Exempting digital payment tokens from GST

In recognition of global developments and growth in the use of cryptocurrencies, Singapore has provided for Goods and Services Tax (GST) exemptions for digital payment tokens that satisfy certain criteria.

From 1 January 2020, the supply of digital payment tokens are exempt from GST. Specifically:

• the use of digital payment tokens as payment of goods or services no longer give rise to a supply of token;
• the exchange of digital payment tokens for fiat currency or other digital payment tokens are exempt from GST; and
• the provision of loans, advances or credits of digital payment tokens are no longer subject to GST

Previously, a person who sold virtual currencies (such as selling them on cryptocurrency exchanges) in the course of business would be liable for GST registration if the annual turnover from such transactions exceeds SGD 1 million (~ EUR 636,000). The supplies of virtual currencies would also be subject to GST.

Digital payment token

A digital token refers to a cryptographically-secured digital representation of value that can be transferred, stored or traded electronically. To qualify as a digital payment token, the digital token must have all of the following characteristics:

1. it is expressed as a unit;
2. it is designed to be fungible (i.e. it must be designed to be used interchangeably as consideration);
3. it is not denominated in any currency, and is not pegged by its issuer to any currency (but note that tokens that are currently pegged to fiat currency, a basket of currencies, commodities or other assets are treated as derivatives and are currently exempt);
4. it can be transferred, stored or traded electronically;
5. it is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, without any substantial restrictions on its use as consideration; but does not include:
6. money;
7. anything which, if supplied, would be an exempt supply of financial services;
8. 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 transfer of non-fungible tokens such as those that represent ownership rights to specific property (e.g. IP, digital artwork) will remain a taxable supply of services as such tokens are not fully interchangeable for use as consideration.

Other issues considered

The GST rules also deal with issues such as value and time of supply, the GST treatment of mining, Initial Coin Offerings (ICOs), digital payment token intermediaries, claiming input GST credits and reverse charges. The new rules ensure that digital payment tokens are treated for GST purposes in a manner which is in line with the evolution of technology and the increased use and prevalence of digital payment tokens.

Observations

Before this exemption was introduced, Singapore taxed digital payment tokens at two tax points – once on the purchase of the cryptocurrency and again when it was used as payment for goods and services. The new changes are welcomed and should be consulted when buying and selling digital payment tokens; using digital payment tokens for payment: making loans of digital payment tokens; charging a fee or commission to facilitate the transfer, purchase or sale of digital payment tokens; or issuing digital payment tokens such as through ICOs.