Singapore: Guidelines for tax treatment of transactions involving digital tokens

Singapore: Transactions involving digital tokens

Guidance from the Inland Revenue Authority of Singapore addresses the tax treatment of transactions involving digital tokens.

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Background

A digital token refers to any cryptographically secured digital representation of value that can be transferred, stored or traded electronically. It is a digital representation of a token-holder’s right to receive a benefit or to perform specified functions. In general, there are three types of digital tokens:

  • Payment tokens used as a mode of payment
  • Utility tokens providing the token-holder with a right to use or benefit from services
  • Security token giving the token-holder ownership or rights to an underlying asset or security

The income tax treatment for digital tokens differs depending on the type of digital token being used in the transaction. The tax authority’s guidelines, initially issued in April 2020, were updated in October 2020 to clarify that security tokens can be used in the form of any other security or investment assets or instruments. 

Tax treatment of digital tokens, overview

  • Payment token—When a business receives payment tokens for the goods or services it has provided, the business would be taxed on the value of the underlying goods provided or the value of the services performed. Conversely, when a business uses payment tokens to pay for goods and services, the business is allowed to claim a deduction based on the value of the underlying goods purchased or services received, subject to the general tax deduction rules.
  • Utility token—When a person acquires a utility token to exchange for goods or services to be provided in future, the amount incurred to purchase the relevant utility token will be treated as a prepayment. At the point when the utility token is used to exchange for the goods or service, subject to the tax deduction rules, a deduction will be allowed on the amount incurred.
  • Security token—The tax treatment of the return derived from a security token depends on the nature of the return, which could be interest, dividends or other distributions and follows the standard income taxation rules. When the security token is disposed of by the holder, the taxation of the disposal gain or loss depends on whether the security token is held as a capital (not taxable) or revenue asset (generally taxable).

Read an April 2021 report [PDF 382 KB] prepared by the KPMG member firm in Singapore

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