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Malta Crypto Tax 2023: Everything You Need To Know

Published August 4, 2023 3:24 PM
Andrew Kamsky
Published August 4, 2023 3:24 PM

Key Takeaways

  • Cryptocurrencies in Malta are classified as Virtual Financial Assets (VFAs) for tax purposes.
  • Traders in Malta face taxes on profits when frequent trading activities take place.
  • Capital gains in Malta are generally not taxed, but trading profits may be subject to tax.
  • Mining is considered legitimate in Malta and subject to taxation and regulation.

Overview Of Malta’s Cryptocurrency Tax Regulations

Malta positioned itself as a leading country in the cryptocurrency industry dubbing itself “The Blockchain Island” back in 2018. The country introduced a legislative package to create a regulatory ecosystem for cryptocurrencies and the crypto industry to operate and grow within its borders. 

The Malta Financial Services Authority (MFSA) is the single regulator of financial services in the country. It focuses on three main acts: the Malta Digital Innovation Authority (MDIA) Act, the Innovative Technology Arrangements and Services (ITAS) Act, and the Virtual Financial Assets (VFA) Act.The objective of these acts is to safeguard consumers, promote innovation, and ensure integrity and security within the cryptocurrency industry in Malta. 

Malta Digital Innovation Authority (MDIA) Act

The MDIA Act is a crucial component of Malta’s regulatory framework for the cryptocurrency industry. Enacted to promote innovation and ensure integrity within the sector, the MDIA Act focuses on establishing credibility for distributed ledger technologies (DLTs) programs. 

It provides a legal policy for users, emphasizing internal governance arrangements for companies operating in the digital innovation space. The Act aims to safeguard consumers and create a favorable environment for the growth and development of blockchain-based projects and services in Malta. 

Innovative Technology Arrangements And Services (ITAS) Act

The ITAS Act plays a critical role in Malta’s cryptocurrency regulation, particularly concerning the certification of blockchain-based projects and services. This act is primarily focused on the arrangements of DLTs and the certification of their platforms. 

It sets the groundwork for the establishment and regulation of cryptocurrency exchanges, ensuring they adhere to robust standards and best practices. By providing a comprehensive framework for DLTs and related services, the ITAS Act aims to foster a secure and innovative environment for the crypto industry to flourish within Malta’s borders. 

Virtual Financial Assets (VFA) Act

The Virtual Financial Assets (VFA) Act is a fundamental pillar of Malta’s cryptocurrency regulatory framework, specifically designed to govern virtual financial assets within the country. This act is primarily concerned with establishing a robust regulatory regime for Initial Coin Offerings (ICOs), cryptocurrency exchanges, and wallet providers. 

It aims to protect investors and consumers while ensuring market integrity and security within the virtual asset space. The VFA Act sets clear guidelines and requirements for businesses operating in the cryptocurrency industry, including licensing and compliance obligations. 

Cryptocurrency Tax Classification In Malta 

Definition Of Cryptocurrencies For Tax Purposes 

Virtual currencies in Malta are defined  as ‘virtual financial assets’ (VFAs). ‘VFAs’ are further defined as any digital medium that is used as a digital medium of exchange unit or an account or store of value, but which is not electronic money, a financial instrument or a virtual token (eg, Bitcoin and Ether).

Judicial decisions on virtual currencies in Malta primarily focus on fraud and licensing non-compliance. To date, there have been no judicial findings in relation to smart contract law or cryptocurrencies.

Distinction Between Trading, Investing, And Mining Activities

In Maltese law, there are distinctions between trading, investing, and mining activities related to cryptocurrencies:

  • Trading: Those who are engaged in frequent and short-term transactions to profit from price fluctuations are termed as traders. Depending on the scale and frequency of trading, individuals or entities may be subject to different tax and regulatory obligations.
  • Investing: Investors typically hold their assets for extended periods and may have different tax implications compared to traders. Investment activities are often subject to less frequent regulatory oversight.
  • Mining: In Maltese law, mining is considered a legitimate activity and is subject to taxation and other regulatory requirements, depending on the scale and nature of mining operations.

