Singapore has outlined new guidance on the taxation of cryptocurrencies, offering clarity on the different token types and scrapping tax on some airdrops and hard forks. According to the country’s new guide on digital assets, tax on tokens received via airdrops and hard forks will not be taxed if they were obtained with no prior purchase, marking a departure from the practice adopted by most other tax authorities.
The new guidelines also take steps to define how the different tokens types will be identified and taxed, as well as how the authorities will deal with ICOs.
Three Token Types Identified
The Inland Revenue Authority of Singapore (IRAS)’s guide, Income Tax Treatment of Digital Tokens, was published last Friday and tightens up the tax laws regarding cryptocurrencies, which they categorize three ways:
Payment token: An “intangible property” that “represents a set of rights and obligations” and will be viewed as barter trade. Businesses that receive payment tokens will be taxed on the value of the underlying goods rather than the value of the tokens at the time of transfer.
Utility token: A “specified or implied right to use or benefit from goods or services” on the token’s platform. Utility token use is unlikely to generate taxable income, subject to tax user at the point of exchange.
Security token: Offers “equity or an interest akin to a specified or implied degree of control or economic entitlement.” Interest and dividends will be taxed in line with existing regulations, as will disposal of security tokens in line with existing capital gains tax laws.
As with most other countries, Singapore will continue to levy tax in fiat currency against any value gained from crypto-crypto as well as crypto-fiat transactions, advising taxpayers to “keep proper records of transactions and provide them to IRAS upon request.”
Aidrops and Hard Forks Tax Free – Unless You’re an Influencer
In discussing airdrops, IRAS marks these down as “a marketing tool with a view to increase awareness of a new token” which will not be subject to tax unless it was given in return for a service or the expectation of one – i.e. if you’re a social media influencer.
The authority describes hard forks as being a “windfall” that the recipient does nothing to earn. This is not viewed as income, and is therefore not taxable as such, although tax will be applied on any monetary gain from selling or otherwise disposing of the tokens.
Singapore Bucks the Trend
These rules are different than in many other countries, such as the US and the UK, where airdrops and hard forks are considered income and must be declared alongside your regular everyday income. This has the double whammy of income tax being collected upon receipt of the tokens and capital gains tax being collected on any financial gain made from their sale.
Clarification on the taxation of cryptocurrency is always welcomed by those who want to respect the law and pay their taxes correctly – something the US would do well to remember, given their slapdash and sometimes harmful approach to collecting crypto taxes.