Our guide below summarises the cryptocurrency tax in Singapore.
The Singapore tax authority IRAS does not impose any capital gain tax in Singapore. Hence if a company’s crypto gains are deemed as capital gains, the company will not have to pay any income tax on the same.
However, if you accept the digital tokens as payment for services or goods rendered, you will have to declare it as revenue in nature and pay income tax on it. Similarly, if a company’s primary function is crypto trading, it will be deemed as revenue in nature.
WHAT IS SINGAPORE’S CRYPTOCURRENCY TAX RATE?
First off, Singapore has no capital gains tax. Singapore does not impose sales taxes on businesses or individuals who purchase cryptocurrencies and profit from the value appreciation.
Singapore has a 17% income tax rate. As a result, you will pay tax at a rate of 17% if your business or profession involves trading bitcoin for profit. In general, there is a blurry line between trading and investing in cryptocurrencies (for capital gains).
Additionally, payments can be made in Singapore using digital tokens like Bitcoin (or Ether). The usage of digital tokens as payment for products and services is tax-free even if there is a 7% tax on goods and services. Digital tokens can be used to pay for products and services tax-free.
Therefore, GST is typically not applied to the purchase and sale of cryptocurrencies. Stablecoins might be taxed, nevertheless, if the goal is to prevent a regular transaction that would be subject to GST.
CATEGORIES OF TOKENS IN SINGAPORE
Singapore government authorities generally classify tokens into three types as below:
The use of a utility token to exchange for goods or services is unlikely to create an income subject to tax on the user at the point of exchange. It may, on the other hand, give rise to a deductible expense subject to usual deduction rules
Tax treatment of utility tokens
If a company acquires a utility token to exchange for goods or services to be provided in the future, the amount incurred by the company to purchase the relevant utility token will be treated as a prepayment. This will be further subjected to tax deduction rules, a deduction will be allowed on the amount incurred at the point the token is used to exchange for the goods or service.
Payment token is regarded as intangible property in Singapore. Any transactions involving the use of payment tokens as payment for goods or services are viewed as barter trade and the value of goods or services transferred should be determined at the point of transaction.
Tax treatment of payment tokens
The business receiving payment tokens for goods or services rendered will be taxed on the value of the underlying goods and services provided.
Similarly, a business that uses payment tokens to pay for goods and services will be allowed a deduction as per IRAS, general deduction rules and the value will be determined by the value of the underlying goods purchased and services received.
If the payment tokens are subject to tax, IRAS will also assess the source of income in determining whether the tokens will be taxed or not. IRAS will consider the whole operation of the company to determine whether the company derived Singapore-sourced income.
If you require additional information or assistance in assessing the tax impact of your payment tokens, feel free to reach out to our team of tax accountants at email@example.com
The taxability of the return derived from a security token depends on the nature of the return, for example, whether it is in the form of interest, dividend, or other distributions.
Tax treatment of security tokens
A utility token gives the token holder a specified or implied right to use or benefit from goods or services in exchange for that token. It can come in different forms – akin to a voucher (to entitle the holder to future services from the ICO company), or a key (to entitle the holder to access the ICO company’s platform).
When a person (referred to as “the user”) acquires a utility token to exchange for goods or services to be provided in the future, the amount incurred by the user to purchase the relevant utility token will be treated as a prepayment. Subject to tax deduction rules, a deduction will be allowed on the amount incurred at the point the token is used to exchange for the goods or service.
Tax treatments pertaining to the issuance of utility tokens during an ICO will be addressed in Part B below. Many of the tokens created by ICOs are called securities tokens. Buyers put their money into the ICO in the hopes of making a profit.
Singapore Tax Treatment
|Payment Tokens||Businesses are subject to standard tax laws regardless of whether customers pay in cash or payment tokens, and the tax treatment of any gain or loss from the sale of digital goods will depend on whether the goods are used for capital or income.||When a business utilises payment tokens to pay for products and services, it can claim a tax deduction.The value is based on the underlying goods or services received.|
|Utility Tokens||When the goods or services are delivered or rendered, the proceeds from the issuance of a utility token are considered deferred revenue and are liable to income tax.||When a token is used to pay for products or services, a business may claim a tax deduction on the cost.|
|Security Tokens||The tax treatment of the disposal gain or loss will depend on whether the security taken and its gain or loss is of a capital or revenue type. Generally, proceeds from the issuance of security tokens may be capital in nature and not taxable.||Issuers getting interests, and dividends can also claim tax deductions on such payments.|
THE EVOLUTION OF SINGAPORE’S TAX TREATMENT OF DIGITAL TOKENS
This evolution can be classified into two periods mainly:
Before 1 January 2020
Before the first of January 2020, the supply of virtual currency (such as Bitcoin) was considered a taxable service supply. This meant that anyone selling virtual currencies as part of their trade or business would have to register for GST and charge GST on the virtual currency they sold, reducing their competitiveness. The increased GST costs would be borne by the local counterparty which is not registered for GST in Singapore, forcing them to deal in overseas markets instead.
