Bitcoin, other virtual currency payments subject to normal income tax

IRAS clarifies rules for businesses.

The Inland Revenue Authority of Singapore said that 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.

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.

Meanwhile, 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.