Do you pay taxes for your crypto profits? Here’s why you should – Wired PR Lifestyle Story

Singapore is often referred to as a crypto paradise due to the country’s tax laws. According to the Singapore Inland Revenue Authority (IRAS), residents are not required to pay capital gains tax. This can lead to the sale of shares, properties and the sale of cryptocurrencies.

However, this does not mean that all cryptocurrencies are tax-free. IRAS examines what cryptographic assets are used for before determining the nature of the resulting revenue.

To this end, crypto-assets have been classified into three different categories: payment tokens, utility tokens, and security tokens. Each category of tokens has a single purpose and is directed accordingly from a tax point of view.

Here’s a look at the different crypto-related activities that are subject to Singapore’s tax laws.

Buying and selling cryptocurrency

Until 2020, sale payment tokens such as Bitcoin and Ethereum was subject to the Goods and Services Tax (GST). Buyers had to bear this additional cost, which made it inconvenient to buy from a Singapore exchange.

However, Singapore has revised these laws. IRAS now accepts that payment tokens should not be treated as goods or services, primarily because they serve as a means of exchange. As a result, cryptographic exchanges that offer payment tokens no longer have to charge GST for sales.

sale of usability tokens may be subject to GST if the tokens are designed to be vouchers. For example, consider an F&B company that issues NFTs that can be used to exchange a meal. The company should charge the BGA to the IRAS in accordance with the rules on the treatment of bonds.

If a buyer were to sell his NFT for a higher price, he would have to record the profits as income and also pay taxes on them.

Other forms of utility tokens (such as those used as virtual currencies in cryptocurrencies) are treated in the same way as payment tokens. They are exempt from GST because they are often used as a means of exchange.

sale of security tokens It is also not subject to the GST, although not for the same reason. Security tokens are classified as financial services that represent a company’s equity or debt instrument. These services are exempt under the GST Act.

Having cryptocurrency as an investment

As an extension of the previous subtitle, cryptographic gains may be taxable accordingly why the underlying assets were acquired.

Factors such as the duration of the operation and the frequency of the trade are analyzed in order for the holder to purchase the cryptocurrency assets for the intended use or for the purpose of making a profit. In the latter case, the profits would be taxed as investment income. This applies to all three categories of cryptocurrencies.

For example, if he were to make a profit through arbitrage trading using Bitcoin, he would have to pay profits taxes. On the other hand, if Bitcoin were to be used as a payment method or as a long-term investment, any gain could be recorded as a capital gain.

The same goes for usability tokens. Axie Infinity can buy AXIE tokens to play online cryptography. Over time, the token may increase in value and the holder should not have to pay income tax. However, if the tokens were bought within a speculative trade and unloaded the next day, this would not be classified as a capital gain.

There is no objective standard that distinguishes capital gains from investment income. On a case-by-case basis, several accounts need to be applied to determine which categories of personal cryptographic gains may be in place.

Payment for goods or services

When cryptocurrency is accepted as a payment for goods or services, tax accounts are applied as usual. GST and income tax must be paid based on the market value of the goods or services offered.

The same goes for people who receive a salary or commission in the form of a cryptocurrency. They have to pay income tax based on the value of their services, calculated in trust money.

If the cryptocurrency received is exchanged for fiat money, the profits (or losses) earned must also be recorded at the prevailing exchange rate. These may be taxable whether they are perceived as capital gains or investment income.

Mining cryptocurrency

Singapore’s crypto-mining is taxed if miners actively use it as a source of money. IRAS defines it as “a regular and systematic effort to benefit from activities”.

On the other hand, those involved in recreational mining do not have to pay taxes when disposing of their cryptocurrency assets.

Airdropsak

Airdrops are a common marketing strategy used by blockchain companies to promote their token and promote their use. This involves giving tokens or “airdropping” to the wallets of selected users.

In Singapore, airdrops recipients do not have to pay taxes when throwing tokens. However, it is conditional on the tokens being issued free of charge.

Often, companies may ask users to follow their social media accounts or invite friends to the Discord channel to receive an airdrop. In such cases, the amount received may be subject to income tax.

Initial Coin Offers (ICO)

ICOs are a way to raise public funds. A blockchain launcher will often issue its token for the first time in exchange for existing payment tokens or fiat money. The earnings of an ICO may be taxable depending on the type of token issued.

Issuance of payment tokens may be taxable depending on their exact nature. The tax guide The IRAS release does not specify any possible considerations regarding this decision.

In the case of utility tokens, receipts are classified as deferred income. This is because tokens provide access to an upcoming product or service. Therefore, taxes should be paid only after earning an income.

Like other traditional securities and investment assets, the proceeds from the issuance of security tokens are not taxed at all.

Taxes on cryptocurrencies

In countries like the US and the UK, capital gains taxes can be as high as 20 per cent. In comparison, Singapore remains a cryptocurrency haven for everyday investors.

That said, it’s important not to equate cryptocurrency with the notion of ‘zero tax’. In most cases, tax obligations are lowered to the point where the cryptocurrency assets are being used.

Therefore, investors need to do their due diligence before deciding where to put their money.

Featured Image Credit: Finance Magnates