Crypto Taxes in Singapore

Singapore crypto tax questions answered

Singapore is on route to becoming the FinTech hub of the Asia Pacific region. Today, Singapore is the 3rd largest ICO market after the United States and Switzerland, in a report published by Funder beam. According to ICO Bench, Singapore is ranked 4th globally by the total number of ICOs, with 250 ICOs as of late May 2018. Between January 2014 and March 2018, the ICOs in Singapore (specifics here: Ultimate Guide to UA taxation Singapore)  have raised an aggregate amount of US$1.72 billion as reported by Elementus. In comparison, only US$509million was raised in Hong Kong.


The Securities and Exchange Commission (“SEC”) maintains its position that whether or not ICO tokens are deemed securities is not limited to the Howey Test , but is ultimately subjected to its approval. However, as SEC Chief Jay Clayton has expressed, “I believe every ICO I’ve seen is a security”. While the SEC recognizes the potential of ICOs for market professionals, those setting up ICOs are subjected to strict disclosure requirements with the SEC. For this reason, many ICO issuers are foreclosing United States residents from participating in their ICOs – to avoid registering their tokens as securities with the SEC. According to the Wall Street Journal, the SEC is currently subpoenaing dozens of ICOs, and has requested for “every bit of communication around the token launch”. This latest move highlights the fact that the SEC is beginning to clamp down and enforce its regulations on the ICO issuers.

The Monetary Association of Singapore (MAS)

MAS divides tokens into three categories –

  1.  Utility tokens are simply app coins or user tokens. They enable future access to the products or services offered by a company. Therefore, utility tokens are not created to be an investment. Just like an electronics dealer might accept orders for a video game that will be released several months later, a startup can create utility tokens and sell digital coupons for the services or products it is developing. A good example is Filecoin, which raised $257 million through the sale of tokens. These tokens will allow users access to its decentralized cloud storage platform.
  2.  Payment tokens have no other purpose than to pay for goods and services.
  3.  Securities tokens describe many of the tokens issued by ICO. Buyers are investing their money in the ICO with the expectation of profit. More on this in the section below.

The MAS believes the categorization of a digital token applied by MAS, could change over the time, depending their current and future characteristics. 

Unless it is a securities token, the Monetary Association of Singapore (MAS) does not regulate virtual currencies and their derivatives.   Institutions that offer such products that are not regulated by the MAS, have to disclose the fact that they are not approved by the MAS and the associated risks of the products in a clear and easily understood manner to investors.

Digital tokens which constitute Securities / Capital Markets


The MAS examines the structure and characteristics of, including the rights attached to, a digital token in determining if the digital token is a type of capital markets products under the SFA.

For instance, a digital token may constitute –

  •  A share, where it confers  or represents  ownership interest in a corporation, represents liability of the token holder in the corporation, and represents mutual covenants with  other token holders in the corporation inter se;
  • A debenture, where it constitutes or evidences the indebtedness of the issuer of the digital token in respect of any money that is or may be lent to the issuer by a token holder; or
  • A unit in a collective investment scheme (“CIS”), where it represents a right or interest in a CIS, or an option to acquire a right or interest in a CIS.

Virtual Currencies as Mode of Payment

Generally, businesses that accept virtual currencies as payment for goods or services should record the sale based on the open market value of the goods or services in Singapore dollars.  The same applies for businesses which pay for goods or services using virtual currencies. When accepted as payment for goods and services, bitcoins are counted as barter exchange. This includes digital products like music, but not in-game virtual products unless they are exchanged for money or other goods in the real world.

If the open market value of the goods or services that would have otherwise been exchanged in Singapore dollars cannot be determined (e.g. the good or service is only traded with virtual currencies), the virtual currency exchange rate at the point of the transaction may be used. The first question which must be asked is whether the proceeds from undertaking an ICO are income. The nature of tokens and cryptocurrencies from a Singapore tax perspective has not been clearly defined and the Inland Revenue Authority of Singapore (‘IRAS’) has yet to release any guidance. These are not legal tender and they generally do not confer any membership interests in the token-issuing entity. To argue that the purchase of a token as akin to a subscription for membership interests would likely be fatal from a securities law perspective if the contrary is intended.

