With its focus on confidentiality and security, cryptocurrency has established its international presence, and is now no longer a niche investment. Crypto’s rise is reflected in Singapore, a long-standing financial hub, with an increasing number of individuals and businesses trading, holding and accepting digital assets as payment. For many individuals and businesses, a key point of confusion is the taxation system implemented on crypto, thus necessitating a guide for crypto tax in Singapore.
Capital gains vs Business income
IRAS taxes trading or business profits from token transactions; long-term investment gains are generally not taxable as Singapore has no capital gains tax. Treatment is fact-specific and assessed on the overall conduct (e.g., frequency, holding period, financing, intent).
Meanwhile, personal gains from long-term holding are considered as capital gains, which are not taxed in Singapore, as Singapore does not have a capital gains tax. While this is highly fact-specific and dependant, IRAS looks at a few factors in making this distinction:
- Frequency of transactions
The more frequent similar transactions are made, the higher chance that the currency is used for trading. - Holding period of the currency
A short holding period is more indicative of trading than a longer holding period. - Supplementary work, eg. publicity
By doing additional work on the currency to make it more marketable, it is more likely that the subsequent disposal is regarded as trading. - Motive of transaction
A key determining factor is the intention to trade at the time of the acquisition of the currency - Mode of financing the purchase
Short-term financing is more telling of trading than long-term financing, and the company’s financial position and ability to hold on the asset is also taken into consideration.
Thus, based on this regulation, different types of digital tokens are taxed differently as well.
Types of digital tokens and their tax treatment
Payment token
Payment tokens are regarded by the IRAS as an intangible property, meaning that transactions involving the use of payment tokens are viewed as barter trade, and the value of goods and services transferred should be determined at the point of transaction. Thus, in cases where the business receives payment tokens for the goods or services it has provided, taxation would be on the value of the goods or services established by the business.
When businesses value the payment tokens for tax purposes, taxpayers can use an exchange rate that best reflects the value of the tokens received, on the condition that the exchange rate is reasonable and verifiable, as well as that the methodology used to determine the exchange rate is consistently applied every year.
Utility token
Utility tokens, which gives the token holder a specified or implied right to use or benefit from services in exchange for that token, 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, as the amount incurred by the user to purchase the relevant utility token will be treated as a prepayment.
Security token
Security tokens, which gives the token holder a fractional ownership or rights to an underlying asset, ultimately depends on the nature of the return, which is derived from the rights and obligations tied to that token. The nature of the return can be in the form of interests, dividends or other distributions.
Crypto and GST
Since 1 January 2020, supplies of digital payment tokens are treated as exempt from GST. Buying, selling or using DPTs as payment is not subject to GST, and businesses do not charge GST merely because consideration is paid in DPTs (normal GST rules continue to apply to the underlying goods/services supplied).
Conclusion
As cryptocurrencies’ popularity within Singapore rises, it is crucial to understand the different tax regulations surrounding it, especially with so many different types of digital tokens out there. A lack of understanding could result in severe financial penalties. Tax regulations are operated on a case-by-case basis, and thus, a lawyer is essential in providing tax advice on cryptocurrencies. If you require professional guidance in this regard, do contact the Advomi team, where we have a team of qualified lawyers to assist you in your operations.
Disclaimer: This article provides general information and does not constitute legal advice. Please seek professional advice for your specific situation.
