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Digital currency enthusiasts in Singapore are praising a decision by the country’s tax authority to not implement a tax structure for digital asset airdrops. The Inland Revenue Authority of Singapore (IRAS) issued a new tax guidance (in pdf) update last Friday, which was designed to provide clarity for digital tokens and tax requirements, and notably missing was a tax for the popular digital currency distribution tool. However, like usual, there’s a catch.

In Singapore, digital tokens can be payment tokens, utility tokens or security tokens. The first is used to describe a digital currency used to purchase goods or services, the second provides a right to a good or service and the third is self-explanatory. The new guidelines provide updated definitions for the three classifications, as well as their tax obligations per the IRAS. The agency explains of its new decision, “The general income tax treatment for digital tokens is to be determined based on the nature and use of digital tokens, rather than the label that the tokens take. We recognise that the technology for digital tokens is constantly evolving and the nature of digital tokens may vary over time. Where a digital token has unique characteristics, a case-specific review may be required to determine the corresponding tax treatment.”

Airdropped tokens will not be subjected to the country’s income tax. Neither will assets that arise from a hard fork of a blockchain. Both of these are considered “windfalls” and don’t meet the requirement of the definition of income. However, “non-traditionally delivered” digital assets will still their transactions taxed.

Initial coin offerings (ICO) are also to be taxed, depending on their nature. The IRAS explains, “The taxability of the ICO proceeds in the hands of the token issuer depends on the rights and functions of the tokens issued to the investors. The proceeds from the issuance of payment tokens may be taxable depending on its specific facts and circumstances; while the proceeds from the issuance of utility tokens will generally be regarded as deferred revenue. Proceeds from the issuance of security token [are] akin to proceeds from the issuance of a debt or equity and [are] thus capital in nature and not taxable.”

Singapore has been a pioneer in digital currency adoption, from both the user’s and the government’s perspective. The continued updates to government policies targeting the space is a clear indication of the country’s willingness to embrace the innovative currency solution and accept what it means to the future of global finance.

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