The Foreign Source Argument

An issuing entity based in Singapore may argue that the proceeds from an ICO are foreign-sourced income. With this characterization, the ICO proceeds are not subject to Singapore tax as long as they are not received or deemed to be received in Singapore. The source of income has been famously described as a hard, practical matter of fact and so a careful evaluation of all relevant circumstances is required. The IRAS tends to consider the question of source substantively and look at the place where the decisions leading to the derivation of income are made. This may be compared to other territorial-based jurisdictions such as Hong Kong which arguably place greater weight on the place where contractual formalities take place.

A foreign-source argument is more likely to be successful if the developers behind the blockchain technology are based outside Singapore, the ICO is marketed outside of Singapore via participation in industry events and on the internet generally and the participants in the ICO are predominately from outside of Singapore. It is difficult in abstract to say how robust this position is and Singapore tax advisers will likely differ as to the strength of the opinions they will give – or not give – in view of the facts.

Using a foreign- incorporated special purpose vehicle (‘SPV’) as the token issuing entity may seem like the obvious solution. Because the Singapore system is territorial, little actually turns on the place of incorporation or even tax residency of an entity when considering the taxation of income under Section 10(1) of the ITA. Where a foreign incorporated and tax resident entity is used, but the main functions are performed by a development team in Singapore, the source of the income represented by the token raise needs to be carefully considered in the context of Section 12(1) of the ITA. This provision deems the entirety of the income of a non-resident person from a trade or business carried on partly in Singapore and partly offshore to be entirely Singapore-sourced. It is only that portion of the income which is directly attributable to the operations of the issuing entity carried on outside Singapore which is not caught by this deeming. The operation of this
provision makes the question about whether a token-issuing entity is carrying on a trade or business a critical question. An issuing entity which directly employs staff is more likely to be considered to be carrying on a trade or business than one which merely acts a passive governance vehicle and enters into development contracts with related or third-party developers.

Some blockchain projects have used a Singapore company limited by guarantee as the token-issuing entity. This entity is purportedly established as a non-profit vehicle with the corporate objective of promoting the particular blockchain technology and providing a formal governance structure. A company limited by guarantee does not have any shareholders and so it can be seen preferable to a company limited by shares by participants in an ICO. This is because the shareholders of a company limited by shares could more readily access the proceeds of an ICO by requiring the directors to distribute profits or return capital. The ITA provides an exemption for the income derived by charities which are registered or exempt from the requirement to register under the Charities Act (Cap. 37). This exemption is not going to apply to a token-issuing entity established as a company limited by guarantee merely because it is stated as being non-profit.

Section 13U of the ITA could, in theory, be used to apply for an exemption from Singapore income tax where a company limited by guarantee is used. This is a broadly crafted provision which exempts the income of a not-for-profit organisation that has been approved by the Economic Development Board. It is however highly doubtful that approval would be given under this incentive scheme.

Trading in Virtual Currencies

Businesses that buy and sell virtual currencies in the ordinary course of their business will be taxed on the profit derived from trading in the virtual currency. Profits derived by businesses which mine and trade virtual currencies in exchange for money are also subject to tax. Businesses that buy virtual currencies for long-term investment purposes may enjoy a capital gain from the disposal of these virtual currencies. However, as there are no capital gains taxes in Singapore, such gains are not subject to tax.

Whether gains from disposal of virtual currencies are trading or capital gains depends on the facts and circumstances of each case.  Reference is made to the “Badges of Trade” in deciding. Here factors such as purpose, frequency of transactions, and holding periods are considered when determining if such gains are taxable. For more information, please refer to this 

GST (aka VAT or sales tax)

The sale (including the exchange) of bitcoins in return for a consideration in money or in kind is a taxable supply of services subject to
GST.  If the seller is a GST-registered person, he would have to account for output tax on the sale of bitcoins made in the course or furtherance of his business. Where bitcoins are accepted as payment for real goods or services (or digitized items like online music), such transactions are treated as a barter exchange. GST should be accounted for on the individual supplies made (ie: the supply of bitcoins and the supply of real goods or services) if the parties involved are GST-registered persons.