A barter transaction situation occurs when a virtual currency is utilized to pay for goods or services. GST must be accounted for on the virtual currency used to pay for the products or services obtained by a GST-registered entity employing virtual currencies. In addition, if the provider is GST-registered, GST will be imposed on the goods or services supplied (unless the supply is exempt).
In brief, transactions involving the use of virtual currency as payment result in two tax points prior to 1 January 2020: once on the cryptocurrency purchase and again on its usage as payment for goods and services that are ordinarily subject to GST.
GST was applied on the absolute value of the cryptocurrency sold (not just the fee earned) for digital exchanges that issue cryptocurrencies, which could result in business costs.
If a person trades in digital tokens and derives revenue-generating gains, such gains will be subject to income tax in Singapore, according to the IRAS’ e-Tax Guide Income Tax Treatment of Digital Tokens, issued on April 17, 2020. Such gains, on the other hand, are not subject to income tax in Singapore if they are capital gains. The “badges of trade” are assessed to determine if the gains are capital or revenue.
From 1 January 2020 onwards
In response to the growing popularity of cryptocurrencies, the IRAS reassessed its GST position and concluded that cryptocurrencies are largely used as a method of trade. To better reflect the nature of digital payment tokens, the use of such tokens will no longer be subject to GST beginning January 1, 2020.
IS IT POSSIBLE TO RAISE FUNDS IN SINGAPORE USING CRYPTOCURRENCIES, OFTEN KNOWN AS INITIAL COIN OFFERINGS (ICOS)?
No, raising funds from the general public is prohibited in Singapore unless it is done through an initial public offering (IPO) (or similar to a public debt offering). As a result, an ICO is not permitted.
However, setting up a firm to execute cryptocurrency-related activities and receiving angel or venture capital financing is always an option. Singapore does not differentiate between cryptocurrency-related and other financial activity; the same rules apply.
POTENTIAL CHALLENGES WITH THE CURRENT RULES IN SINGAPORE
Digital token characterization
The income tax laws of the IRAS are based on the type of digital tokens, such as payment, utility, or security tokens. In practice, though, a digital token may have multiple characteristics. Some digital tokens, for example, may have a combination of all three characteristics. Furthermore, the functionality of a digital token may change over time. Because of the rapid changes in technology and business models, digital tokens will continue to evolve, with new characteristics that are currently unimaginable. These factors make evaluating the tax treatment of “hybrid” tokens throughout their life cycle difficult for taxpayers.
Finally, central banks around the world have looked into the prospect of introducing their digital currencies, known as CBDCs, though no government has yet issued instructions on how CBDCs4 should be taxed.
The risk of double taxation
Due to Singapore’s territorial taxation system, the IRAS will evaluate the taxpayer’s operations as a whole when establishing the source of income, as well as the timing and amount of income to be recognized. The physical presence of the corporation and major activities undertaken in Singapore are among the several parameters mentioned by the IRAS.
It is widely known that defining a source of income may not always be simple, and this is exacerbated by the digital economy’s mostly virtual, decentralized nature, which is characterized by the decoupling of production and consuming places. Digital token transactions, for example, are frequently carried out remotely, although production operations can be carried out anywhere.
Different techniques and interpretations may result in different tax treatments being implemented in different jurisdictions if there is no common framework. In the aggregate, this could result in unexpected tax inefficiencies. Current tax treaties do not address this since they lack provisions to address income earned from digital tokens, and the OECD/G20 Base Erosion and Profit Shifting project is mute on the subject.
Feel free to reach out to us if you are concerned about the taxation implications of setting up a Singapore company.
In Singapore, are cryptocurrencies legal?
Yes. Cryptocurrencies are digital goods as defined in Singapore, but they are not legal tender, which means they are not money and are not regulated as such.
What is the cryptocurrency tax rate in Singapore?
To begin with, Singapore has no capital gains tax. Companies and individuals who purchase cryptocurrencies in Singapore and profit from the asset appreciation pay no sales tax.
Singapore has a 17 percent income tax rate. As a result, if your business or profession entails profitably trading bitcoin, you will be taxed at a rate of 17%. In general, there is a blurry line between trading and investing with cryptocurrencies (for capital gains).
How to buy cryptocurrencies in Singapore?
To begin with, Singapore authorities consider the purchase and sale of cryptocurrencies to be a digital payment, therefore they are governed by the Payment Services Act, and any organisation providing cryptocurrency trading or exchange services must be licensed.
Many exchanges, including Binance, hold these (temporary) licences, however, they can only offer limited cryptocurrency trading services in Singapore.
Binance for example, only provides spot trading services, not investment or futures products. The situation is similar on most other Singapore exchanges, with a relatively modest annual cap on the amount that can be purchased.
Is there GST on cryptocurrency in Singapore?
Businesses that purchase virtual currencies as long-term investments may profit financially when they sell those currencies. Such earnings are not taxed, though, as there are no capital gains taxes in Singapore.