Singapore figured out how to tax bitcoin (treat it like a product, not money)

[Borbolon]

The Inland Revenue Authority of Singapore (IRAS) thinks it found a workable way to bring bitcoins in from the cold. In a response to the bitcoin brokerage Coin Republic, as reported by CoinDesk’s Jon Southurst, IRAS says it will treat bitcoins like a product—no different than an iPhone or an MP3 or a shrink-wrapped piece of software—which incurs taxes when it is sold for cash or used to pay for goods or services:

The IRAS reminded Coin Republic that bitcoins do not fit the definition of ‘money’ or ‘currency’, so supplying them is seen as a good/service for taxation purposes rather than a currency exchange.

The tax treatment is slightly different for companies or individuals that buy bitcoins as part of a long-term investment, and then sell them at a higher price at a later date. In that case the proceeds would be treated as a capital gain, which Singapore does not tax.

“As a regional financial services hub and IT center, Singapore could provide a useful model for authorities in other countries to follow,” CoinDesk notes. And therein lies the rub: Governments all over the world are trying to figure out how to handle bitcoins. Germany has defined them as “private money” and a “financial instrument,” China has strongly discouraged companies from using bitcoins, India is trying to figure out how to tax bitcoin miners, and the US Congress thinks that bitcoin’s very existence might violate a Civil War era postal law.

http://qz.com/165207/singapore-figured-out-how-to-tax-bitcoin-treat-it-like-a-product-not-money/

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[ArticMine]

A really dumb move on the part of the Singapore tax authorities. They may think they understand Bitcoin, but they do not understand how a GST or VAT works. What is to prevent someone who is not registered for GST from purchasing BTC abroad, thereby avoiding the GST?

Edit: They have turned Bitcoin into the perfect instrument for tax avoidance.

[Borbolon]

Income Tax Treatment

“Companies which are in the business of buying and selling bitcoins will be taxed based on the gains from their sales of the bitcoins. On the other hand, if the bitcoins are part of the company’s investment portfolio acquired for long term investment purposes, the gains from the sales will be capital in nature and thus not taxable for the company.”

GST Treatment

“The sale (including the exchange) of bitcoins in return for a consideration in money or in kind is a taxable supply of services subject to GST. If the seller is a GST-registered person, he would have to account for output tax on the sale of bitcoins made in the course or furtherance of his business. “

“Where bitcoins are accepted as payment for real goods or services (e.g. digitized items like online music), such transactions are treated as a barter exchange. GST should be accounted for on the individual supplies made (i.e. the supply of bitcoins and the supply of real goods or services) if the parties involved are GST-registered persons. However if the bitcoins are used to exchange for virtual goods or services within the virtual gaming world, as a concession, the supply of bitcoins will not be taxed until the bitcoins are exchanged for real monies, goods or services.”

“As bitcoin does not fall within the definition of ‘money’ or ‘currency’ under the GST Act, a supply of bitcoins is not a supply of money and would not be disregarded for GST purposes. The supply of bitcoins would be treated as a supply of services as it involves the granting of the interest in or right over the bitcoins.”

“The GST treatment of the supply of bitcoins will depend on whether the company is acting as an agent or principal in the transaction. If the company merely facilitates and is acting as an agent in the bitcoin trade (e.g. bitcoin exchange transfer bitcoins directly to the customer’s wallet), GST is chargeable only on the commission fees received. However if the company is acting as a principal in the bitcoin trade (e.g. buys and onward sells bitcoins to the customer), GST is chargeable on the full amount received, i.e. the sale of bitcoins and commission fees. “

“Under section 13(4) of the GST Act, a supply of services shall be treated as made in another country if the supplier belongs in that other country. In this case, if the company belongs outside Singapore (i.e. there is no business or fixed establishment in Singapore), the supply of bitcoins shall be treated as made outside Singapore. Accordingly, GST is not chargeable on the supply of services (i.e. bitcoins) made outside Singapore. “

“Overall, the GST treatment of bitcoins will depend on the business arrangement and contractual terms between the parties involved.”

[prophetx]

so if i release a bond using mastercoin's smart property via the bitcoin networks, is that a product too? 

seems like the Asian countries are not too keen on innovation...

[Jcw188]

A really dumb move on the part of the Singapore tax authorities. They may think they understand Bitcoin, but they do not understand how a GST or VAT works. What is to prevent someone who is not registered for GST from purchasing BTC abroad, thereby avoiding the GST?

Edit: They have turned Bitcoin into the perfect instrument for tax avoidance.

Interesting point.  Isn't Singapore notoriously GOOD for business?  So this could go hand in hand with that.