Singapore clarifies tax on Bitcoin exchanges and sales

Singapore is providing some clear guidance on how merchants can manage taxation on Bitcoin transactions.

This is a step ahead of most governments and corporations that are struggling to regulate the new alternative currencies. PayPal president David Marcus recently found himself in a small firestorm of controversy when he said that people are mistaken for thinking Bitcoin is a currency.

The news was originally reported by CoinRepublic, a Singapore-based news site and brokering service that received a copy of an email sent to The Inland Revenue Authority of Singapore (IRAS). The Singapore government is reportedly offering guidance on how merchants can handle capital gains, earnings, and even sales tax (GST) on Bitcoin exchanges and Bitcoin-related sales.

CoinRepublic founder David Moskowitz believes the guidance is a step in the right direction. He said: 'The guidance which IRAS laid out is rational and well thought out. As a business owner I can clearly account for my earnings on Bitcoin trades for my clients and my own positions and pay the proper taxes.'

Most interesting is that Bitcoin will not be considered a 'currency' or a form of 'money' under the GST Act. But it is considered a 'supply of services' as 'it involves the granting of the interest in or right over the Bitcoins.'

'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,' the letter reads.

Here's a summary of that email from IRAS:

Income Tax Treatment

'Companies which are in the business of buying and selling bitcoins will be taxed based on the gains from their sales of the bitcoins. On the other hand, if the bitcoins are part of the company's investment portfolio acquired for long term investment purposes, the gains from the sales will be capital in nature and thus not taxable for the company.'

GST Treatment

'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 (e.g. digitized items like online music), such transactions are treated as a barter exchange. GST should be accounted for on the individual supplies made (i.e. 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 not 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 (e.g. bitcoin exchange transfer bitcoins directly to the customer's wallet), GST is chargeable only on the commission fees received. However if the company is acting as a principal in the bitcoin trade (e.g. buys and onward sells bitcoins to the customer), GST is chargeable on the full amount received, i.e. the sale of bitcoins and commission fees. '

'Under section 13(4) of the GST Act, a supply of services shall be treated as made in another country if the supplier belongs in that other country. In this case, if the company belongs outside Singapore (i.e. there is no business or fixed establishment in Singapore), the supply of bitcoins shall be treated as made outside Singapore. Accordingly, GST is not chargeable on the supply of services (i.e. bitcoins) made outside Singapore. '

'Overall, the GST treatment of bitcoins will depend on the business arrangement and contractual terms between the parties involved.'

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