Singapore is recognized as a pacesetter in blockchain and cryptocurrency due to its unfailingly supportive regulatory environment. Over the last few years, Singapore has seen a tremendous rise in the number of blockchain projects that have been registered within its borders.

To keep up with the evolving world of digital tokens, the Inland Revenue Authority of Singapore (IRAS) published a guide on the e-Tax that details how digital token transactions including ICOs, IEOS and STOs shall be taxed. These came a few months after Singapore released its new regulations for enterprises offering payment services.

The guide focuses on the taxation of three types of digital tokens. These include security tokens, utility tokens and payment tokens (tokens used as payment options). The guide also elaborates on the taxation of other tokens that are distributed through unconventional means like hard forks and airdrops.

Payment tokens

According to the e-Tax guide, all transactions done using payment tokens shall be considered to be in the form of barter trade. Therefore, the recipients of the tokens shall be taxed depending on the value of the underlying goods or services.

Nonetheless, purchasing a payment token is not taxable. However, the returns from the disposal of the token are taxable if the process involved is a trading activity.

Payment tokens miners shall also be taxed if the mining intends to make profits.

Payment tokens distributed via hard forks and airdrops are not taxable if they are freely given out.

Utility tokens

According to the e-Tax guide, utility token transactions are not taxable since they are mainly acquired to enable the users to acquire future services within a specific blockchain network.

Security tokens

According to the e-Tax guide, security tokens are regarded as a form of equity or debt since they give owners an implied degree of control or equity to a certain asset or project. As such, the taxation of the returns gotten from security tokens depends on the type of the return. The types in consideration here are interests and dividends.

ICOs and STOs taxation

According to the IRAS, the proceeds of Initial Coin Offerings (ICOs) and Security Token Offerings (STOs) shall be taxed depending on the functions and rights of the used token.

If the issued token is a utility token, the sale shall be considered to be in the form of revenue and is therefore taxable. This is because the utility token is an obligation for the issuer to provide a service or good in the future that shall be bought or paid for using this token.

On the other hand, the issuance of security tokens shall not be taxed since the proceeds parallel the proceeds obtained from issuance of equities or debts, which is normally capital in nature. However, as mentioned above, withholding tax obligation and the general income tax shall apply to the interest and dividends paid to the owners of the token.

Tokens set aside for founders in ICOs and STOs

In most cases, startups set aside some tokens for the founders. In this case, if the tokens are used to pay or compensate the founders, they are regarded as revenue and the founder that receives them shall be taxed. However, if the tokens are not issued as a form of payment, they are regarded as a capital asset of the founder.

What a taxpayer dealing with digital tokens in Singapore should do

IRAS instructs taxpayers in Singapore that deal with digital tokens to keep proper records of the digital token transactions so that it can be simple to file the returns.

The records should have the following:

  • Transaction date.
  • The number of tokens sold or received.
  • Value of the digital token at the time of transaction.
  • The used exchange rate.
  • Purpose of the transaction.
  • Details of the customers/suppliers in case it was a buy or sell transaction.
  • Details of the ICO or STO.
  • Invoices or Receipts of the expenses incurred within the business.

It is always important to factor in the cost before undertaking any project. Otherwise, you may get stuck along the way due to a lack of funds. A clear picture of the cost will enable you to financially plan in advance to ensure that you have enough funds to run all the necessary activities for the success of any project.

For a STO, the cost depends on a number of things throughout the various phases of the STO, which include:

  1. The concept phase: this includes the development and drafting of the project concept and it entails the selection of the token standard and the whitepaper.
  • Choosing the token standards

For the token standard selection, you will need to choose the best standard to build your token on. The most commonly used standards are the ECR20 though there is a large list of standards ranging from the ERC20 to ERC1450.

The selection of the right token standard can be easy with the right standard consultant. Ideally, it is better to engage a consultancy that provides the full suite of STO services including legal instead of looking for a consultant for every task.

  • Whitepaper

As the founder or owner of the STO, you could have the best description of the project, but you require a professional to draft the whitepaper nicely and professionally.

  1. The development phase: This is the bulk of the entire project. It includes the creation of the smart contract, deploying the smart contract, and creation of an investor panel.

You will need to hire a development team depending on qualifications. Most importantly, you will need UI and UX experts, blockchain engineer (s) and product experts. All these professionals come at different costs depending on their level of expertise.

At this phase, it is wise to go for the highest experienced individuals to ensure that you get the best. You can always negotiate your way out with the professionals to charge you fairly instead of going for novices who may compromise your entire project.

  1. Security and legal audit: You will have to test your blockchain project for bugs before launching the STO. The testing requires an internal auditor and a third-party auditor who can also be a community auditor.

Above the security, you should also ensure that the tokens are checked for compatibility with the available crypto exchange platforms.

Most people ignore this phase due to the added cost, but it is an important phase which would prevent future problems with your STO.

  1. Legal and marketing: Contrary to ICOs, STOs have rules that they must adhere to. Therefore, you will require a good legal team to follow up on the issue of KYC, AML in addition to the other rules and regulations touching on STOs.

You also need to market the STO so as to attract as many investors as possible. However, you will need to involve the legal team to ensure that marketing is GDPR compliant. Most importantly, you will require website developers to create an attractive landing page.

You will also have to explore all the marketing avenues, especially through digital platforms. However, you have to strike a balance to avoid overspending on marketing.

 

Localcoin, a crypto exchange, has been receiving a backlash from the online community as well as investors for possible whitepaper plagiarism.

It is so embarrassing for a company or startup to be caught up in a plagiarism scandal! It throws the entire ICO project into jeopardy. It becomes extremely difficult to convince investors that it was just a mistake since a whitepaper should be a very original document explaining a project that should be original. Otherwise, any similarity in whitepapers shows that the project could also be a “Copy Paste” or a scam. It becomes extremely hard for investors to believe that the project is real.

This is what is happening to Localcoin exchange. People, especially on Bitcointalk, have concluded that the whole project is a scam.

Localcoin blames the whitepaper author, whom they say they had outsourced, for the misfortunes but it will be hard to persuade investors into buying into this narrative. The back still stopped with them even if they outsourced the author. An author can only write depending on the information he/she gets from the project developers. And further still, the development team out to have gone through the whitepaper before publishing it.

But what could have made the author make such grave mistakes? Was it deliberate?

From a closer look at things, the author could have made deliberate plagiarism possibly from a misunderstanding with the development team. There are allegations that Localcoin owes marketers over $15,000 and this could be the reason behind the plagiarism.

However, all in all, it shows that the team behind the whole project isn’t serious.