This month, the Inland Revenue Authority of Singapore (IRAS) released new tax guidelines for consumers, businesses, and firms conducting ICO/STOs. The legislation is meant to bring clarity to the market as emerging blockchain financial instruments continue to see expanded use. Importantly, the guidelines provide the local market with enough flexibility to continue on the path of innovation.
Upon first glance, it’s easy to see that the regulation is also meant to close what regulators see as tax loopholes for digital assets. Recently, Singapore increased its anti-money laundering operations in an attempt to bring the country in line with regional allies, many of whom have complained about unexplainable capital in their markets.
The new tax regulations specifically detail digital tokens. Not surprisingly, the IRAS went with the standard three categories used by regulators globally. Each token type, Security, Utility, and Payment, all have new definitions under the tax regulations. Consequently, each token specified now has its own taxation schedule.
Security Tokens – IRAS
One of the most important takeaways from the updated tax legislation is the fact that Singapore desires to be the crypto capital of the region, if not the world. Under the new regulations, security tokens fall under the current securities legislation that makes Singapore a financial hub. Specifically, security token issuers pay no capital gains tax. Additionally, STO earnings are taxable only when classified as a revenue asset. In this way, startups can raise funds without harsh taxation.
Interestingly, an issuer of utility tokens via an ICO actually pays more taxes, and their taxes are due in a more timely manner than a security token issuer. This is because utility token issuers fall under deferred revenue that is taxable as soon as they deliver the good. Luckily, the new regulations state that utility tokens, which represent a right to goods and services are a deductible event for investors, which is good. These investments are treated similarly to prepaying for items, or rights to future services.
Payment tokens such as Bitcoin fall under the intangible property category according to the documentation. So, unlike legal tender, the payment method is not taxable during a transaction. Rather, the goods and services are subject to taxes. Basically, buying stuff with Bitcoin is like bartering under the new guidelines. This decision received praise from the cryptocommunity.
No Tax on AirDrops – IRAS
Surprisingly, IRAS will not levy income taxes on airdrops or funds derived from hard forks. These funds fall under winnings. As such, the funds will be taxable on transactions, but not on the initial issuance. This is a huge win for the sector. Importantly, it will enable more firms to utilize these strategies moving forward.
IRAS Takes the Lead
IRAS raised the stakes in the race to digitize the economy with this latest maneuver. The country is sure to experience a blockchain boom in the coming months as startups from around the globe flock to the country to take advantage of its crypto-friendly regulatory climate. You should expect to see Singapore continue to play a dominant role in the blockchain sector moving forward.