Each activity is subject to specific rules and regulations under the VFA Act and other relevant legislation in Malta.

Tax Reporting And Compliance In Malta 

Tax reporting and compliance in Malta involves various obligations for both companies and individuals. 

  • Companies: Electronic corporate income tax return is available online
  • Individuals: Those engaged in part-time self-employment and part-time employment have specific income tax obligations and deadlines.

Taxation Of Capital Gains In Malta

Capital gains on other assets, such as cryptocurrency or personal property, are generally not subject to specific capital gains tax in Malta. However, gains made from trading activities or the frequent disposal of assets may be treated as business income and subject to income tax. 

In Malta, capital gains tax rates on cryptocurrencies and other assets range from 15% to 35% depending on the taxpayer’s residential status. People involved in cryptocurrency activities may consult crypto-native tax consultants to enable them to more effectively navigate the complex world of crypto taxation and guarantee adherence to pertinent laws.

Individuals can receive knowledge suited to their unique circumstances by working with tax advisers, who assist them in making decisions about their tax liabilities and reporting requirements.

Taxation Of Mining Activities In Malta

The treatment of taxation on mining in Malta is taxed at progressive rates. If the activity is done on a part time basis beneficial tax rates might apply. These advantageous tax benefits apply to individuals engaged in part-time employment and part-time self-employment in Malta who may benefit from a fixed tax rate of 10% on the first €10,000 and €12,000 of income or profits, respectively. 

This 10% rate is final, and the income derived from part-time work need not be declared in the annual income tax return because it is not subject to further tax. However, if the part-time income exceeds the specified amounts, the excess must be declared and taxed at the normal rates. 

Crypto Tax Incentives In Malta

Malta is considered a leading pioneer in the crypto industry that offers tax incentives to promote the crypto industry. The country created a crypto-friendly regulatory ecosystem  Malta introduced three bills in 2018 to supervise and tax cryptocurrency exchanges, focusing on consumer protection, market integrity, and industry protection.

From an income tax perspective, holding cryptocurrencies and receiving payments in virtual currencies for goods or services rendered are taxable events. The tax treatment is similar to traditional currencies, with capital gains taxes applicable when cryptocurrencies are sold or used. Payment for supplies by way of cryptocurrencies is exempt from VAT in the European Union.

Conclusion

Malta’s proactive approach in creating a regulatory ecosystem for cryptocurrencies has earned it the nickname “The Blockchain Island.” With the MDIA Act, ITAS Act, and VFA Act, the country aims to promote innovation, protect consumers, and ensure integrity in the crypto industry. 

Taxation on cryptocurrencies in Malta is generally treated similarly to traditional assets, with capital gains taxed when assets are sold. The nation’s positive economic outlook and ongoing regulatory developments continue to position it as a favorable destination for the crypto industry.

FAQs

How are cryptocurrencies classified for tax purposes in Malta? 

Cryptocurrencies in Malta are classified as “virtual financial assets” (VFAs), which are defined as digital mediums of exchange, accounts, or stores of value. They are distinct from electronic money, financial instruments, or virtual tokens like Bitcoin and Ether. This classification determines their tax treatment in the country.

What are the tax implications for cryptocurrency traders in Malta? 

Cryptocurrency traders in Malta, who engage in frequent and short-term buying and selling of digital assets, may be subject to income tax on the gains made from trading activities. The tax rate depends on the residential status of the taxpayer and can range from 15% to 35%. 

Are capital gains on cryptocurrencies taxable in Malta? 

Capital gains on cryptocurrencies, as well as other assets, are generally not subject to specific capital gains tax in Malta. However, if gains are derived from trading activities or frequent asset disposal, they may be treated as business income and become subject to income tax.

Is mining cryptocurrency considered a legitimate activity in Malta? 

Yes, mining cryptocurrency is considered a legitimate activity in Malta. However, it is subject to taxation and other regulatory requirements, depending on the scale and nature of the mining operations. Part-time mining activities may be eligible for beneficial tax rates. For detailed information, it is advisable to consult a tax expert to ensure compliance with the relevant regulations.

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