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Singapore To Exempt Virtual Currency Transactions From GST

by Mary Swire,, Hong Kong

16 July 2019

On July 5, 2019, Singapore's tax agency released a draft guide that includes proposals for more favorable GST rules for virtual currencies.

The draft guide explains the GST treatment for transactions involving virtual currencies/cryptocurrencies that function or are intended to function as a medium of exchange.

Under the current rules, the supply of virtual currencies – termed "digital payment tokens" by the tax agency – is treated as a taxable supply of services. Therefore, the sale, issue, or transfer of such digital payment tokens for consideration by a GST-registered business is subject to GST. When the digital payment tokens are used as payment for the purchase of goods or services, a barter trade resulting in two separate supplies arises: a taxable supply of the tokens and a supply of the goods or services.

Singapore is proposing that, from January 1, 2020, the use of digital payment tokens as payment for goods or services will be outside the scope of GST, and the exchange of digital payment tokens for fiat currency or other digital payment tokens will be exempt from GST.

Under the changes, use of such tokens or acquiring or disposing of such will not contribute to a business's turnover for the purposes of determining liability to register for GST.

The GST treatment for digital tokens, virtual currencies, or cryptocurrencies that do not qualify as "digital payment tokens" will remain unchanged. That is, supplies of such tokens will continue to be regarded as taxable supplies of services, unless they fall under the prescribed list of exempt financial services.

For the purposes of the rules, A digital payment token is a digital token that has the following characteristics:

  • (a) it is expressed as a unit;
  • (b) it is fungible;
  • (c) it is not denominated in any currency, and is not pegged by its issuer to any currency; and
  • (d) it is, or is intended to be, a medium of exchange accepted by the public, without any substantial restrictions on its uses as consideration.

But does not include:

  • (e) money;
  • (f) anything which, if supplied, would be an exempt supply under Part I of Fourth Schedule to the GST Act for a reason other than being a supply of a digital token(s) having the characteristics of (a) to (d);
  • (g) anything which gives an entitlement to receive or to direct the supply of goods or services from a specific person or persons and ceases to function as a medium of exchange after the entitlement has been used.

The tax agency said the guide focuses on the GST treatment that will take effect from January 1, 2020. Nevertheless, the sections on time of supply, mining and digital payment token intermediaries remain relevant to transactions involving digital payment tokens that take place before January 1, 2020. Appendix A to the guide provides a comparison of the GST treatment of digital payment token transactions before January 1, 2020, and after.

The tax agency is seeking feedback by July 26, 2019.

TAGS: tax | business | value added tax (VAT) | mining | financial services | goods and services tax (GST) | Singapore | currency | trade | services

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