However, if the bitcoins are used to exchange for virtual goods or services within the virtual gaming world, as a concession, the supply of bitcoins will not be taxed until the bitcoins are exchanged for real monies, goods or services. As bitcoin does not fall within the definition of ‘money’ or ‘currency’ under the GST Act, a supply of bitcoins is not a supply of money and would be disregarded for GST purposes. The supply of bitcoins would be treated as a supply of services as it involves the granting of the interest in or right over the bitcoins. The GST treatment of the supply of bitcoins will depend on whether the company is acting as an agent or principal in the transaction.  If the company merely facilitates and is acting as an agent in the bitcoin trade (eg: bitcoin exchange transfers bitcoins directly to a customer’s wallet), then GST is chargeable only on the commission fees received. However if the company is acting as a principal in the bitcoin trade (eg: it buys and onward-sells bitcoins to the customer), GST is chargeable on the full amount received, ie: the sale of bitcoins and commission fees.

Under Section 10(2)(b) of the Goods and Services Tax Act (Cap. 117A) (‘GSTA’), anything which is not a supply of goods but is done for consideration (including the granting, assignment or surrender of any right) is taken to be a supply of services. Utility tokens are not equity or debt securities or other financial instruments at law. The issuance of these tokens to participants in an ICO therefore cannot be an exempt financial supply for GST purposes.

The characterization of the issuance or sale of cryptocurrencies as a taxable supply of services is specifically confirmed by the IRAS on their website. Where one cryptocurrency is exchanged for another, this is treated as being a barter trade. This means that both parties are taken to have made a taxable supply if they are GST-registered or are required to be GST-registered. The charge to GST is very much dependent on the nexus of both parties to a cryptocurrency transaction with Singapore. The supplies made by a foreign-incorporated token-issuing entity will potentially be subject to GST in Singapore if the entity ‘belongs’ in Singapore as this term is defined. This will likely be the conclusion if the token-issuing entity has either a business or fixed establishment in Singapore. These are two separate concepts. An entity will be deemed to have a business establishment in Singapore if it carries on business through an agent or a branch in Singapore. Under guidance published by the IRAS, an enterprise is treated as having a business establishment in Singapore if its ‘main seat of economic activity’ is in Singapore. An entity would likely be considered to have its ‘main seat of economic activity’ in Singapore if the key officers of the entity are based in Singapore or meet and make decisions or carry on activities in Singapore. A fixed establishment on the other hand, is defined as an establishment that has both the human and technical resources necessary to provide the services in question on a permanent basis.

Where a token-issuing company is incorporated in Singapore, it will likely be taken to belong in Singapore. Where a foreign-issuing SPV is used, a careful analysis is required to determine whether it may have either a business or fixed establishment in Singapore. The risk of GST applying is likely limited to the supply of tokens to persons who themselves belong in Singapore. The supply of tokens to non-residents who do not have any nexus with Singapore may be a supply of international services which is zero-rated under Section 21(3) of the GSTA.

Timing of taxation of ICO proceeds

The potential upfront taxation of token proceeds is made worse by a potential timing mismatch. While the entire proceeds from the token issue may potentially be taxable upfront, it is often the case that the actual proceeds from the token raise will be used to fund development and marketing costs over a period which can stretch to a number of years. Most jurisdictions have limitations on a taxpayer’s ability to ‘carry back’ and deduct subsequent expenditure against prior year revenue and Singapore is no exception. Section 37E of the ITA provides that current year unutilized capital allowances and losses can only be carried back for one Year of Assessment (‘YA’) to be deducted against the assessable income for the immediate preceding YA.

