Accounting for bitcoin and other blockchain trading businesses in Singapore

Oct 27

Accounting for bitcoin and other blockchain trading businesses in  Singapore

Why use bitcoin and other cryptocurrencies?

Bitcoin and other blockchain-based currencies are gaining traction in various markets, including Singapore, with large companies such as IBM looking to open a Blockchain Innovation Center in the country.

There are a couple of factors why the blockchain-based currency is getting traction as an alternative to cash when doing business, with more than 40 companies here in the Little Red Dot and more than 100,000 retailers worldwide accepting the currency.

One of the most compelling reasons for conducting transactions using bitcoin is its highly competitive processing fees compared to traditional banks. Where credit card processing fees come to as much as 3%, cryptocurrency processing fees are somewhere between 0% to 2% only.

Another reason is the immediate transfer of the currency compared to a bank transfer. While it has been argued that the waiting time for receiving the purchased bitcoin could still take a day, the presence of bitcoin vending machines can make the transfer of bitcoin currencies instantaneous. On the other hand, local banks can still take 2 to 3 days to process inter-bank and overseas money transfers.

 

 

In this video, Futurebooks’ Accounting Manager Savitha Raman shares more information in accounting for bitcoin and other blockchain trading businesses.

Accounting for Bitcoin

Since the blockchain-based currency is a relatively new digital currency, most currency users and traders are still not familiar with how to properly account for these transactions.

Understanding Depository Accounts

The challenges that most companies face when accounting for bitcoin is more on the revenue portion. The traders of bitcoin must understand that the money held by the depository account must be recorded similar to that held in the bank account and all transactions must be reconciled.

On a periodic basis, the number of Bitcoin contracts traded during the month must be accounted for in accordance with the status of the contract, whether it’s still an open contract or closed. Open contracts must be accounted for as an unrealised profit or loss by Marking to Market; realised profit or loss can then be determined from the money realised in the closed contracts.

While Xero does not have dedicated support for Bitcoin, specialised accounting firms such as Futurebooks may be able to assist blockchain trading businesses with their accounting requirements within Xero.

Ron Hose, Founder and CEO of coins.ph, shares the nuances in accounting for bitcoin:

“Generally, Bitcoin has been treated by the authorities around the world as a currency. This makes the accounting treatment similar to any foreign exchange company (buying and selling of currencies). The spread on which defines profit/loss that gets captured in the income statement. However, the volume of transactions and the fractions in which Bitcoin is traded creates a more challenging job for accountants. The trading channels are open 24/7 and with changes in prices almost every few seconds, it is very difficult for any accounting system to capture volume and price changes. The volume of transactions needs a faster processing and data capturing method which creates an opportunity for an external tool which is not typically built in accounting systems.”

For the company’s accounting software, Ron has this to add:

“We have built internal tools to capture transaction data from our platform, process, and transform to a format that can be digested by online accounting tools.”

 

 

Ron Hose, CEO and Co-Founder of Coins, on Futurebooks help during Coins’ seed and Series A funding rounds.

Taxation for Bitcoin in Singapore

While Asian countries such as China and Thailand consider any bitcoin activities illegal in their jurisdictions, Singapore has not ruled out digital currencies and treats it as a “supply of services” (as opposed to “money”, “currency”, or “goods”).

The Inland Revenue Authority of Singapore (IRAS) has outlined the tax treatment for income received through trading and buying goods and services using virtual currency. According to the IRAS, any profit made by a Singapore company who trades in Bitcoin is subject to the standard income tax rules, while those that pay and accept virtual currencies must record the sale or purchase based on the open market value of the goods or services in Singapore dollars.

Other reading sources:
Sale of Virtual Currency, IRAS

About Coins
Coins is a digital payments and blockchain startup with a mission to expand financial services to unbanked individuals in the Philippines and the rest of Southeast Asia. Read more about Coins’ recent Series A funding.

 

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