How Did Singapore Become The Global Center For Crypto Business Development
There is no doubt Singapore is the world technological leader today. But it didn't start out that way. The year of 1965 is a sort a starting point for this region, as this small island nation has gained independence from Malaysia. However, the government faced many problems. Freedom has been won at a high cost there, as people had to build infrastructure from scratch. There were neither jobs, nor homes nor stable economy. The island did not have basic resources to go on — the authorities even had to purchase water from neighboring countries. So the existence of Singapore was under threat.
But not only has Singapore survived, it could also make a highly developed and powerful country with the highest standards of living and progressive economy.
According to the Human Development Report published by the Human Development Report Office of the United Nations Development Programme (UNDP) in 2017, Singapore ranked 11th among countries with the high HDI level (human development index). Many experts call this country one of the largest financial areas in the world.
The Singapore’s government makes it clear that successful development of any country requires the ability to catch up with the technological progress. The policy of the country is extremely loyal toward innovations. Cryptocurrency and blockchain projects were not an exception. Therefore, many traders, developers and investors choose Singapore as a business area. The island has quickly gained popularity and became the base for the crypto sphere development along with Switzerland.
The government has recently created many tools to ensure the comfortable and effective development of blockchain projects. The creation of a regulatory platform for startups allowed developers to work without a license for six months.
Meantime, some factors point to the possible introduction of clearer and stricter rules to control the crypto sphere. Cryptocurrencies are in the so-called “gray zone” now, as rules and regulations connected to this field are still being developed.
Nevertheless, Singapore became one of the first countries to legislatively define bitcoin as a service back in 2014. In this case, tokens are treated as goods. But, in certain cases, they may be subject to legislation in the sphere of securities. This step helped the Tax Service of Singapore to apply appropriate taxation in the most effective way. Just like many other countries, Singapore applies the law on combating money laundering through cryptocurrencies. The government has also disclosed plans to create a legal regulation of crypto exchanges and such investment mechanisms as ICOs.
In August 2017, the Monetary Authority of Singapore (MAS) expressed its position regarding the initial coins offering. According to it, ICO falls under some categories of the securities laws. This applies to tokens, which represent the rights to property, property assets and debt obligations. In some cases, tokens can be considered as shares or investment units for co-financing.
Regulators have also legislatively differentiated the definitions of tokens and cryptocurrencies. According to official documents, tokens are defined as cryptographically-protected property rights with the possibility of receiving certain services in the future. At the same time, cryptocurrency is considered as a specific type of tokens, used as an exchange tool and a store of value.
In order to make it easier for users to understand the new legislation, the MAS issued a special guide. It describes cases when tokens fall under the securities laws. For example, tokens are not securities if they are a part of the database used for sharing computing power. If tokens relate to the distribution of benefits (for example, in the sphere of investment funds) then the rules related to the securities turnover apply to them. There is also a list of different categories of tokens. Regardless of the category, the legislation on combating money laundering and the financing of terrorism applies to all of them.
At the same time, the Singapore government does not support the citizens’ involvement in the ICO to avoid violating the securities legislation, exclude VAT payment and protect residents from problems with financial regulators. However, if a resident of Singapore wants to release tokens that belong to the category of financial products, they must register it in the Monetary Authority of Singapore, get a special license in accordance with the purpose of the issuance. Tokens can be issued for investing in a real estate business, giving the property rights, receiving dividends and so on.
According to Singapore laws, cryptocurrency exchanges also need to obtain a license and register their activities. At the same time, the registration is not mandatory for those exchanges that fall under some exceptions. For example, digital security issuance, private placement, etc.
It is much cheaper to start crypto business in Singapore rather than in Lichtenstein or Switzerland. On average, you need to have around $4,000-8,000 to register your business here and stay up within one year. By comparison, this sum reaches $55,000 per year in Switzerland. At the same time, Singapore has relatively soft requirements for startups. They do not need to report on the size of the authorized capital, but at the same time it is necessary to issue at least one share. However, a strict requirement of the government is to have at least one resident of Singapore among the management of the company.
