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Key tax considerations when transacting in digital tokens 

Local contact

Desmond Teo

31 Aug 2021
Categories Thought leadership
Jurisdictions Singapore

Increased acceptance of digital tokens spells changes in GST and income tax rules.

Digital tokens begun gaining public interest in 2019. The Inland Revenue Authority of Singapore (IRAS) has since published two e-Tax Guides, namely Digital Payment Tokens on 19 November 2019 and Income Tax Treatment of Digital Tokens on 17 April 2020, which cover how digital tokens should be treated for regulatory, income tax and goods and services tax (GST) purposes.   

Fast forward to 2021, and a lot has since changed in the world of digital tokens. A Bitcoin was worth about US$3,441.03 in January 2019 and it recently hit a high of US$58,788.21 in May 20211. Global trading volumes also reached US$2.7t in February 2021, with majority of the trading occurring on major exchanges at US$2.4t2. Central banks around the world have also started to warm up to the concept of digital tokens, although with some scepticism and a healthy dose of caution. Some such as The People’s Bank of China, have explored central bank digital currency (CBDC) initiatives and the advancement of blockchain technology has also led to a proliferation of asset tokenisation for various traditional asset classes.

Singapore, being one of Asia's bigger financial centres, is emerging as a trading hub for digital securities, or security tokens backed by financial assets. With Singapore recognising cryptocurrency exchanges and cryptocurrency trading, this has spawned a number of regulated digital exchanges dealing in cryptocurrencies, asset-backed tokens and green asset tokens. New areas include security token offerings backed by financial assets such as shares in unlisted companies, bonds and private equity funds, and also physical assets such as real estate, fine art and whiskies. This reflects a market embracing tokenisation as a means to monetise assets and digital tokens (including cryptocurrencies). Digital custody services of digital assets and even trust services for such digital assets are also starting to emerge. 

Singapore’s tax treatment of digital tokens has evolved and can be categorised into two periods:

  • Before 1 January 2020
  • From 1 January 2020 onwards

Singapore tax treatment pre-1 January 2020

To fully appreciate the current tax treatment today, it is useful to revisit the tax positions before 1 January 2020.


Prior to 1 January 2020, the supply of virtual currencies (such as Bitcoin) was treated as a taxable supply of services. This meant that a person selling virtual currencies as part of their trade or business would need to register for GST, and as a registered person, would also need to charge GST on the virtual currencies sold, impeding their competitiveness. The local counterparty who is not registered for GST in Singapore would have to bear the additional GST costs incurred, prompting them to trade in overseas markets instead.

Where a virtual currency is used to pay for goods or services, a barter trade situation arises.  For a GST-registered company using virtual currencies to pay for the goods or services received, GST will need to be accounted on the virtual currency used to make payment. At the same time, if the supplier is GST-registered, GST will also be charged on the supply of goods or services (unless the supply is exempt).  

In summary, prior to 1 January 2020, transactions involving the use of virtual currency as payment results in two tax points — once on the purchase of the cryptocurrency and again on its use as payment for goods and services that are normally already subject to GST. For digital exchanges that issue cryptocurrencies, GST was also imposed on the absolute value of the cryptocurrencies sold (not just the commission earned), which may translate into business costs.   

Income tax 

Under the IRAS’ e-Tax Guide Income Tax Treatment of Digital Tokens published on 17 April 2020, if a person is trading in digital tokens and derived gains that are revenue in nature, such gains will be subject to income tax in Singapore. On the other hand, if such gains are capital in nature, they are not subject to income tax in Singapore. The determination of whether the gains are capital or revenue in nature is based on an assessment of the “badges of trade”. 

Current Singapore tax treatment after 1 January 2020 

In line with the growth in cryptocurrency adoption, the IRAS reviewed its GST position and recognised that cryptocurrencies primarily function as medium of exchange. To better reflect the characteristics of digital payment tokens, with effect from 1 January 2020, the use of such tokens will no longer be subject to GST and the changes are reflected in the table below.  


Income tax

Payment tokens

  • The supply of digital payment tokens is exempt supply and not subject to GST.
  • Businesses that trade in digital payment tokens are no longer liable for GST registration.
  • Regarded as an intangible propertyand the use of payment tokens as payment for goods or services is considered as barter trade.
  • Unrealised changes in the fair value of the payment tokens are recognised under the accounting standards and are not taxable or deductible.
  • Businesses do not need to account for output tax when using digital payment tokens for payment.
  • GST-registered businesses that receive digital payment tokens as payment for goods or services supplied will account for output tax on their supply of these goods or services.
  • GST-registered businesses that make both taxable supplies and exempt supplies of digital payment tokens will be partially exempt and may be subject to reverse charge.
  • Business is subject to normal taxation rules, regardless of payment in the form of payment tokens or cash.
  • The tax treatment of the gain or loss on disposal of digital tokens will depend on whether it is capital or revenue in nature.
  • Business claims tax deduction when it uses payment tokens to pay for goods or services.
  • Value is based on the underlying goods or services received.


