal opinion from a qualified law firm confirming the business model and whether services fall under PSA jurisdiction, plus a compliance assessment report from an independent external auditor covering business compliance and AML/CFT mechanisms.
DTSP Expanded Regulation under FSMA
Part 9 of the FSMA introduces a licensing regime for Digital Token Service Providers (DTSPs), aiming to close regulatory gaps in cross-border operations. From June 30, 2025, any company incorporated in Singapore or with substantial operational presence in Singapore providing digital token services to overseas clients must obtain a DTSP license.
MAS stated that such DTSP models pose high money laundering risks and are difficult to supervise, hence such licenses will almost never be approved—effectively closing gray zones for regulatory arbitrage. Even in rare cases where licenses are granted, strict adherence to standards—including AML/CFT checks, cross-border information sharing, and technical and operational compliance—is required.
Whether under the PSA or FSMA, the licensing systems aim to ensure that digital payment token services operate under high-standard supervision through stringent entry barriers and compliance requirements, preventing regulatory arbitrage. These measures help safeguard financial stability and market integrity while clearly defining the boundaries for lawful operation.
2. Stablecoins
Singapore was among the first globally to introduce a dedicated stablecoin regulatory framework. In August 2023, MAS issued the Regulatory Framework for Stablecoins, which took effect in October 2024 through amendments to the PSA and supporting subsidiary legislation. This framework targets “Qualified Stablecoins” (Single-Currency Stablecoins, SCS), aiming to protect user funds, enhance transparency, and boost market confidence.
According to MAS, only stablecoins meeting the following conditions may be recognized as “Qualified Stablecoins” (MAS-regulated Stablecoins):
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Pegged asset: must be fully backed and redeemable 1:1 against the Singapore dollar (SGD) or a G10 currency;
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Issuer: limited to entities incorporated and regulated in Singapore;
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Scale: circulation must reach or exceed SGD 5 million to fall under mandatory regulation;
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Payment function: must be used primarily as a payment instrument, not as a speculative investment token.
To ensure redemption capability, Qualified Stablecoins must maintain full reserves of high-quality assets:
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100% reserve backing: total issuance must be fully supported by low-risk, highly liquid assets such as cash or treasury bills;
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Custody requirement: reserve assets must be held with regulated financial institutions (banks or custodians) and segregated from the issuer’s own funds;
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Regular audits: issuers must publish monthly reserve reports and undergo annual audits by independent auditors to ensure sufficiency and transparency.
Stablecoin issuers must fulfill various disclosure and risk management obligations:
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White paper disclosure: must publish a detailed white paper outlining governance mechanisms, reserve arrangements, and redemption and liquidation rules;
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Risk warnings: must clearly inform users that stablecoins are not risk-free and carry market liquidity and technology risks;
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Redemption obligation: must commit to 1:1 redemption within a reasonable timeframe (typically five business days);
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Prohibition on mixed issuance: a single entity cannot simultaneously issue both regulated and unregulated stablecoins to avoid investor confusion.
MAS aims to establish a “trusted category of stablecoins” in the market. Qualified stablecoins will gain higher recognition in payment systems and financial applications, and MAS plans to enable interoperability with traditional electronic payment systems. Conversely, stablecoins failing to meet these criteria (e.g., pegged to non-G10 currencies) cannot be marketed as MAS-regulated and may face stricter advertising and usage restrictions.
3. Compliance and Reporting
In Singapore, crypto asset service providers (DPTSPs) must not only obtain licenses but also adhere to strict compliance and reporting obligations. These derive mainly from the Payment Services Act (PSA), the Financial Services and Markets Act (FSMA), and MAS guidelines, focusing on three areas: KYC/AML procedures, transaction recordkeeping, and suspicious transaction reporting.
DPT service providers must implement robust customer due diligence (CDD) and ongoing monitoring:
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Identity verification (KYC): must verify customer identity and collect name, address, and identification documents before account opening or large transactions (PSA §23, FSMA §36);
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Risk-based management: providers must apply differentiated due diligence based on customer risk levels (e.g., high-risk customers such as cross-border fund movers or politically exposed persons (PEPs));
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Ongoing monitoring: must continuously monitor transaction patterns and conduct enhanced investigations with documentation if anomalies are detected.
All DPT-related transactions and customer data must be fully recorded for future regulatory review or enforcement:
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Retention period: records must be kept for at least five years (PSA §47);
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Scope: includes transaction date, amount, counterparty identity, payment instruments, and source and purpose of funds;
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Electronic archiving: electronic systems are permitted provided data authenticity, integrity, and traceability are ensured.
Under Singapore’s Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) and Terrorism (Suppression of Financing) Act (TFA), all DPT providers must report suspicious transactions:
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Trigger: if a provider knows or suspects a transaction involves money laundering, terrorist financing, or other illegal activities, it must file a Suspicious Transaction Report (STR) with the Suspicious Transaction Reporting Office (STRO) within 15 working days;
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Criminal liability: failure to report may result in criminal charges against both the institution and responsible individuals (CDSA §39, TFA §8);
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International cooperation: MAS shares selected STR data with overseas regulators for cross-border enforcement.
