IRAS - Tax Treatment of Digital Tokens
Digital tokens are a type of digital asset or representation of value that is typically built on a blockchain or distributed ledger technology. These tokens can represent a variety of assets, rights, or utilities and are often used in various blockchain-based applications, including cryptocurrencies and decentralized platforms.
As per IRAS guidelines, companies that opt to receive remuneration or revenue in the form of digital tokens like Bitcoins or engage in digital token trading are obligated to adhere to standard income tax regulations.
Digital Tokens Received as Payments
Companies that opt to receive their remuneration or revenue in the form of digital tokens like Bitcoins are required to comply with regular income tax regulations. This includes being taxed on the income they earn within Singapore. Taxation applies to the income earned within or received in Singapore. Tax deductions are allowed, where permissible, under Singapore tax laws.
Typically, these businesses should document the sale according to the prevailing market value of the products or services, denominated in Singapore dollars. This principle also extends to businesses that make payments for goods or services through digital tokens.
In cases where it’s impossible to ascertain the market value of the goods or services that would typically be transacted in Singapore dollars (e.g., when the exchange solely involves digital tokens), the exchange rate of the digital tokens at the time of the transaction may be used instead.
Buying and Selling Digital Tokens
Companies engaged in the routine buying and selling of digital tokens within their operations are liable to pay taxes on the profits generated from their digital token trading activities. Similarly, businesses that engage in both digital token mining and trading for monetary gain are also subject to taxation on their earnings.
Businesses that acquire digital tokens as part of a long-term investment strategy could potentially realize capital gains when they sell these tokens. It’s worth noting that Singapore does not impose capital gains taxes, which means that any such profits are exempt from taxation.
The classification of gains from digital token disposals as either trading or capital gains hinges on the specific details and context of each individual case. The following factors are considered when determining if such gains are taxable:
- Nature of Subject Matter
- Length of Ownership
- Frequency of Transactions
- Supplementary Work
- Circumstances of the Realisation
- Motive
- Mode of Financing
- Other Factors
