Overview of Malaysia's Crypto Assets Taxation and Regulatory Framework

1. Introduction to the Malaysian Tax System

The tax system in Malaysia consists of direct taxes and indirect taxes. Direct taxes include income tax, real property gains tax, and petroleum income tax; indirect taxes encompass domestic taxes, customs duties, import and export taxes, sales tax, service tax, and stamp duty. The country implements a federal and local tax-sharing system, where the federal government is responsible for formulating national tax policies, executed by the Inland Revenue Board and the Royal Customs Department. The Inland Revenue Board oversees direct tax matters, while the Royal Customs Department is responsible for indirect taxes. The state government collects taxes including land tax, mineral tax, forest tax, and other local taxes.

Overview of the Main Tax Types

1. Corporate Income Tax:

   • Local companies with paid-up capital not exceeding 2.5 million MYR are subject to a progressive tax rate ranging from 15% to 24%.
   • The unified tax rate for local and foreign companies with paid-in capital exceeding 2.5 million MYR is 24%.

2. Personal Income Tax:

   • The resident tax rate ranges from 0% to 30%, increasing progressively based on income levels.
   • The fixed tax rate for non-residents is 30%.

3. Withholding Tax:

   • For non-local companies or individuals, the tax rate varies by income type, ranging from 3% to 15%.
   • The specific tax rate may be affected by bilateral tax treaties.

4. Real Estate Profit Tax:

   • The tax rate decreases with the holding period, from 30% (if sold within 3 years) to 5% (if sold after 6 years).

5. Import and Export Tax:

   • Import tax rates vary based on the type of goods and trade agreements.
   • Some resource-based products are subject to an export tax of 0-20%.

2. Crypto Assets Tax Policy

Legal Positioning of Crypto Assets

Malaysia does not recognize Crypto Assets as legal tender, but considers certain Crypto Assets as "digital assets" and includes them under securities regulation. Tokens with the nature of investment contracts are classified as security tokens, and their issuance and trading must obtain regulatory approval.

Taxation Principles

Although Malaysia has not yet established clear tax guidelines for Crypto Assets trading, tax obligations may still arise in certain cases:

1. Individuals holding Crypto Assets are generally not taxed.
2. The income from enterprises or individuals engaged in Crypto Assets-related businesses may be regarded as operating income and taxed.
3. Individuals identified as "day traders" are required to pay personal income tax.

The criteria for determining whether someone is a day trader include multiple factors such as the amount held, holding time, trading frequency, and trading motivation.

Tax Method

1. Day trading profit calculation: disposal price minus acquisition cost.
2. Receive compensation in the form of Crypto Assets: Taxable income is recognized at the fair market value at the time of acquisition.
3. Cryptocurrency transactions identified as "risky commercial activities" can have related expenses deducted before tax.

It should be noted that the boundary between capital holdings and operating transactions may have gray areas in practice, which could lead to changes in tax treatment.

3. Evolution of the Crypto Assets Regulatory Framework

Malaysia is gradually establishing a dual-track parallel regulatory system centered on the Securities Commission (SC) and the Central Bank (BNM). The main developments in the regulatory framework in recent years are as follows:

• 2014: BNM declared that it does not recognize Crypto Assets as legal tender and will not regulate them.
• 2018: BNM issued anti-money laundering guidelines requiring Crypto Assets service platforms to fulfill relevant obligations.
• 2019: SC included some Crypto Assets under securities regulation.
• 2020: SC released the "Digital Asset Guidelines", detailing compliance requirements for ICOs, exchanges, and more.
• 2021-2022: Strengthen law enforcement against unauthorized platforms, focusing on emerging asset forms.
• August 2024: SC updates the "Digital Asset Guidelines" to further clarify the securities status of digital currencies and related regulations.

4. Future Prospects

Malaysia adopts a cautiously open strategy in the crypto assets field, with a gradually improving regulatory framework. In the future, there may be further strengthening of compliance deepening and regional collaboration, including:

1. Strengthen cross-border data exchange and stablecoin reserve supervision.
2. Promote the digitalization of tax compliance.
3. Explore innovative applications such as CBDC.
4. Continuously pay attention to emerging fields such as NFTs and DeFi.

Against this backdrop, Malaysia is expected to gradually unleash the growth potential of the encryption economy while controlling risks, promoting the integration of Crypto Assets with the mainstream financial system.