Singapore’s tax authority considers digital payment tokens as intangible property but not legal tender. The Inland Revenue Authority of Singapore has issued guidance on the income tax treatment of payment tokens received through mining, airdrops, and hard forks, but does not appear to have provided specific guidance on tokens received through staking.
A miner’s profits from the disposal of the rewarded payment tokens received through mining is taxable if the miner performs the mining activity with an intention to profit. An individual engaging in mining activities is presumed to be undertaking the activity as a hobby, and gains from sale of the mined payment tokens are not taxable, unless the individual shows a habitual and systematic effort to make a profit from the activities. A company engaging in mining activities will be taxed on profits from the sale of mined payment tokens upon disposal of the tokens. The miner’s profits are taxed at the point of disposal of the tokens and not at the point when the tokens are successfully mined, since no income is derived by merely holding the payment token.
The mining of digital payment tokens does not constitute a supply of cryptocurrency for goods and services tax (Singapore’s value-added tax) purposes unless services are made to identifiable parties in return for a consideration.
In April 2020, the Inland Revenue Authority of Singapore (IRAS) issued guidance on the income tax treatment of digital tokens, which was recently revised in October 2020. According to the IRAS e-Tax Guide: Income Tax Treatment of Digital Tokens (Income Tax Guide), a digital payment token, such as Bitcoin or Ether, is not issued by any government and is not legal tender. IRAS views a digital payment token as an intangible property, since it usually represents a set of rights and obligations and does not have a physical form. “Hence, transactions involving the use of payment tokens as payment for goods or services are viewed as barter trade and the value of goods or services transferred should be determined at the point of transaction.”
Singapore has passed legislation to regulate cryptocurrency dealing and exchange services. According to the Payment Services Act enacted in 2019, a “digital payment token” means
any digital representation of value (other than an excluded digital representation of value) that —
(a) is expressed as a unit;
(b) is not denominated in any currency, and is not pegged by its issuer to any currency;
(c) is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt;
(d) can be transferred, stored or traded electronically; and
(e) satisfies such other characteristics as the Authority may prescribe[.]
II. Tax Treatment of Block Rewards
A. Taxation of Tokens Received Through Mining
According to the Income Tax Guide, a miner’s profits from the disposal of the rewarded payment tokens he or she received through mining, including those obtained from a mining pool, is taxable if the miner performs the mining activity with an intention to profit. If a miner is assessed to be trading in nature, gains from the disposal of payment tokens would be taxable, and the losses would be deductible. However, if the miner performs mining as a hobby or to hold the tokens mined as a long-term investment, the disposal gains of the payment tokens are not taxable.
A company engaging in mining activities is regarded as carrying on a business of mining, and general tax rules will apply, since a company is generally set-up with a profit-seeking motive. It will be taxed on profits from the sale of mined payment tokens upon disposal of the tokens. The mining expenses are deductible.
An individual engaging in mining activities, on the other hand, is presumed to be undertaking the activity as a hobby. Gains from sale of the mined payment tokens are treated as capital gains and are not taxable. However, if an individual shows a habitual and systematic effort to make a profit from the activities, he or she may be considered as carrying on a vocation of a miner and his profits from the sale of the mined tokens will be subject to tax.
The miner’s profits from the rewarded payment tokens, if any, will be taxed at the point of disposal of the tokens and not at the point when the tokens are successfully mined. The Income Tax Guide explains that this is because while the miner is entitled to a right to own a payment token at the point of successful mining, no income is derived by merely holding the payment token.
B. Value-Added Tax
The IRAS has also issued guidance on the goods and services tax (GST, Singapore’s value-added tax) treatment of digital payment tokens. Under the IRAS e-Tax Guide: GST: Digital Payment Tokens published in November 2019 (GST Guide), and in effect from January 1, 2020, supplies of digital payment tokens are no longer subject to GST, while the GST treatment for other digital tokens, virtual currencies, or cryptocurrencies that do not qualify as digital payment tokens remains unchanged. Before 2020, a supply of cryptocurrencies was treated as a taxable supply of services, and a person who supplied cryptocurrencies in the course or furtherance of a business, for example, by selling them on cryptocurrency exchanges, was liable for GST registration if the annual turnover from the cryptocurrency transactions exceeded one million Singapore dollars (about US$753,466).
According to the GST Guide, the mining of digital payment tokens does not constitute a supply for GST purposes. This is because, in the mining process, there is generally no close nexus between the service provided by the miner to the persons whose transactions are verified and the block reward, and the parties paying the mined tokens are also not identifiable. However, if a miner provides services to an identifiable party or parties in return for a consideration, such as a commission or transaction fee, this constitutes a taxable supply of services.
The GST Guide further states that,
The subsequent sale or transfer of the mined digital payment tokens to a customer belonging in Singapore by the miner will be an exempt supply if the supply takes place on or after 1 Jan 2020. If the mined digital payment tokens are exchanged for goods or services on or after 1 Jan 2020, the miner will not be regarded as making a supply of the tokens.
C. Proof of Staking
The IRAS does not appear to have provided specific guidance on tokens received through staking. The Income Tax Guide and the GST Guide define the term “mining” to be “[a] process by which digital token transactions are verified and added to the blockchain, and the means through which new digital tokens are released.”
III. Tokens Received Through Airdrops and Hard Forks
The Income Tax Guide defines airdrops as follows:
An airdrop is the distribution of tokens without compensation (i.e. for free), generally undertaken as a marketing tool with a view to increase awareness of a new token, particularly amongst “influencers”, and to increase liquidity in the early stages of a new token project.
According to the Guide, if the payment token is not received in return for any goods or services performed, it would not be regarded as income of the recipient, and hence is not taxable. However, if the airdrop was given in return for, or in expectation of a service, it could be viewed as income subject to tax.
B. Hard Forks
The IRAS Guide defines hard forks as follows:
A hard fork is the splitting of an existing payment token to create a second payment token which operates separately from and alongside the original token. The purpose of a hard fork is generally technical in nature and may be used to fix important security risks in older versions, add new functionality, or reverse certain transactions. Holders of the existing payment token might end up receiving a second payment token for free.
According to the Guide, this can be viewed as a windfall to the recipient as he or she had received the additional token without doing anything in return. Receiving payment tokens through a hard fork is therefore not taxable to the recipient at the point of receipt, since this is not an income. However, where the recipient is trading in payment tokens, the gains from the subsequent disposal of the tokens (including tokens received through a hard fork or an airdrop) will be taxable.
Prepared by Laney Zhang
Foreign Legal Specialist
 IRAS, Income Tax Guide, supra note 1, annex A.
 Id. § 10.1.
 Id. § 10.2.
 Id. § 10.3.
 IRAS, Income Tax Guide § 3.4, supra note 1; IRAS, GST Guide § 3.7, supra note 7.
 IRAS, Income Tax Guide, supra note 1, annex A.
Last Updated: 02/05/2021