The Inland Revenue Authority of Singapore, or IRAS, issued updated tax guidance for digital tokens on April 17. The guidelines concern payment tokens, utility tokens, security tokens, and tokens issued through initial coin offerings, or ICOs.
Fluctuations in the value tokens held by miners, ICO issuers, businesses, and individuals are not taxable or deductible unless realized.
Businesses handling tokens receive usual treatment
Despite emphasizing that payment tokens are not legal tender, Singapore’s new guidelines state that transactions executed using payment tokens “are viewed as barter trade.”
When receiving payment tokens, a business will incur normal tax obligations based on the value of the underlying goods sold, while usual deductions are available to businesses that pay for goods and services using payment tokens.
While payments made using utility tokens are “unlikely to create an income subject to tax,” utility tokens may “give rise to a deductible expense subject to usual deduction rules.”
ICO founder’s rewards treated as capital asset or revenue
The guidelines clarify that the taxability of founder’s rewards garnered through conducting ICOs will be determined based on whether they are provided as remuneration for services provided.
Founder’s rewards will be considered a capital asset unless they are issued as a reward for services provided — in which case they will be treated as revenue.
Security tokens will be taxed according to “the nature of the return derived from a security token” — such as “whether it is in the form of interest or dividend,” and “whether the security token is a capital or revenue asset to the owner.”
‘Hobbyist’ miners receive light treatment
The guidelines state that the taxation of crypto miners “depends on whether the miner performs the mining activity with an intention to profit.”
“Miners may perform mining as a hobby or to hold the tokens mined as a long-term investment. If so, the disposal gains/ losses of the payment tokens are not taxable/ deductible.”
Capital gains on mined tokens exempt from tax
However, Singapore-based miners that are shown to make “a habitual and systematic effort to make a profit from the activities,” will likely be considered to be “carrying on a vocation of a miner.”
Companies and individuals engaged in commercial mining activities will be subject to tax on profits at the time of token disposal, while capitals from the sale of mined tokens are not subject to tax.