In this Article
Dr Justine Scerri Herrera
Malta is a base for several big players in fintech. In addition, Malta is at the forefront of regulation on virtual assets, and the crypto space.
For this reason, in 2018, the Maltese Commissioner for Revenue (CfR) issued guidelines. Specifically, guidelines on income received from distributed ledger technologies. These provide a straightforward approach regarding the treatment of cryptocurrencies for income tax purposes. Importantly, since existing principles are applicable by analogy to transactions involving virtual currencies.
Crypto Taxation in Malta
Crypto Taxation - Coins
Tax implication of transactions involving virtual assets depend on the classification of the virtual asset. For tax reasons, virtual assets are classified as follows.
1. Coins are treated as a medium of payment and constitute the cryptographic equivalent of fiat currencies. To clarify, Coins do no need to be recognised or regulated by the Virtual Financial Asset Act (VFAA). Or any other act to fall under such definition. As long as the features and function of a coin can be classified as an equivalent to fiat currency, it is considered for tax purposes to be a Coin.
Consequently, profits from exchanging Coins are treated like the profits derived from the business of exchange of fiat currency. However, transactions in Coins of a capital nature fall outside the scope of tax on capital gains. Notably, to be treated as a “coin” virtual currency needs features allowing it to be comparable to a classic equity. And not, for instance, as a voucher. When Coins are involved in transactions, the Maltese tax law treats them identically to transactions involving fiat. (e.g., profits from exchanging Coins would be treated as regular profits; when holding a Coin as part of trading stock, any gains are taxed as profits; mining of Coins is also considered income and taxed accordingly).
This being said, if a person realised capital gain from long-term holding of a coin (e.g. more than 24 months) it is not considered a regular trading activity that attracts income tax on capital gains.
Transactions which involve virtual currencies considered as Coins are exempt from Value Added Tax (VAT) in Malta. This is due to the fact that it follows the Skatterverket case of the Court of Justice of the European Union on this matter.
Crypto Taxation in Malta
Crypto Taxation - Financial Tokens
2. Financial tokens for Maltese income tax purposes are treated by analogy to classic securities such as shares and bonds. In this respect, any return from mere ownership of a financial token which may give interest or dividend (or similar) income will be able to apply exemptions under Maltese law regarding the holding of such investment.
Once such investments are liquidated, depending on the tax situation of a particular taxpayer, regular dividend and interest payments may be subject to an exemption under Maltese law. Specifically, if the transfer of a financial token is not a trading transaction, the taxpayer must see if it falls within the provisions on capital gains under article 5 of the Income Tax Act and whether it falls under the “securities” definition in the Income Tax Act.
The Maltese Income tax act article 5(1)(b) defines “securities” as shares and stocks, alike instruments that participate in any way in the profits of the company and whose return is not limited to a fixed rate of return, units in a collective investment scheme as defined in article 2 of the Investment Services Act, and units and such like instruments relating to linked to long term business of insurance. Furthermore, if the token has similarities to a classical security, such as give the rights to profits of the company, or units in a collective investment scheme, or units and such like instruments relating to linked long term business of insurance, these would be subject to tax rate of 35%.
Therefore, constant trading in cryptocurrencies is no different from trading in bonds, company shares, commodities, currency pairs or CFDs. Any profits made are deemed to be an income arising from a trade or business. Thus, they must be reported in the tax return and taxed at the applicable tax rates.
Crypto Taxation in Malta
Crypto Taxation - Utility tokens
3. Utility tokens are tokens whose value or application is solely restricted to the acquisitions of goods or services. Thus, these are subject to regular income tax and VAT rules. In this regard, Utility tokens’ treatment depends on whether the utility is a “single-purpose vouchers” or “multi-purpose vouchers”. If a Utility token is issued and the token represents an underlining service or good that can clearly be identified, then that creates a tax point for VAT purposes, depending on whether the underlining service or good is taxable (at a standard rate of 18%, or reduced rates of 7% or 5%) or exempt (e.g. intra-community supply of goods).
Conversely, multi-purposes vouchers are tokens for which the underlining good or service and its place of supply are yet unknown. No VAT tax point arises when such a multi-purpose voucher is issued. Furthermore, the tax point only comes into question once the supply in exchange for the voucher is actually done.
Initial Coin Offerings (ICOs)
ICOs in Malta are treated just like a regular raising of capital by regular companies. This means that such transactions are not liable to tax in Malta for any of the parties. Yet, if the ICO issues utility tokens which provide services or goods (akin to a voucher, for example) any gains from the provision of services or goods will be subject to regular income tax rules. ICOs that involve Coins or financial tokens, no VAT should arise.
Liability to tax in Malta would only arise when the coins of the ICOs are disposed of (e.g., traded, sold), in this respect capital gains made on the selling of the ICO tokens would be charged at standard tax rates in Malta.
Transactions that involve cryptocurrencies and virtual assets must be accounted for as per general rule under the Maltese Income Tax Act (ITA) and their values are determined by reference to the market value of the cryptocurrency or virtual asset in question.
Coupled with the right corporate structure and the virtual asset regulatory regime, Malta can offer great solutions that provide access to European markets. If you are looking for your next business and home destination, Malta is the next best place to be.
MK Fintech Partners LTD is one of a few licensed companies with the Maltese Financial Services Authorities (MFSA) that can guide you through the licensing process of crypto and virtual assets. Drop us a line if you would like to find out more about how MK Fintech Partners can help you with your business needs!
How Can We Help?
If you are looking for your next business and home destination, Malta is the next best place to be. Coupled with excellent business environment, highly qualified personnel, and great weather it is a perfect place to develop your business. Drop us a line if you would like to find out more about how MK Fintech Partners can help you with your business needs: firstname.lastname@example.org
More about MK Fintech Partners Ltd.
Michael Kyprianou Fintech Partners Ltd is a Maltese licensed VFA Agent (virtual financial assets agent). It comprises a team of dedicated experts who provide services such as advisory, licensing and registrations of activities related to Fintech, Crypto, Blockchain, Investment, company incorporations and banking. and other ancillary services. MK Fintech Partners forms part of the Michael Kyprianou Group, a top tier international legal and advisory firm. It has established an enviable reputation as a broad-based legal practice over the years. Mainly by keeping at heart its principle to always exceed its clients’ expectations. MK has grown to become one of the largest law firms in Cyprus with offices in Nicosia, Limassol and Paphos. The MK Group’s international presence also includes fully-fledged offices in Greece (Athens and Thessaloniki), Malta (Birkirkara), Ukraine (Kiev), the United Arab Emirates (Dubai), United Kingdom (London), Israel (Tel Aviv), and Germany (Frankfurt).
The content of this article is valid as at the date of its first publication. It intendeds to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on a specific matter before acting on any information provided. For further information, contact us at MK Fintech Partners via email at email@example.com or by telephone +356 2016 1010.