'Blockchain Island' Malta Cryptocurrency Tax Guide

Author: Andrew Kamsky, Compiler: TaxDAO

Overview of Cryptocurrency Tax Regulations in Malta

Malta positioned itself as a leading country in the cryptocurrency industry back in 2018, dubbing itself the “Blockchain Island.” A series of regulatory bills in the country have created a regulatory ecosystem for cryptocurrencies and the crypto industry to operate and grow.

Malta Financial Services Authority (Malta Financial Services Authority, MFSA) is the only financial services regulatory agency in the country. The three main acts under its supervision are: Malta Digital Innovation Authority Act (Malta Digital Innovation Authority, MDIA), innovation Innovative technology Arrangements and Services Act (ITAS) and Virtual Financial Assets Act (Virtual Financial Assets, VFA). These Acts are designed to protect consumers, promote innovation, and ensure the integrity and security of Malta's cryptocurrency industry.

Malta Digital Innovation Authority (MDIA) Act

The MDIA Act is an important part of the regulatory framework for the cryptocurrency industry in Malta. The MDIA Act was formulated to promote innovation and ensure integrity within the industry, with a focus on building the credibility of distributed ledger technology (DLTs) projects. It provides users with legal policies emphasizing the internal governance arrangements of companies operating in the field of digital innovation. The Act aims to protect consumers and create an enabling environment for the growth and development of blockchain-based projects and services in Malta.

Innovative technology arrangements and services (Innovative technology Arrangements and Services, ITAS) Act

The ITAS Act plays a vital role in the regulation of cryptocurrencies in Malta, especially with regard to the certification of blockchain-based projects and services. The bill focuses primarily on the arrangement of distributed ledger technologies and the certification of their platforms. It lays the groundwork for the establishment and regulation of cryptocurrency exchanges, ensuring they adhere to strict standards and best practices. By providing a comprehensive framework for DLT and related services, the ITAS Act aims to foster a safe and innovative environment for the crypto industry to flourish within Malta.

Virtual Financial Assets (VFA)

The Virtual Financial Assets Act is the basic pillar of Malta's cryptocurrency regulatory framework and is used to supervise domestic virtual financial assets and service platforms. The bill mainly deals with establishing a robust regulatory regime for initial coin offerings (ICOs), cryptocurrency exchanges, and wallet providers. The Act aims to protect investors and consumers while ensuring that markets operate with integrity and safety. Additionally, clear guidelines and requirements have been established for cryptocurrency-related businesses, including licensing and compliance obligations.

Cryptocurrency Tax Classification in Malta

Cryptocurrency Definition

In Malta, virtual currency is defined as "Virtual Financial Assets" (Virtual Financial Assets, VFAs), and includes any digital medium used for digital transactions or value storage, not just limited to electronic currency, financial instruments or virtual tokens ( such as Bitcoin and Ethereum).

Judicial decisions on virtual currencies in Malta focus on fraud and licensing violations. To date, there have been no judicial findings related to smart contract law or cryptocurrencies.

DIFFERENCE BETWEEN TRADING, INVESTING AND MINING ACTIVITIES

According to Maltese law, a distinction exists between trading, investing and mining activities in cryptocurrencies:

Trading: People who make frequent short-term trades to profit from price fluctuations are called traders. The size and frequency of an individual's or entity's transactions determine its tax and regulatory obligations.

Investing: Investors generally hold assets for a long period of time, which may have different tax implications compared to traders. Investing activities are generally less regulated.

Mining: Mining is considered a legal activity under Maltese law. Tax responsibilities and other regulatory requirements for miners depend on the size and nature of their operations.

The above activities are subject to different regulations in the Virtual Financial Assets Act and other related acts.

Tax Filing and Compliance in Malta

The entities that are obliged to declare tax in Malta tax law are companies and individuals.

Corporations: Electronic corporate income tax returns can be filed online.

Individuals: There are specific personal income tax obligations and deadlines for people engaged in part time self-employment and part time employment.

Capital Gains Tax in Malta

In Malta, capital gains from trading assets (such as cryptocurrencies or personal property) are generally not subject to capital gains tax, but gains from trading activities or frequent disposal of assets may be regarded as business income and subject to income tax according to law.

Capital gains tax rates on cryptocurrencies and other assets range from 15% to 35%, depending on whether the taxpayer has Malta residency.

Tax Situation of Mining Activities in Malta

In Malta, mining activities are taxed under a progressive tax system. Tax incentives are available for amateur or part-time mining activities. This tax incentive applies to individuals who work part-time (including employment and self-employment) in Malta, that is, the income or profit of the first 10,000 euros and 12,000 euros of income enjoys a fixed tax rate of 10%.

Income from part-time work does not need to be declared on the annual income tax return, as this 10% is fixed and final without further tax payments. Of course, if the part-time income exceeds the designated preferential amount, the excess must be declared and taxed at the normal tax rate.

Cryptocurrency Tax Incentives in Malta

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

From an income tax perspective, holding cryptocurrencies and receiving payment in virtual currency for goods or services rendered are taxable events. Tax treatment is similar to traditional currencies, with capital gains tax applicable when cryptocurrencies are sold or used. In the European Union, payment for supplies via cryptocurrency is exempt from VAT.

in conclusion

Malta’s aggressive approach to creating a cryptocurrency regulatory ecosystem has earned it the title of “Blockchain Island.” Through the MDIA Act, ITAS Act and VFA Act, the country aims to promote innovation, protect consumers and ensure the integrity of the crypto industry. Malta’s taxation of cryptocurrencies is generally similar to that of traditional assets, with capital gains taxed when assets are sold. The country’s positive economic outlook and ongoing regulatory developments continue to position it as a favorable destination for the crypto industry.