In February 2022, the Singaporean government announced through the Minister in charge of the Monetary Authority of Singapore (MAS) that it did not want to regulate NFTs at the current stage of their development.
Today, Friday March 11, the island state says it wants to subject certain gains from holding NFTs to personal income tax. This position comes in a relatively unstable context.
NFT, an unstable context for their holders
The Monetary Authority of Singapore has recently made a name for itself with its stance on the regulation of crypto assets. On December 22, MAS announced measures to strengthen the regulatory framework for crypto-currencies. Overall, the state published a list of companies that have not obtained the proper license to operate their crypto-payments services. More than 100 providers are affected by the ban (BitGo Singapore, Revolut Technology Singapore, to name a few).
Last month, it was Tharman Shanmugaratnam, the minister in charge of the Monetary Authority, who said in a parliamentary response:
The regulator (MAS) does not and cannot regulate every single thing or product that people choose to invest their money in (…). For the time being, NFTs are mostly used in the field of digital art, but the regulator will keep an eye on this ecosystem (…). In addition, if NFTs have the characteristics of a financial product under the Securities Act (SFA), they will be subject to the regulatory requirements of the SFA.
Parliamentary response of February 15, 2022
To regulate is to codify a legal regime specific to a particular purpose or situation. If the state does not back down on this issue, however, it is considering taxing certain revenues from NFTs.
Certain earnings from NFTs will be taxed
Finance Minister Lawrence Wong stated in a parliamentary reply dated March 11 that NFTs will be subject to personal income tax depending on their nature and use.
First of all, it is clear that the measure only applies to individuals who hold NFTs. For the time being, professionals do not seem to be concerned by a tax project and this is surely due to the recent bans pronounced on the territory.
Second, only certain transactions will be affected by the tax. Specifically, it is the swap transactions (crypto-NFT; NFT-NFT) that will be subject to tax, and this, if the holders derive recurring income (in the form of crypto-currencies) from these swaps. Depending on the nature of the NFT and its underlying, simple holding may also be subject to taxation, under the same conditions.
This new stance can likely be mitigated to the extent that Singapore offers some of the lowest income tax rates in Asia. The top rate is as low as 22%, while Indonesia and the Philippines have rates of 45% and 35% respectively.
Finally, not all earnings from NFTs will be affected. The Minister specifically addressed the issue of capital gains:
“Since Singapore does not have a capital gains tax regime, such gains will not be taxable”
Lawrence Wong
Thus, the State wishes, following the example of what is planned for crypto-currencies, not to tax capital gains on the sale of NFT. While this situation may change, as evidenced by these recent developments, this provision is particularly favorable to holders of crypto-assets. For the record, the U.S. population has the largest number of digital asset holders in the world, and the government levies both income and capital gains taxes on transactions involving such assets.
