Malta Embraces the Crypto Revolution: Crypto Regulation in 2024
Malta has emerged as a prominent player in the world of cryptocurrencies, earning the title of “blockchain island” for its forward-thinking approach. It was the first country to embrace the crypto industry by implementing a regulatory framework that allows both digital currencies and related businesses to coexist and thrive.
Malta has become a favorable destination for entrepreneurs and fintech firms looking to leverage blockchain technology. Its progressive tax system has made it one of the most crypto-friendly countries globally. The country introduced three bills to regulate and tax cryptocurrency exchanges operating within its borders. These tax laws align with the high-level principles of the European Union, focusing on market integrity and industry protection.
In this module presented by Coinpedia, we will delve into the key highlights of Malta’s crypto regulatory landscape.
Executive Summary
With the impending implementation of the European Union’s Markets in Crypto-Assets (MiCA) Regulation in 2023, the Malta Financial Services Authority (MFSA) has positioned itself as a progressive overseer of the crypto space in Malta. The MFSA is committed to ensuring a safe and secure crypto ecosystem, as evidenced by its efficient approach to regulating virtual financial assets. Following the implementation of MiCA, service providers will operate under a single license throughout the EU. In anticipation of MiCA’s arrival, the MFSA has already taken steps to revise its regulatory framework for crypto companies. MiCA is set to take effect in 2024, introducing new rules within the EU region.
This report by Coinpedia covers all aspects of Malta’s latest crypto regulatory environment.
Malta’s Crypto Policy
The cryptocurrency regulations established in 2018, known as the MDIA Act, ITAS Act, and VFA Act, serve as a form of governance to bring clarity to this previously unregulated market.
What is DLT Asset Classification?
All cryptocurrencies used globally are subject to asset classification under the Income Tax Act (ITA). Distributed Ledger Technology (DLT) falls into four categories:
1. Coins
2. Financial tokens
3. Utility tokens
4. Hybrid tokens
The Maltese tax laws consider the nature of virtual asset transactions, the status of involved parties, and the circumstances of each transaction. Once identified, DLT transactions may be subject to regular income tax or other taxation rules. For tax purposes, DLT assets are classified into the aforementioned categories.
Basics of Cryptocurrency Taxation in Malta:
In Malta, cryptocurrency is taxed under a government-directed regulatory framework based on the MDIA, ITAS, and VFA Acts. The regulatory system distinguishes between trading, mining, and investing in cryptocurrencies.
Trading:
Individuals engaged in frequent and short-term transactions to profit from price fluctuations are considered traders. The taxation on traders depends on the scale and frequency of their trading activities.
Investing:
Investors hold their assets for extended periods and may be subject to different taxation rules compared to traders.
Mining:
Mining is a legitimate activity in Malta and is subject to taxation and other regulatory requirements based on the scale and nature of mining operations.
Each activity is governed by specific rules and regulations under the VFA Act.
Taxation on Cryptocurrency Gains in Malta:
Capital gains or assets, such as cryptocurrencies, are generally subject to capital gains tax in Malta. Gains from trading activities may be treated as business income and taxed accordingly. The capital gains tax rates on cryptocurrencies range from 15% to 35%, depending on the taxpayer’s residential status.
Taxation on Mining Activities in Malta:
Taxation on mining in Malta follows a progressive rate. Part-time miners may benefit from advantageous tax rates. Individuals engaged in part-time employment and part-time self-employment in Malta may be subject to a fixed tax rate of 10% on the first €10,000 and €12,000 of income or profits, respectively.
Crypto Tax Incentives in Malta:
Malta offers tax incentives to promote the crypto industry. The country has created a crypto-friendly regulatory ecosystem by introducing three bills in 2018 to regulate and tax cryptocurrency exchanges. These bills prioritize 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 using cryptocurrencies is exempt from value-added tax (VAT) in the European Union.
Maltese Crypto Acts
1. Malta Digital Innovation Authority (MDIA) Act:
This act aims to foster innovation and integrity in the crypto space by providing a legal framework for crypto users. It came into effect on July 15, 2018. The objectives of the MDIA Act include promoting public policies for technological innovation, encouraging the usage of innovative technologies, protecting Malta’s progressive reputation, and promoting transparency and control in the use of innovative technologies.
2. Innovative Technology Arrangements and Services (ITAS) Act:
Enacted on November 1, 2018, this act focuses on standardizing the regulation of new and evolving technologies. It is enforced by the MDIA. The ITAS Act defines innovative technological solutions and services related to distributed ledger technology (DLT) and provides criteria for their classification and regulation.
3. Virtual Financial Assets (VFA) Act:
Enacted in 2018, this act establishes a regulatory framework for virtual financial assets, including crypto tokens. It sets requirements for businesses involved in initial coin offerings (ICOs) and crypto exchanges.
Crypto Regulatory Advantages in Malta
Malta offers several advantages for cryptocurrency businesses:
1. Legal Clarity:
The Maltese government has provided clear definitions for cryptocurrencies and blockchain, offering certainty to businesses and investors.
2. Innovation-Friendly Environment:
Malta encourages new developments in the blockchain and crypto sectors by providing a supportive environment for startups.
3. Investor Protection:
The VFA Act includes disclosure requirements for ICOs and mandates licensing for crypto service providers, ensuring investor protection.
4. International Recognition:
Malta’s approach to cryptocurrencies has gained international recognition and attracted numerous crypto companies to the island.
Final Thoughts
When the Markets in Crypto Assets regulation was introduced, the Maltese government proactively adjusted its crypto regulations. The MFSA opened doors for public consultation in 2023, aiming to align Malta’s framework with MiCA’s provisions. The MFSA seeks to refine regulations governing exchanges, custodians, and portfolio managers in the crypto domain. This move demonstrates Malta’s willingness to align itself with innovative reforms in the cryptocurrency industry.
Tags: Crypto news, Cryptocurrency