A digital payment token refers to any cryptographically-secured digital representation of value that is used or intended to be used as a medium of exchange.
The token have all of the following characteristics:it is expressed as a unit:
- it is expressed as a unit;
- it is designed to be fungible, i.e., to be used interchangeably as consideration;
- it is not denominated in any currency and not pegged by its issuer to any currency (e.g. stablecoins);
- it can be transferred, stored or traded electronically;
- it is, or is intended to be, a medium of exchange accepted by the public, without any substantial restrictions on its uses as consideration;
- it is not money; or
- it is not anything which, if supplied would be an exempt supply under Part I of Fourth Schedule to the GST Act (for example, a digital token that qualifies as an equity or a debt security); and
- it is not anything that 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.
Examples of digital payment tokens are Bitcoins, Ether, Litecoin, Dash, Monero, Ripple and Zcash.
GST in Singapore
All supplies of goods and services that made by a GST-registered person are subject to GST unless they are:
- an out-of-scope supply, or
- a supply that is exempted from GST (“exempt supply”).
When a sale or transfer of a digital currency occurs, the question will be whether if GST is applicable on that transaction by a GST-registered supplier. If the supplier is not GST-registered, then whether the value of the transaction should be considered in determining the requirement to compulsorily register for GST.
To address these issues, it is important to ascertain:
- is the sale or transfer of a digital token a taxable supply?
- if yes, is it a supply of goods or is it a supply of services?
Supply of Virtual Currencies (Including Digital Payment Tokens) Before 1 Jan 2020
The supply of virtual currencies (including digital payment tokens) is treated as a taxable supply of services. Where a business supply virtual currencies in the course or furtherance of a business, he is liable for GST registration if his annual turnover exceeds $1 million.
When a business use virtual currencies to pay for goods or services, the transaction is considered as a barter trade.
In a barter trade, two supplies are made: one by the supplier who supplies the goods and services, and another for the supply of virtual currencies by the business who pays the supplier using virtual currencies.
GST should be accounted for on each supply (i.e. the supply of goods or services and the supply of virtual currencies) if the respective supplier is GST registered.
Supply of Digital Payment Tokens from 1 January 2020
The following supplies of digital payment tokens are exempt from GST:
- Exchange of digital payment tokens for fiat currency or other digital payment tokens
- Provision of loans of digital payment tokens
The use/ provision of digital payment tokens as payment for anything (other than fiat currency or other digital payment tokens) is disregarded as a supply for GST purposes.
Whether digital payment tokens or fiat currency are used to purchase goods and services, GST is chargeable only on the supply of goods and services, unless the supply is an exempt, zero-rated or out-of-scope supply.
New e-Tax Guide GST: Digital Payment Tokens
On or about 19 November 2019, the IRAS issued an e-Tax Guide GST: Digital Payment Tokens to update its position regarding the treatment of digital payment tokens.
This e-Tax guide sets out the GST treatment of transactions involving digital tokens or cryptocurrencies that function or are intended to function as a medium of exchange (digital payment tokens), which will take effect from 1 January 2020. It is essential to businesses transact in digital payment tokens, including:
- buying and selling digital payment tokens; or
- using digital payment tokens as payment/consideration; or
- making loans of digital payment tokens; or
- charging a fee or commission to facilitate the transfer, purchase or sale of digital payment tokens; or
- issuing digital payment tokens, such as through an Initial Coin Offering (ICO).
The implications of this change are as follows:
- a GST-registered person need not account for GST on a sale of digital payment tokens as well as when it uses digital payment tokens to purchase goods or services with effect from 1 January 2020. For a non GST-registered person, the value of such transactions will not be taken into account for determining the liability for GST registration.
- a GST-registered business that is currently transacting in Singapore dollars only may face restrictions on claiming input GST (i.e. the GST paid on purchases of goods and services) if it plans to accept digital payment tokens. This is because any gain or loss from the conversion of the digital payment tokens into fiat currencies or other digital payment tokens will be treated as an exempt supply, and input tax attributable to exempt supplies is disallowed unless the de minimis rule is satisfied. Due to the highly volatile nature of the price of cryptocurrencies, the volatility may result in substantial exempt supplies breaching the de minimis rule.
As of now digital tokens/cryptocurrencies can be classified into three groups:
- qualifying as digital payment tokens as defined by the IRAS,
- not qualifying as digital payment tokens and falling under the prescribed list of exempt supplies under the GST Act, and
- not falling within the first two categories.
GST treatment can be applied according to this classification.
Source: Bloomberg Tax, 10 December 2019 and IRAS website, 19 November 2019