The IRAS has updated its website to clarify the income tax treatment of transactions involving virtual currencies (e.g. Bitcoins). Readers are advised to review our earlier blog post regarding IRAS’ position on the Singapore GST treatment of transactions involving virtual currencies. In essence, businesses that choose to accept virtual currencies, such as Bitcoins, for their remuneration or revenue are subject to normal income tax rules in Singapore. Their income derived from or received in Singapore will be taxed. In addition, under Singapore tax laws, tax deductions will be allowed where permissible.
Businesses that buy goods or services using virtual currencies
Businesses that accept virtual currencies as payment for goods or services, or pay for goods or services using virtual currencies, should record their transactions based on the open market value (OMV) of the goods or services in Singapore dollars. If the OMV of the goods or services cannot be determined, such as when the good or service is only traded in 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.
Notwithstanding the above, capital gains from the disposal of these virtual currencies by businesses that buy virtual currencies for long term investment purposes are not subject to tax in Singapore. Whether gains from disposal of virtual currencies are trading or capital gains depends on the facts and circumstances of each case. When determining whether such gains are taxable, the classic six badges of trade test will be deployed.
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