Businesses that choose to accept virtual currencies such as Bitcoins for their remuneration or revenue are subject to normal income tax rules. They will be taxed on the income derived from or received in Singapore. Tax deductions will be allowed, where permissible, under our tax laws.
Businesses that buy or sell goods or services using virtual currencies
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. Similarly, businesses which pay for goods or services using virtual currencies should record their purchases based on the open market value of the goods or services in Singapore dollars.
If the open market value of the goods or services that would have otherwise been exchanged in Singapore dollars cannot be determined (for example the good or service is only traded with virtual currencies), the virtual currency exchange rate at the point of the transaction may be used.
Businesses that buy and sell 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. Factors such as purpose, frequency of transactions, and holding periods are considered when determining if such gains are taxable.
Sale of virtual currency
Virtual currencies (e.g. Bitcoins) are not considered as ‘money’, ‘currency’ or ‘goods’ for GST purposes. Instead, the supply of virtual currency is treated as a supply of services, which does not qualify for GST exemption.
Businesses that buy goods or services using virtual currencies
If you use virtual currencies to pay for goods or services, the transaction will be considered as a barter trade. There are two supplies made – one by the supplier who supplies the goods and services, and another by you who use virtual currencies to pay the supplier. GST will need to be charged on each supply if the respective supplier is GST-registered. However, if you use virtual currencies to pay a supplier belonging outside Singapore, you need not charge GST as the supply will be zero-rated.
As a concession, if you use virtual currencies to buy virtual goods or services within the gaming world, you need not charge GST until they are exchanged for real monies, goods or services.
Businesses that sell virtual currencies
If you are a GST-registered business and you sell virtual currencies as a principal, you will have to charge GST on the sale of the virtual currencies, unless the sale is made to a person belonging outside Singapore.
However, if you act as an agent for another party when selling the virtual currencies, you need to charge GST on the commission fees you receive, unless the service is supplied to a person belonging outside Singapore.
Trading fees charged by a virtual currency exchange located in Singapore are subject to GST if that exchange is GST-registered.
Businesses that import goods paid for using virtual currencies
Goods imported and paid for using virtual currencies are subject to the same import GST rules and reliefs as those paid for using real currencies.
Article by Vishal (Kumar) Gupta, Founder of the SearchCoin Network originally published on LinkedinPulse