There are limited examples in case law on the ability of a taxpayer to defer the point of derivation of income for the provision of goods and services where payment was made upfront.  Whether a deferral argument is tenable will likely depend on the terms and conditions of the specific ICO in question and the rights attached to the tokens being issued. In a typical ICO, the terms and conditions make it clear that the purchase of tokens is non-refundable. The issuing entity also makes no guarantee for the completion and deployment of the blockchain platform or distributed application. In these circumstances, the issuing entity would likely be considered to be entitled to the proceeds from the ICO at the point of receipt.

It is possible that using a Simple Agreement for Future Tokens (‘SAFT’) arrangement may change this conclusion. This model is popular for issuers based in or distributing to the US. It is characterised as a pre-funded forward contract for the acquisition of a native token which is issued once a new blockchain project goes live. The whitepaper prepared as part of the SAFT project (refer to: saftproject.com/) suggests that at least for US tax purposes the taxing point is the time at which the tokens are issued and not when the SAFT is entered into. There are no specific rules within the ITA which assist in analysing the SAFT either directly or by analogy. The accounting treatment of a transaction is highly relevant – if the SAFT structure results in a deferral of the time at which accounting income is recognised then it may be effective in causing a deferral. This deferral is however likely to be effective until such time as the blockchain project is released and native tokens are issued.

Taxation implications of promotor pre-mine

It is very common for a share of the ‘pre-mine’ of tokens in an ICO to be allocated to the promoters of the ICO and other key personnel as part of their remuneration. An issuing entity will also need to consider if the transfer of pre-mine tokens to promoters and key personnel who are based in Singapore will be subject to GST. It is also necessary to consider the income tax implications which will likely be determined by the location where an employee or contractor is tax resident.

The IRAS guidance on the GST treatment for employee fringe benefits clarifies that an employer is not required to account for output tax on the provision of free services to its employees. The IRAS provides the example of a carpet cleaning company providing free carpet cleaning services to the homes of its employees. The fact that these services are free is of key importance. Under Section 10(2) of the GSTA the concept of a supply excludes anything that is done for no consideration. Where tokens are granted from a pre-mine allocation, arguably the provision of labour by a Singapore-based employee or contractor will be sufficient consideration. The receipt of tokens from a pre-mine allocation is a potentially attractive part of the terms under which an employee or contractor will assist with a blockchain project. The supply of these tokens is thus likely a taxable supply of services by a Singapore-based token issuer to employees and contractors who belong in Singapore for GST purposes.

The income tax analysis applying to the allocation of pre-mine to promoters is straightforward. Gains or profits from employment are taxable under Section 10(1)(b) of the ITA and this will pick up the market value of any tokens granted to an employee. Where a contractor receives a pre-mine allocation, it is likely that this will be taken to be proceeds from carrying on a trade or business which is taxable under Section 10(1)(a). The ITA contains deferral rules for employee share options and share awards, but these rules are not going to apply for a token issuance even where the token is treated as a regulated security token.

It is an open question whether a deferral in vesting is sufficient to push back the time of derivation of a pre-mine allocation for Singapore income tax purposes. There is an argument based on general principles that the income has not been derived until the tokens have vested. Selecting the most appropriate point of derivation is important as it will determine both the value of the tokens at the time that they are derived, and potentially which YA the income falls into. A similar analysis applies to option agreements over pre-mined tokens.

In considering the taxation of promoters, a potential crucial issue is the ownership of a foreign token-issuing entity. Where a promoter is resident in a jurisdiction which has a worldwide basis of taxation it is likely that there will be controlled foreign corporation (‘CFC’) rules to contend with. If a promotor is taken to own or control a token-issuing entity in another jurisdiction then there is a risk that the entire proceeds of the token raise may be taxable in their hands. This could be the result even though they may have no ability to access the proceeds of the token issue.


Blockchain players wishing to conduct ICOs out of Singapore will need to bear in mind several tax considerations. In addition to obtaining legal advice from a regulatory perspective, an issuer should also seek specialist advice to ensure that its token offering is efficient from a tax perspective. Because this is all so new, token issuers based in Singapore have yet to run through a compliance cycle and have their structures subject to the scrutiny of auditors and the IRAS. Structures which have not been carefully analysed in advance could lead to an unpleasant surprise.

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