At the moment, a corporate income tax of 17% is in force in Singapore. The tax applies to all profits regardless of its origin. However, the tax service has not determined yet the time when it is necessary to fix taxes — during cryptocurrency transactions or while converting cryptocurrencies to fiat. Anyway, trading companies have to pay tax on income received from cryptocurrency sale and purchase. Miners and traders, who trade cryptocurrencies for fiat money, must pay income tax as well.
The Singapore government introduced the possibility to partially avoid the corporate income tax. Companies can be exempted from taxes in the amount of 75% of taxable profits, and for the next 290,000 SGD at the rate of 50%. The Singapore Tax Service has introduced rules for companies that purchase cryptocurrencies for long-term purposes and can gain profit by selling them. Such income is not taxed in Singapore, since there is no capital gains tax. Moreover, local companies do not pay taxes on dividends paid to foreign organizations. At the same time, interest paid to other countries is taxed at 15%, while royalties are paid at the rate of 10%.
According to the Singapore law, all cryptocurrency transactions are considered as service provision operations, which includes goods and services tax. At the same time, a transaction can be considered as a barter if a cryptocurrency is used to pay for goods. This is due to the fact that cryptocurrencies are also recognized as commodities. Companies have to register VAT payers if their annual turnover is higher than one million SGD. However, if commodity tokens are sold to a non-resident, the company should not pay VAT. If they are sold to a resident of Singapore, the company may become exempt from tax as long as its annual turnover is less than one million SGD.
A resident of Singapore can voluntarily become a VAT payer, even if their company is small and its annual turnover does not exceed the critical mark of one million SGD. In this case, the registration of the company must be valid for two years, and the company itself has to store internal data for five years. These rules apply even to those firms that have changed the country of jurisdiction.
Regulators require quarterly tax reporting in an electronic form. Taxes must be paid within one month after the reporting period. If the company’s services are regarded as international, the tax is 0%.
In order to register as a VAT payer, a person must fill out the electronic form of VAT F1 and provide it to the Singapore Taxation Service in a special window on the official website. The request will be processed within three weeks.
Experts note that so far Singapore is a strong base for launching crypto business. In particular, Andrey Orlov, an expert and partner of the FinShi Capital fund, notes that the Fintech sandbox project is a favorable starter for small businesses. The startups almost painlessly get access to banks for conducting test transactions, which is a clear advantage. At the same time, the expert believes that it is possible to find a region with softer legislation toward non-residents. Andrei Orlov believes that Singapore's investment potential is extremely high, and legislative regulation is moderate and convenient. Regulators in Singapore are loyal and try to maintain interactive relationship with crypto enthusiasts.
Andrei Orlov also mentioned the peculiarities of Asian culture. In Singapore, all decisions are taken slowly, the negotiations are gradual and usually take several stages. Besides, local banks are still suspicious of cryptocurrency transactions and often block funds, sometimes for significant periods of time. The expert described the case when the lawyer of his company had to provide regulators with reports on the purposes of the transaction and some other information. Only after that the transaction was allowed to be carried out.
The founder of the Qvolta exchange, Kirill Murzin, has also chosen Singapore as the basis for their business. There were several reasons. A positive attitude of the government towards blockchain technologies and cryptocurrencies, a convenient geographical location and flexible taxation conditions. Besides, if a company is just registered in Singapore, but its office and employees are outside the country, it is exempt from taxes. A company also does not need to get permission from the regulator to conduct cryptocurrency/fiat transactions.
Thus, Singapore, a small island country, could make one of the best places to start a crypto enterprise. Cryptocurrencies have already found their definition here, while the government does its best to develop this sphere and attract more foreign investments. Regulators have done a great job by formulating categories of tokens that can be subject to various existing laws. Taxation in Singapore is extremely flexible, and some companies can completely avoid it.