Utility tokens
  • The GST treatment of utility tokens depends on their characteristics and features.
  • Acquisition of utility token is treated as prepayment for a good or service to be provided in the future. 
  • Utility tokens that cease to function as a medium of exchange after they have been used to redeem goods or services are subject to the same GST treatment as vouchers.
  • Utility tokens that exhibit the characteristics of a digital payment token and to be used as a medium of exchange will qualify for the GST treatment for digital payment tokens (see above).
  • Proceeds from the issuance of utility token is regarded as deferred revenue.
  • Issuer is subject to income tax when the goods or services are provided or performed.
  • Business claims tax deduction on amount incurred when token is used in exchange for goods or services.

Security tokens
  • Sale of security tokens will be regarded as taxable supplies of services unless they qualify as exempt financial services under the GST Act3. 
  • The rights and obligations of security tokens will determine whether the token is regarded as debt or equity for tax purposes.
  • This establishes the nature of the returns derived from the security token (e.g., interests, dividends or other distributions) and their tax treatment.



  • Generally, proceeds from the issuance of security tokens may be capital in nature and not taxable.
  • Tax treatment of the disposal gain or loss will depend on whether the security token and its gain or loss is capital or revenue in nature.
  • Issuer who incurs interest, dividends or other distributions may claim tax deduction on such payments.
  • Withholding tax obligations apply to interest, dividends, other distributions made to non-tax residents.

Impact of these changes

The change in the GST tax treatment and introduction of income tax rules on digital tokens have paved the way for Singapore to build a conducive digital assets ecosystem and levelled the playing field for Singapore-based digital exchanges and other players in this space, triggering an uptake of such players setting up shop in Singapore.

Challenges ahead 

While the current rules have provided guidance on the tax treatment from the investment and use of digital tokens, there are two potential challenges: 

1. Characterisation of the digital token 

The IRAS’ income tax rules are based on the nature of the digital tokens, i.e., whether they are payment, utility or security tokens. However, in reality, a digital token may exhibit more than one characteristic. For example, some digital tokens may exhibit a mix of all three features. In addition, a digital token’s feature may also evolve during its lifetime. The rapid changes in technology and business models also mean that digital tokens will continue to evolve, possibly with new features that may not even be contemplated today. These pose practical challenges to taxpayers when determining the tax treatment of such “hybrid” tokens throughout its life cycle. 

Lastly, central banks around the world have explored the possibility of introducing their own virtual currencies commonly referred to as CBDCs although no country has currently provided guidance on the income tax treatment of CBDCs4.   

2. Risk of double taxation 

Given Singapore’s territorial basis of taxation, the IRAS will holistically consider the operations of the taxpayer when determining the source of income, and also the timing and quantum of the income to be recognised. Amongst various factors that the IRAS has indicated are the physical presence of the company and key activities performed in Singapore. 

It is commonly acknowledged that determining a source of income is not always straightforward and this is compounded by the very nature of the digital economy, which is largely virtual, decentralised and characterised by the decoupling of locations of production and consumption. For example, digital token transactions are commonly executed virtually but the production activities can be performed anywhere. 

Without a consistent framework, different approaches and interpretations may result in different tax treatments being adopted in different jurisdictions. Cumulatively, these could lead to unintended tax inefficiencies. The current tax treaties also do not address this as they do not contain provisions to address income derived from digital tokens, while the OECD/G20 Base Erosion and Profit Shifting project remains silent on this. 


As digital tokens become increasingly accepted, the change in the Singapore GST treatment and the introduction of income tax rules on payment tokens are welcome moves in providing clarity. Nevertheless, digital tokens are complex and rapidly evolving into different forms. Taxpayers can expect to continue to face challenges and potential risks when dealing with digital tokens, as well as grapple with increased compliance to keep track and substantiate the acquisition and disposal values of the token assets. 

1 “Bitcoin price from October 2013 to July 8, 2021,” Statista website,, accessed 9 July 2021.  

2“Cryptocurrency trading volumes spike 17% in Feb – CryptoCompare,” Reuters website,, accessed 9 July 2021. 


3“Goods and Services Tax Act (Chapter 117A)”, Singapore Statutes Online website,, accessed 9 July 2021.  

4“Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues”, OECD website,, accessed 9 July 2021. 

The co-authors of this article are Desmond Teo, EY Asia-Pacific Family Enterprise Leader and EY Asean Private Tax Leader and Lee Vin Wee, Associate Director, Tax Services from EY Corporate Advisors Pte. Ltd.