Malta has long been known as a leading pioneer in the crypto sphere and has garnered itself the nickname of the “blockchain island.” It was actually the first country to back the crypto industry by bringing a legislative package to the fore, and thereby creating a regulatory ecosystem in which both the currency and industry can operate and grow.
It is the go-to country for any entrepreneur or fin-tech company that wants to work on blockchain technology, as its progressive approach, unbiased taxation system, and the fairness of the Malta crypto tax have made it one of the best crypto-friendly countries in the world.
With an aim to monitor and manage local and international operations in the cryptocurrency market, Malta came up with three bills to supervise and tax cryptocurrency exchanges occurring across its land. These Malta cryptocurrency regulation acts were established in 2018, and are referred to as the MDIA act, ITAS act, and the VFA act.
In a sense, all three acts are a form of governance put in place “by engineers for engineers” to eliminate obscurity in what was essentially a new and ungoverned market sphere.
Malta cryptocurrency tax laws reflect the high-level principles of the EU and are based upon three fundamentals: Consumer protection, market integrity, and industry protection.
Objectives of Malta Cryptocurrency Regulation Acts
MALTA DIGITAL INNOVATION AUTHORITY (MDIA) ACT
INNOVATIVE TECHNOLOGY ARRANGEMENTS AND SERVICES (ITAS) ACT
VIRTUAL FINANCIAL ASSETS (VFA) ACT
DLT Asset Classification
All cryptocurrencies, including the top 10 cryptocurrencies used across the globe, are subject to asset classification under the Income Tax Act (ITA) to determine their purpose and valuation. The four categories under which a DLT asset could fall are: Coins, financial tokens, utility tokens, and hybrid tokens.
While the classification of these digital assets is mandatory, it does not necessarily make them subject to taxation. In fact, any taxation that would be applicable to DLT assets would only be determined by the context within which they are used, as well as the purpose for which they are used.
The Maltese crypto tax considers the nature of the transaction of a virtual financial asset, the status of the parties involved, and the specifics and circumstances of each transaction. Once determined, DLT transactions may be taxed under regular income tax, or other taxations.
Definitions of DLT asset classification categories
These DLT assets are designed to be used in place of fiat currencies in the crypto world, and are their digital equivalent. They act as a means of payment, store of value, or medium of exchange. Coins do not hold any characteristics of securities, are not connected with any project or equity of the issuer, and their utility, value, or application is in no way assumed as a direct redemption of goods or services.
2. Financial Tokens
These are DLT assets with attributes similar to Financial Instruments such as equities, debentures, shares, derivatives, or units in collective instrument schemes. They are commonly known as Security Tokens, but may also be referred to as asset tokens, or asset-backed tokens.
Financial tokens are analogous to Financial Instruments in the sense that they grant rights to dividends in the same way equities and shares do. They also grant rights to payments from units in collective investment schemes, interest payments like bonds, or even payments connected to the performance of specific assets like derivatives.
These Security Tokens may also be used to grant rewards based on voting rights or performance, represent asset ownership rights, or rights secured by their asset form, or a combination of the aforementioned.
3. Utility Tokens
These DLT assets are designed to be used as a form of digital exchange for goods and services within a limited network or platform.
Their utility, value, and application are solely limited to the acquisition of products and services available on those same platforms in which they are being used.
A utility token is in no way connected with the equity of the issuer and does not hold any characteristics of security.
4. Hybrid Tokens
These are DLT assets that have features similar to both financial and utility tokens. They are used interchangeably depending on the condition of the trade.
Valuation of a DLT Asset
In order to properly tax DLT asset transactions, each asset in question has to be given a specific valuation in adherence with the Maltese tax law. The Income Tax Act states that the reference value of a taxable asset shall be its market value, as per the rate established by the relevant authority in Malta.
The cryptocurrency value must also be converted to the value of the appropriate fiat currency in which the legal entity presents their financial statements.
In cases where the market value of an asset is not available for tax reference, it will be determined based on the average quoted price seen on reputable exchanges, or on the date of the relevant transaction.
If neither approach is proven satisfactory for crypto taxation purposes, then the asset value will be based on any other methodology preferred by the Commissioner for Revenue (CfR).
Moreover, the ITA of the Malta crypto tax law also states that where a company accepts cryptocurrency coins as a form of payment, then the transaction will be treated as if the payment had been made in any other (fiat) currency.
However, if the payment were to be made by transfer of financial or utility tokens, then the transaction will be treated in such light for income tax purposes.
Revenue Guidelines on the Tax Treatment of Crypto-Assets
In an aim to manage cryptocurrency taxation, the Commissioner for Revenue in Malta issued a set of revenue guidelines in November 2018 pertaining to the income tax treatment of any arrangements or transactions involving crypto assets.
While no new rules were created in that effort, existing rules were given appropriate interpretations under the Maltese crypto tax laws in the context of each DLT asset class.
