Malta has long been known as a leading pioneer in the crypto sphere. 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 top 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 placed 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 fundaments: 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 is 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 a 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.
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.