There has been an increasing popularity of NFTs (Non-Fungible Tokens), cryptographic tokens on a blockchain that can prove the ownership and authenticity of a digital asset, which can also be considered as digital data with a certificate of ownership.
The Singapore High Court has ruled that NFTs can be considered as property. While there are currently no specific laws to regulate NFTs in Singapore, the characteristics and purpose of NFTs have to be carefully considered in order not to breach any of the existing regulatory laws set by the Monetary Authority of Singapore (MAS). This article will discuss the regulatory matters regarding NFTs in Singapore.
First Judicial Decision in Asia to Protect NFTs in Singapore
On 21 October 2022, the Singapore High Court published the grounds for its decision in Janesh s/o Rajkumar v Unknown Person (“CHEFPIERRE”)  SGHC 264 involving an interlocutory injunction that was issued earlier in May this year. This is the first written ruling in Asia that protects an NFT.
This case is notable not just because it is the first in Asia to protect an NFT, but also because it is the first in Singapore to address whether NFTs are considered assets.
- The claimant, Janesh s/o Rajkumar (“Janesh”), the owner of “Bored Ape NFT” from the Bored Ape Yacht Club, has a collection of 10,000 different NFTs constructed on the Ethereum blockchain.
- In January 2022, Janesh got in touch with the defendant “chefpierre.eth” (“Chefpierre”) to inquire about getting a loan. Chefpierre promised Janesh under the terms of the financing agreement that the Bored Ape NFT would not be “foreclosed.”
- On March 19, 2022, Following the loan agreement and its successful repayment, Janesh and Chefpierre agreed into a new loan agreement on “19 March Loan”.
- On April 19, 2022, Janesh notified Chefpierre that he needed a brief extension of time to repay the 19 March Loan. The Bored Ape NFT would be given back to Janesh after the loan was fully repaid, and Chefpierre originally consented to the prolongation.
- Later, Chefpierre altered mind, telling Janesh that if the entire amount was not fully returned by April 21, 2022, he would exercise the Platform’s “foreclose” option.
- When Janesh was unable to find sufficient funds to repay the 19 March Loan, Chefpierre exercised the “foreclose” option and the Bored Ape NFT was subsequently transferred to the latter’s cryptocurrency wallet.
- Janesh filed an action for an injunction with the Singapore High Court to retrieve the Bored Ape NFT after being devastated by its loss.
- On May 13, 2022, the High Court approved the injunction motion, and on October 21, 2022, it released the reasons for its ruling.
Ownership of NFT buyer
The acquisition of an NFT normally confers rights equivalent to those of ownership of the NFT under Singaporean law (depending on the content of smart contract etc). The buyer should also review the terms and conditions included in smart contracts that apply to the NFT. The terms and conditions, such as the amount the original artist will receive from secondary sales of the NFT, are defined through smart contracts that are included into NFTs on the blockchain. In Singapore, which is a common law country, the terms of the contract are crucial when making a transaction. Therefore, it’s crucial to comprehend both the transfer’s terms and circumstances and the smart contract that’s been included into the NFT on the blockchain.
Transfer of NFTs
Singapore requires a formal contract to be executed in order to transfer NFTs. In order to guarantee that an NFT is delivered to the buyer, some platforms further restrict payments to being made only after an NFT has been delivered. A creator/seller and a customer may enter into a written contract, which may allow for the filing of a lawsuit for violation of contract. However, it should be noted that if the seller is not in Singapore, it could be challenging to find them and the legal procedure might be challenging. Without a contract, the buyer in Singapore has little legal recourse because it is unknown whether laws and regulations apply to blockchain transactions.
Taxation of NFTs
On March 11, 2022, Lawrence Wong, the Minister of Finance, said in front of the legislature that trade in Non-Fungible Tokens (NFTs) will be subject to income tax. Notably, Singapore lacks a capital gains tax system. As a result, a chargeable tax is applied to capital gains in stocks and crypto assets.