The Inland Revenue Authority of Singapore (IRAS) has published a new crypto regulation.
This is the so-called “Income Tax Treatment of Digital Tokens”, an e-tax guide that provides indications on the tax treatment of income from transactions involving digital tokens.
Firstly, the IRAS separates tokens into three categories, following the approach adopted by Swiss FINMA more than two years ago: payment tokens, utility tokens and security tokens.
It also specifies that the rules contained in the guide apply to:
- Receiving digital tokens as payment for goods and services;
- Receiving digital tokens as remuneration for work;
- Using digital tokens as payment for goods and services;
- Purchase and sale of digital tokens;
- Issuing digital tokens through Initial Coin Offering (ICO).
With regard to the treatment of tokens excluding ICOs, the new regulation distinguishes the tax treatment according to the type of token.
With regard to payment tokens, such as bitcoin, these are considered intangible assets, therefore transactions involving the use of these tokens for the payment of goods or services are seen as a barter trade, hence the value of the transferred goods or services must be determined at the time of the transaction.
With regard to utility tokens, the IRAS argues that it would be unlikely for exchanges to generate taxable income, but on the other hand, expenses could arise that could be deducted.
Finally, in the case of security tokens, taxable income derives from the nature of the possible return, e.g. interest, dividends, and the like.
In the case of ICOs, the taxable income depends on the rights and functions of the tokens issued, which may be taxable depending on the specific circumstances.
A first consequence of these new rules is that, for example, there are no taxes on payment tokens received free of charge via airdrop, or created by hard forks splitting blockchains.
If, however, tokens are received as payment for a sale, the IRAS leaves it to the taxpayer to determine the exchange rate for recording the proceeds, for example using widely known services such as Coinbase or Binance.
Another consequence is that security token issuers through ICO will not have to pay taxes because the action is equated to a capital increase, while those who will issue utility tokens will have to pay taxes because the action is equated to deferred income.