Where can you avoid paying taxes on cryptocurrency? Part 2. Asia

We tried to understand and systematize how regulators in Europe, Asia and the post-Soviet space approach the issue of selling, exchanging and mining digital coins.

In the last article we talked about taxation of cryptocurrencies in Europe.

Today we will talk about Asian countries.

We have already talked about Cryptocurrency regulations in Chinaand Japan. These countries, despite strict government measures regarding mining and digital exchanges, are the locomotives of the crypto market, and Asian exchanges are leaders in the volume of transactions.

We decided today to deal with three countries whose regulators have a vague understanding of the mechanism of action of cryptocurrencies, but really want to get their share of the profits from transactions with them.

Malaysia: Bitcoin is a security

Because cryptocurrencies are in this country equated to documents with property rights, the Securities Commission Malaysia (SC) is responsible for developing laws in this area of business.

Since January 15, 2019, the law on digital tokens has been in force here. It is generally restrictive in nature and threatens criminal prosecution and millions in fines:

• ICO organizers;
  
• platforms for trading cryptocurrencies that have not received a license from the authorities;
  
• “black” miners.
  

And it should be noted that law enforcement officers do not turn a blind eye to violations of this law. In July 2021, more than 1,000 ASICs were seized during a police raid in the city of Miri and publicly crushed under a steamroller. At the same time, miners were issued fines ranging from $1,500 to $2,000.

At the same time, SC sent a notice to Binance warning that its activities in Malaysia could be forcibly terminated because it is not officially authorized. The exchange has 14 days to curtail trading.

One of the foundations of the Islamic financial system is the inadmissibility of maysir (excessive transaction risk) and garam (uncertainty of the result). According to Sharia law, money must be a tangible asset, but digital assets do not correspond to them.  

Since it is no longer possible to ban cryptocurrencies, a compromise decision was made to recognize them as securities and apply taxation adequate to this area..

In Malaysia, there is a territorial principle of paying taxes - from any amount of income received in the country (by residents and non-residents) you will have to pay 25% to the state budget. This applies to all transactions, including the receipt of dividends, royalties, bonuses, interest income and other commercial activities. Tax benefits are available only to IT companies and enterprises engaged in biotechnology and environmental protection.

This also applies to the securities market. Therefore, all profitable crypto-operations in this Muslim country replenish the budget by ¼ of the amount of profit received.

Singapore: Bitcoin is an investment

The regulation of cryptocurrencies in Singapore is in charge of the Inland Revenue Authority of Singapore (IRAS).

The capital gains tax familiar in Europe is not used here, but there is the concept of income from investments.

Long-term investments in this country are not taxed, so crypto traders willingly store digital assets in the cold storage of Singapore crypto exchanges.

In general, the Republic can be considered the best place in Asia for doing digital business.

1. Singapore does not require trading licenses from crypto exchanges and exchangers.
2. Does not regulate the sale and purchase of cryptocurrency for fiat money.
3. Does not impose taxes on mining activities.
   

The only exceptions are any operations with stablecoins (they are equivalent to fiat money) and tokens, which in their characteristics are analogous to traditional shares: they give the owners the right to manage the company, a property share in it or the right to receive income from its activities.

Such operations require licensing and are reserved by the regulator. constitutes the right to control the transparency and security of transactions. Authorization is required from all participants in transactions with token shares, and the transparency of transactions is monitored by tax inspectors and representatives of IRAS.

Any income received to the detriment of the interests of investors may be withdrawn. 

Cryptocurrency profits are subject to general corporate income provisions.

For individualsfirst-time income up to S$19,999 is not taxed..

Further the rate is as follows:

• up to S$10,000 - 2%
  
• from S$10,000 to 40,000 - 7%
  
• from S$40,000 to 120,000 - 15%
  
• from S$120,000 to 320,000 - 18%
  
• over S$320,000 - 20%

Capital gains due to an increase in the price of assets are not taken into account in the declarations.

For legal entitiesprofits up to S$50,000 are not taxed. This applies to companies that are just starting their financial activities.

Then the tax rate will look like this:

• up to S$300,000 - 8.5%
  
• from S$300,000 and above - 17%
  

This scheme makes Singapore an attractive jurisdiction for both large digital corporations and small ones traders.

Israel: Bitcoin is a digital commodity

Taxes on income from transactions with cryptocurrencies are monitored by the Israel Tax Authority.

The Israeli regulator believes that tokens do not have the properties of a security, since they do not have a single issuer that issues them.

They also cannot be considered an investment, because in essence they are not an investment into working assets.

Therefore, since 2020, the law has enshrined the provision that digital money is a commodity. Accordingly, their exchange is equated to barter, and mining is equivalent to production.

This approach entails capital gains taxation and (in some cases) the need to pay VAT.

According to the resolution adopted by the ITA, ICOs will also require contributions to the budget.

Residents, non-residents and representative offices of foreign companies involved in cryptocurrencies are required to contribute to the budget Israel:

1. Individuals - from 10 to 50% if their annual income from cryptocurrency transactions exceeds 6,290 shekels per year. Mining is subject to an additional tax of 18% (VAT). At the same time, the regulator requires written confirmation of operating expenses. If you cannot prove that you purchased BTC for $13,000 and sold it for $13,500, then the sale amount will be considered net profit without costs.
2. Legal entities (exchanges, mining centers, exchangers) - capital gains tax at a flat rate of 24%. Non-resident companies operating in Israel - 25%. For this category, VAT is also required... They are also required to submit tax information about all users whose annual sales income exceeds the tax-free minimum (6,289 shekels)

Perhaps, of all Asian countries, Israel is the most unfavorable jurisdiction for running a crypto business.

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