Trading Taxes in Singapore
As the number of traders in Singapore surges, the question of trading taxes keeps surfacing. You can’t revel in the riches along with infamous traders Collin Seow and Rayner Teo, until you’ve conquered the hurdle of taxes. This page will look at the day trader tax laws, implications and rates set out by the Inland Revenue Authority of Singapore (IRAS). It will detail asset specific rules, as well as offering top tips, including tax software.
Breaking Down Taxes
Taxes for day trading in Singapore can vary from non-existent to worryingly steep. On the whole, however, tax treatment is fair and advantageous in comparison to other nation’s systems.
Day Trading vs Long-Term
One of the first things you’ll need to do is decide whether your trading constitutes short or long-term activity. The tax implications will vary considerably between each.
Taxes in Singapore are extremely attractive if you’re a long-term investor. You do not have to pay any taxes on capital appreciation gains or dividend income. However, head to the US, for example, and you’ll have to fork over large percentages of your earnings.
The rules around day trading taxes in Singapore are not always clear. You may have to pay taxes on your gains. If you do, it will be in line with the progressive resident tax rate. This starts at 0% up until S$20,000 and ends at 22% for those earning above S$320,000.
However, this will depend on the determination of your local tax authority. They will look at a number of factors in deciding whether your activity constitutes day trading for taxation purposes:
- Volume – If you’re making a few daily trades then you may find the IRAS will exempt you from tax. However, if you’re making hundreds and thousands of trades then they may demand a slice of your profits.
- Pattern – Do you trade in an organised manner, similar to that of established and full-time traders?
- Sole income – If you day trade on the side you have a reasonable chance the IRAS will deem your earnings as capital gains, and not taxable. However, if day trading is your only source of income you will likely have to pay taxes.
- Finance – Do you set aside a specific pot to fund your trade activities? The more methodical you are with your capital and the more of it you have for the purposes of trading, the more likely it is you will have to pay taxes.
Unfortunately, this makes taxes on day trading income a grey area. The main consideration is whether you day trade full time, or to supplement your income. However, if you are unsure, you can always contact the IRAS directly for clarification. Each situation is decided on a case-by-case basis.
What If You Use An Overseas Broker?
Despite the growing number of brokerages in Singapore, many still look abroad for high-quality platforms and low costs. How will the IRAS view your taxes on day trading profits and losses then?
From the IRAS and MOF (Ministry of Finance), it would appear that overseas income received in Singapore on or after the 1st of January 2004 is not taxable, excluding certain situations. For further clarification, see the ‘Overseas Income Received in Singapore’ on the IRAS website.
Taxes for day trading in Singapore can feel excessive at times. However, if you’re self-employed, there are certain deductions you can make when it comes to running the numbers through your tax calculator.
You can claim deductions for regular business expenses. This could be in the form of internet bills, resources, and anything else you use to trade. You can consider them day trader tax write-offs. But bear in mind, the IRAS may demand receipts and evidence the items listed are strictly for intraday trading.
Asset Specific Taxes
With the emergence of cryptocurrency markets and developments in global technology, there remains a question of whether different assets will incur different day trading income rates. For example, will day trading options and futures taxes be the same as forex and stock taxes?
For the most part, the IRAS is more concerned with how and why you are trading. What you are trading is usually secondary. Having said that, there exist some markets where regulations remain unclear.
How then do forex trading taxes work in Singapore? Most brokers that facilitate day trading do not have a tax agency. This means they make zero deductions in terms of taxes. The legal responsibility rests solely with you.
If you’re trading forex on the side, any and all profit is tax-free. However, if you’ve given up your day job to trade currency, you will be required to declare it and pay a portion in taxes.
Interestingly, how you withdraw funds from your account could impact your perceived day trader tax rate. Let’s say you use an international electronic payment system, such as PayPal, Moneybookers, or Webmoney. Your funds will never enter into Singapore unless you transfer them into your local bank account.
Leave them in the international payment system though and you won’t need to report them as taxes. The IRAS will have no way of locating or accessing your funds. This means if you have a particularly challenging financial year, leaving some capital in these systems will protect them from taxes.
So, day trading and forex taxes are not as clear-cut as they first appear. If you have any doubts or require clarification, seek professional tax advice. Alternatively, reach out to the IRAS. But, if you’re switched on, you can protect yourself from day trader tax losses.
Recent developments have shown that if you buy and sell digital currencies in the ordinary course of business, you will be taxed on the profit derived from trading in the virtual currency. If you were long-term investing your profits would not be subject to taxes.
However, short-term investors may face trading income tax in Singapore, on their takings. Any exemptions will be considered on a case-by-case basis. They will consider the purpose of your transactions, the frequency, and holding periods.
It is worth pointing out though that the IRAS may look leniently on your digital currency activities. This is because Singapore has been one of the first nations to defend the likes of bitcoin. The Monetary Authority of Singapore (MAS) has announced it will not interfere in people’s ability to transact in bitcoin. This has been seen by many as support for these digital currencies and has opened up the country as a safe haven for cryptocurrency entrepreneurship.
Furthermore, the IRAS has highlighted that digital currencies, such as bitcoin, ethereum, and litecoin, do not fit the definition of ‘money’ or ‘currency’. Instead, they fall under the goods and services umbrella for the purpose of taxes.
For now, it stands that if you trade digital currencies as an investment, your profits and losses will be traded as capital gains. Since Singapore has no capital gains tax for non-property, they will be in effect, exempt from taxes.
Fortunately, stock taxes are relatively straightforward to get your head around. If you are an investor you will face no capital gains tax whilst you trade stocks in Singapore. If you’re a trader and meet the requirements around purpose, the frequency of trading, etc, outlined above, you will face some tax implications.
Having said that, day trading shares tax does come with benefits. The Singapore government is trying to encourage Singaporeans to take a crack at the markets. This means you can benefit from a concessionary rate on taxes for the first few years. You could also set up a trading company to benefit from the concessionary corporate tax rate permanently. This will apply to the first S$100K annual income.
Day Trading Tax Preparation
Keep A Record
The end of the tax year (31st December) always feels around the corner. The question of how to report day trading on taxes in April, will be far easier to answer if you have access to your annual trade history. Plus, if the IRAS request details on a significant portion of your trades, you don’t want to be leaving sections blank.
Therefore, you should keep a record of the following:
- Purchase & sale date
- Entry & exit point
Not only will it make declaring your day trader tax status straightforward, but it also enables you to analyse your trade performance. You’ll find identifying weaknesses in your strategy and any other issues straightforward.
Trader Tax Preparation Software
You no longer have to endure countless hours pouring through your trade history to collate the relevant information. There now exists sophisticated software to collect data for the purpose of taxes. Software can even be linked directly to your brokerage.
Then when April comes and it’s time to file your returns, you can transfer the information you need with ease. This allows you more time to focus on the important stuff, like generating profits from the markets.
Strictly speaking, Singapore does not have capital gains taxes. However, intraday profits that are not considered capital gains are income, and therefore can face income taxes. Perhaps, as day trading popularity continues to grow, more clear-cut laws and regulations will be introduced. For now though, as lawyers point out “whether a gain is capital or income is a question of fact and the circumstances giving rise to the gain have to be considered in total.”
The solution – seek clarification from the IRAS if you have any queries. Alternatively, obtain professional guidance from an accountant or advisor. This page is not trying to offer tax advice, it merely aims to decipher the multitude of regulations that currently exist.