Singapore’s Internal Revenue Authority (IRAS) Releases New e-Tax Guide For Crypto
The crypto regulation scene has been a hot topic for mandated tax agencies across the world. Singapore’s Internal Revenue Authority (IRAS) is the latest to update taxation guidelines on crypto oriented projects. This regulator published a new e-Tax guide on April 17th in a bid to address the underlying issues on crypto tax reporting within its jurisdiction.
Notably, the publication aims to guide digital token users on income tax as Singapore moves to accommodate the assets on a wider scale. It, therefore, goes on to highlight two major sections in crypto operations; digital tokens and ICO’s tax treatment.
The e-Tax guide defines digital tokens as a digital representation of cryptographically secured value that can be stored, transferred or traded electronically. Given the evolving uses, digital assets under this category were divided into three based on their underlying purpose. They include a payment token, utility token, and security token. This was an update to last year's guidance due to the changes that crypto has gone through.
This type of tokens has been classified as intangible property as per the new guidelines. Basically, income tax pegged on payment tokens such as Bitcoin and Ether will be treated as barter trade. Tax on such assets will, therefore, be deducted from the goods or services offered upon transacting. However, in the event where one has to present to value in digital tokens, they are required to base the valuation on prominent exchanges such as Binance and Coinbase. The guide reads,
“The exchange rate must be reasonable and verifiable e.g. it is determined using an average of exchange rates available on payment token exchanges, such as Coinbase and Binance.”
According to the e-Tax guide, utility tokens may not attract income tax at the point of exchange. This is because the holders of such tokens expect to derive utility at a later date based on the underlying value in goods or services to be redeemed. They will, however, be subject to deductible expenses subject to Singapore’s deduction rules,
“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.”
These digital assets were defined in a similar way to debt and equity instruments in Singapore’s financial markets. Ideally, the holders ought to fulfill the tax obligations of a security token contract as well as enjoy the laid of benefits of such market agreements.
“Interest or dividend derived by the owner of the security token will be taxed accordingly. Where the security token is disposed by the owner, tax treatment of the gain/ loss on disposal will depend on whether the security token is a capital or revenue asset to the owner, and accordingly, whether the gain/ loss is capital or revenue in nature.”
Initial Coin Offerings (ICOs)
As for ICO’s, the taxation will depend on rights and functions attached to the issued tokens. This implies that specific circumstances will inform the IRAS on which angle to take the taxation of upcoming ICO’s. For example, the issuance of utility and security tokens will have different tax approaches as soon as the ICO is initiated,
“while the proceeds from the issuance of utility tokens will generally be regarded as deferred revenue. Proceeds from the issuance of security token is akin to proceeds from the issuance of a debt or equity and is thus capital in nature and not taxable.”