Through compliance and reporting mechanisms, Singapore ensures transparency and traceability in the DPT market. KYC/AML procedures prevent anonymous transactions from concealing illicit flows; transaction records support audits and investigations; and STRs provide early warning against cross-border money laundering and terrorism financing. Together, these elements establish a relatively stringent global benchmark for crypto asset compliance.
4. Investor Protection
Singapore’s financial regulators prioritize investor protection alongside financial stability and compliance. Core requirements focus on advertising restrictions, risk disclosure, and prohibitions against misleading statements—derived from the Financial Services and Markets Act 2022 (FSMA), the Payment Services Act 2019 (PSA), and MAS guidelines (especially the 2022 MAS Guidelines on Advertising by Digital Payment Token Service Providers).
MAS explicitly prohibits DPT service providers from promoting services to retail investors through exaggerated returns or inappropriate channels:
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Channel restrictions: advertising in public spaces (e.g., MRT stations, bus stops, malls) or mass public events is prohibited;
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Promotional methods: use of gifts, lotteries, or airdrops to attract participation is banned;
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Permitted channels: disclosure is allowed only via official websites, mobile apps, or official social media pages.
All DPT service providers must prominently display risk warnings at customer interfaces to ensure investors understand the high risks of digital assets:
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Content: must state “Cryptocurrencies are not suitable for all investors and may experience significant price volatility leading to total loss of value”;
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Presentation: warnings must be clear and visible, not hidden in lengthy documents or fine print;
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Special protection for retail investors: providers must conduct suitability assessments for first-time traders to confirm their risk tolerance.
DPT providers must make truthful, complete, and non-misleading statements:
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Prohibited practices: terms like “guaranteed returns,” “zero risk,” or “capital guaranteed” are not allowed;
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Disclosure: product terms, fees, custody arrangements, and liquidation mechanisms must be fully, accurately, and clearly explained;
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Consequences: misleading statements may lead to license revocation, heavy fines, or criminal prosecution.
The core logic of Singapore’s investor protection framework is to suppress inappropriate promotion, strengthen risk awareness, and ensure truthful disclosure. In 2022, MAS emphasized that crypto assets must not be marketed as a “shortcut to quick wealth,” but rather that market participants should be guided toward rational risk understanding. These measures position Singapore as one of the earliest jurisdictions globally to strictly regulate crypto advertising and risk disclosures, effectively reducing the risk of significant losses among retail investors due to information asymmetry and market hype.
Overall, Singapore’s regulatory approach consistently emphasizes compliance-first principles. Regulators have built a clear legal framework supplemented by detailed implementation standards, systematically integrating crypto asset activities into the existing financial governance system. International media and industry observers widely agree that this arrangement enhances market transparency and reinforces Singapore’s reputation as a compliant global financial center. However, the high compliance burden has objectively driven some firms to relocate to more lenient jurisdictions like Hong Kong or Dubai. As a result, Singapore has emerged as a benchmark for stringent crypto regulation globally—potentially constraining short-term market expansion and innovation, but fostering a stable, secure, and sustainable market environment in the long run. In summary, this section has systematically summarized relevant laws and regulatory practices, clarifying key trends. For finer details, refer directly to the original texts of the PSA and FSMA.
V. Conclusion
Overall, Singapore has developed a relatively comprehensive dual framework for cryptocurrency taxation and regulation.
On taxation, the government consistently treats cryptocurrencies as non-legal tender, so everyday use falls under income tax and Goods and Services Tax (GST) rules. Whether through trading gains, using tokens to pay for goods and services, or issuing and exchanging digital tokens, there are clear taxable and exempt boundaries. Since Singapore does not impose capital gains tax, simply selling appreciated crypto holdings is generally not taxed—making its tax regime relatively simple.
On regulation, Singapore maintains a compliance-first philosophy, using a legal system centered on the Payment Services Act 2019 (PSA) and the Financial Services and Markets Act 2022 (FSMA) to establish detailed rules on licensing, stablecoin oversight, compliance and reporting, and investor protection. The Monetary Authority of Singapore (MAS) ensures market operations under high transparency and high barriers through strict enforcement and continuous guidance. Although some firms have relocated to more lenient jurisdictions like Hong Kong or Dubai due to cost and constraints, Singapore has earned global recognition as a high-standard regulatory model, providing institutional safeguards for long-term market sustainability.
Globally, Singapore’s approach highlights a combination of tax clarity and strict regulation. Compared to fragmented U.S. regulation, the EU’s gradual rollout of the Markets in Crypto-Assets Regulation (MiCA), and the UK’s lag in stablecoin oversight, Singapore has established a more complete institutional framework. While high barriers may dampen short-term business growth, in the long term, its transparent and stable environment offers replicable experience for integrating crypto assets into the traditional financial system.
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