Navigating Cryptocurrency Taxation in Malta: A Comprehensive Guide
Taxation of Cryptocurrency for Individuals and Businesses
Malta has a progressive approach to cryptocurrency taxation, benefiting from a favourable regulatory framework.
Under the Maltese crypto taxation regime, a distinction is made on whether an individual is investing in cryptocurrencies as a private individual or through a Maltese company.
Taxation of Cryptocurrency for Individuals
In Malta, the tax treatment of cryptocurrencies for individuals depends on the nature of the activity and the holding period of the assets.
Long-Term Investments
Holding cryptocurrencies as a long-term investment is attractable to any investor looking to hold cryptocurrencies in Malta since they may be deemed to be exempt from capital gains taxation, especially if the assets are classified as a “store of value”.
Occasional vs Frequent Trading
If you are an individual engaged in occasional/sporadic cryptocurrency transactions, such activities are typically considered as private transactions and are generally exempt from taxation.
On the other hand, contrary to the ‘buy-and-hold’ strategy adopted by sporadic cryptocurrency investors, individuals who engage in substantial and regular trading activities, could be deemed by Maltese Tax authorities as a professional or business activity. Consequently, capital gains from trading are subject to personal income tax, with rates ranging from 15% (for income over €9,000+) to 35% (for €60,000 and above+), thus being dependent on the total annual income.
Taxation of Cryptocurrency for Businesses
Corporate Consolidated Tax Rate of 5%
The Maltese cryptocurrency taxation regime for companies does not differentiate between activities such as holding and trading or mining. Capital gains from crypto related activities are subject to a corporate tax rate of 35%. However, Malta’s full imputation tax system allows for significant tax refunds, reducing the effective tax rate to 5% with proper structuring in terms of a tax unit composed of a Maltese Holding and Trading company.
Value Added Tax (VAT)
It is also worth noting that generally, transactions involving the exchange of cryptocurrencies are exempt from Value Added Tax (VAT) in Malta. Nevertheless, services related to cryptocurrencies, such as mining or trading platforms, may be subject to VAT.
Compliance and Reporting
Maintaining detailed records of all cryptocurrency transactions is essential for compliance and accurate tax reporting under Malta’s tax regulations. Businesses and individuals must document dates and amounts, transaction types, counterparty details and market values at the time of each transaction.
Malta’s Current Crypto Framework
Malta, renowned as the "Blockchain Island," began shaping its cryptocurrency legal framework around 2017. Today, this framework is defined by three key Acts that regulate and support the crypto industry:
1. Virtual Financial Assets (VFA) Act (November 2018)
This Act essentially offers investor protection and regulatory oversight. The VFA Act has been at the forefront of Malta’s legislative framework of blockchain innovation and remains dynamic, with amendments introduced as recently as April 2024 to address the evolving crypto regime.
2. Malta Digital Innovation Authority (MDIA) Act (July 2018)
The MDIA Act established the Malta Digital Innovation Authority, tasked with certifying blockchain platforms and auditors, ensuring consumer protection and market integrity.
3. Innovation Technology Arrangements and Services (ITAS) Act (November 2018)
This Act provides a legal framework for blockchain-based enterprises and smart contracts, prompting innovation.
Key Takeaways on Cryptocurrency Taxation in Malta -
- Progressive Regulation: Malta has a comprehensive legal framework for cryptocurrency activities, promoting transparency and compliance.
- Capital Gains Tax Exemption: Cryptocurrencies held as long-term investments are exempt from capital gains tax, making Malta attractive for investors.
- Corporate Tax Benefits: Businesses dealing in cryptocurrencies can profit from the Malta tax unit system which allows a consolidated tax rate of 5% at holding company level.
- VAT Exemption: Cryptocurrency exchanges and payments are exempt from VAT aligning with EU directives.
- Record-Keeping is Crucial: Accurate transaction records, including market values are essential for compliance and avoiding penalties.
- Double Taxation Relief: Malta’s extensive network of tax treaties minimises the risk of double taxation for international investors.
How Can We Help?
As a leading German law firm in Malta, Dr. Kresse International Law Firm possesses the relevant experience and expertise to assist individuals and businesses to optimise their tax strategies in Malta’s cryptocurrency regime. Contact us to navigate the complexities of cryptocurrency taxation with confidence.