Singapore Finance Minister Confirms Income Tax Will Apply to NFTs

Key Insights:

• Finance Minister Lawrence Wong said current income tax rules apply to NFTs transactions.
• Capital gains on NFTs will not be taxed.
• Singapore has some of the lowest income tax rates in Asia.

In a parliamentary answer to Yip Hon Weng of the Singaporean Member of Parliament, Lawrence Wong, Singapore’s finance minister, stated that the income tax treatment for non-fungible tokens (NFTs) will be decided based on their nature and use.

According to a report by Business Insider, this will apply to individuals who derive income from NFT transactions or trading in NFTs, the finance minister said. The news clarifies those looking to invest in or trade fungible tokens in Singapore.

However, since no such framework exists, capital gains on NFTs will not be taxed. The United States, which has among the world’s largest cryptocurrency holdings, applies income and capital gains taxes on investing and trading NFTs.

Singapore – A Tax Haven

Singapore has some of the lowest income tax rates in Asia. The highest tax is at 22% for high-income individuals. For context, Indonesia’s maximum rate is 45%, whereas the Philippines’ is 35%.

The lack of a capital gains tax makes the city-state an attractive haven for many high-value individuals, despite its 2022 budget proposing to raise taxes for high earners.

Singapore’s monetary watchdog (MAS) also has stringent regulations to safeguard cryptocurrency investors. 

On Thursday, Paxos announced preliminary approval for a Major Payments Institution license from the MAS, becoming the first blockchain infrastructure platform to obtain regulatory oversight in New York and Singapore’s financial centers.

Startups in Singapore may benefit from a tax exemption of up to $125,000 on their first $200,000 of earnings for the first three years of business.

Companies must be incorporated in Singapore and have no more than 20 shareholders to qualify for the startup tax break.

A Hotbed for Crypto Activity

The country’s laws are among the most permissive in the world for cryptocurrencies, thus making it a hive of activity for crypto startups.

Digital currencies are not recognized as legal currency, but investors can use them in regulated trading. Singapore’s monetary watchdog (MAS) also has stringent regulations to safeguard cryptocurrency investors.

After the Chinese government’s crypto crackdown in 2017, several exchanges and companies fled to Singapore. After the clampdown, Huobi too moved its headquarters to Singapore.

According to Piyush Gupta, CEO of Singapore’s largest bank, DBS, cryptocurrencies will grow in popularity. However, they are unlikely to replace traditional currency soon wholly.