GST and Cryptocurrency

One major headache of an ICO has always been how to mange the tax burden of the proceeds. If not managed properly, an entity not only faces an income tax charge upfront of the entire proceeds that is meant to fund a few years of development, but also reverse charge on GST on the proceeds if the stipulated threshold are met (assuming the customer was not charged GST on the onset during the sale of tokens).

Truth be told, GST is not an easy area to navigate for ICOs and one which most entities fail to address before the launch. So its great to see that IRAS has come up with a draft e-tax guide on GST on Digital Payment Tokens, In this guide, IRAS also address some of the more complicated issues (e.g. determining belonging status of customers).

Key takeaways from the proposed changes :

• Supply of cryptocurrencies that qualifies as a "digital token payment" will longer be treated as a taxable supply from 1 January 2020. Currently, this is considered a supply of services and hence the GST rules will apply accordingly.
• Coins that are pegged to or denominated in any currency are not considered to be a "digital token payment" under these new changes but they might be able to qualify as an exempt supply under financial services.
• Clearer guidelines in determining belonging status of customers; e.g. proxies that can be used for determination of status
• Clarification on transactions with miners and mining activities
• Clarification on transactions with digital payment token intermediaries (e.g. exchanges)

A helpful summary of the changes can be found in Appendix A of the guide.
IRAS is also currently inviting feedback on these changes and we urge all stakeholders to weigh in on these changes as soon as possible.
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