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.
Long-Term Investing
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.
Day Trading
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.
Deductions
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.
Forex
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.
Cryptocurrency
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 invest in the long term, your profits will 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, taking into account the purpose of your transactions, frequency, and holding periods.
It’s worth noting that the Inland Revenue Authority of Singapore (IRAS) may look favorably upon your digital currency activities. Singapore has been one of the first nations to support bitcoin, and the Monetary Authority of Singapore (MAS) has announced that it won’t interfere with people’s ability to transact in bitcoin. This has made the country a safe haven for cryptocurrency entrepreneurship.
Furthermore, the IRAS has stated 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 tax purposes. If you trade digital currencies as an investment, your profits and losses will be treated as capital gains. Since Singapore has no capital gains tax for non-property, you’ll be exempt from taxes.
Stocks
Fortunately, stock taxes are relatively straightforward. If you’re an investor, you won’t face any capital gains tax while trading stocks in Singapore. If you’re a trader and meet the requirements outlined above, you’ll face some tax implications. However, day trading shares tax does come with benefits.
The Singapore government is encouraging Singaporeans to venture into the markets. You can benefit from a special tax rate for the first few years and even set up a trading company to enjoy a permanent concessionary corporate tax rate, applicable for the first S$100K of annual income.
Day Trading Tax Reporting
Keep Detailed Records
The end of the tax year (December 31st) is always around the corner. If you have access to your annual trade history, reporting day trading on taxes in April will be easier. Additionally, if the IRAS requests details on a significant portion of your trades, you don’t want to leave sections blank.
Therefore, make sure to keep a detailed record of the following:
- Instrument
- Price
- Purchase and sale date
- Size
- Entry and exit point
Keeping a record will not only make it easy to declare your day trader tax status but also help you analyze your trade performance. Identifying weaknesses in your strategy and other issues will be straightforward.
Use Trader Tax Preparation Software
You don’t have to spend countless hours going through your trade history to collect relevant information. There is now sophisticated software available that collects data for tax purposes. The software can even be synced directly to your brokerage.
When it’s time to file your returns in April, you can easily transfer the information you need.