These guidelines stand to define whether or not the transactions of cryptocurrencies are subject to taxation under income tax laws and Malta crypto tax laws. An example of an occasion where the transaction of a token would not be taxable is when the profits generated by it are considered a foreign capital gain.
This is due to the fact that Malta does not place taxes on foreign capital gains, and the Malta crypto-friendly approach is to treat cryptocurrency gains under the unified regulations of the Income Tax Act. Crypto profits derived out of regular transactions of securities, however, will be subject to tax on the condition that the assets are sited in Malta.
Other Crypto-Friendly Countries
While Malta is considered a pioneer in the crypto sphere, it is not the only crypto-friendly nation around the world. Cryptocurrency is fast becoming the most flexible and convenient form of monetary transactions, and even though governments worldwide were initially skeptical of using it because of its anonymity, some nations have already started adopting it into their economies.
These crypto-friendly countries are currently leading the digital assets market and paving the way for other nations to follow in their footsteps, and they include Portugal, Slovenia, the Netherlands, Canada, Germany, and Luxembourg, among others.
Portugal has also established itself as a Bitcoin-friendly country. Several Bitcoin ATMs have been installed throughout Portugal, and legislation favors cryptocurrency. The Portugal Golden Visa scheme has been a fantastic immigration option for international investors looking to secure their digital assets, and realize cryptocurrency transactions without being largely taxed. To top it off, several investment migration consultants like Global Citizen Solutions use Bitcoin for the consultancy fee, but fiat currency is still needed to make the required economic contribution of $130,000 to obtain the Golden Visa.
Canada is one of the fastest-growing economies in the world. To no one’s surprise, it was the first country in the Americas to establish a legal framework to regulate cryptocurrency.
Canada’s Proceeds of Crime and Terrorist Financing Act (PCA) has helped them to bring all the entities and persons dealing in cryptocurrencies under their radar, making it easy to track all the transactions and monitor illegal activities in crypto payments.
Canada has no laws that say cryptocurrency dealing is illegal, placing them among cryptocurrency-friendly countries.
The country’s tax system is unbiased and immigrant-friendly, which makes it one of the top crypto-tax-friendly countries. It is the most suitable country to start your own crypto business as there are no heavy capital gains taxes to consider.
Canada is not only an excellent destination for trading cryptocurrencies but also one of the prime locations for cryptocurrency mining. Its vast resources and availability of all the latest technologies make it one of the top crypto-mining-friendly countries.
If you want to set up your own mining farm, Canada is among the best crypto-friendly countries to move to, as it fulfills all the needs for one’s crypto-related activities.
Regarding Bitcoin-friendly countries in Asia, one country stands at the top: Singapore. It is famous as the far east’s fintech hotspot, and the Singaporean government has shown great interest in cryptocurrency.
The Monetary Authority of Singapore has progressive plans for the crypto industry and safety measures to prevent money laundering and other criminal activities.
If you are looking to establish cryptocurrency finances, Singapore stands out as one of the prime choices for crypto investors, primarily due to the absence of capital gains tax on cryptocurrency trading.
However, organizations based in Singapore that act as crypto trading companies and deal with crypto payments are bound to pay capital gains tax as per their income tax laws. But that doesn’t stop Singapore from being one of the most crypto-friendly countries.
Antigua and Barbuda
Antigua and Barbuda is the only country in the world to allow investors to pay their citizenship by investment program in Bitcoin. The country is a paradisiac Caribbean island, whose passport allows visa-free and visa-on-arrival travel to 150 countries.
Residents and citizens of Antigua and Barbuda enjoy relaxed tax conditions since there are no capital gains, inheritance tax, income tax or wealth tax on worldwide income or assets. One of the perks of the Antigua and Barbuda citizenship by investment program is that its process to citizenship is fast and affordable, taking around five months altogether.
In 2017, the Vanuatu government announced that it would accept Bitcoin as payment for its citizenship by investment program. However, there has been some confusion as some officials denied that cryptocurrency could be used.
As of October 2023, there has been no official word that you can’t use Bitcoin, so for the time being, it is possible.
In some cases, a third-party agent accepts the Bitcoin exchange, sells it for real-world money and pays the Vanuatu government on your behalf. In another scenario, you must first sell your Bitcoin and transfer the funds into an identifiable bank account.
You can learn more about Vanuatu’s citizenship by investment program by checking out our Ultimate Guide.
Frequently Asked Questions about Malta Crypto Tax
Is crypto tax-free in Malta?
The Malta crypto-friendly tax approach considers the nature of crypto transactions, the status of the parties involved, and the specifics and circumstances of each transaction under the tax treatment. It does not grant a free pass for cryptocurrency.
Is crypto regulated in Malta?
Yes, cryptocurrency is regulated by the Commissioner for Revenue under specific guidelines and acts that were established in 2018.