Malta’s Cryptocurrency Regulation Embraces the Crypto Revolution by 2024
Malta has gained a prominent position in the world of cryptocurrency, earning the nickname “blockchain island” for good reason. It was the first country to support the crypto industry by implementing legislative measures. This created a regulatory system that allowed both the currency and the industry to coexist and flourish.
Malta is particularly attractive to entrepreneurs and fintech firms looking to leverage blockchain technology. Its progressive nature, coupled with a fair taxation system for crypto, has made it one of the most crypto-friendly countries globally. To oversee and tax cryptocurrency exchanges within its borders, Malta introduced three bills. These tax laws reflect the high standards of the European Union in terms of market integrity and industry protection.
In this module presented by Coinpedia, we will explore the key highlights of Malta’s crypto regulatory landscape.
Executive Summary
In 2023, with the impending implementation of the European Union’s Markets in Crypto-Assets (MiCA) Regulation, the Malta Financial Services Authority (MFSA) positioned itself as a forward-thinking supervisor of the crypto industry in Malta. The MFSA is committed to ensuring a safe and secure crypto ecosystem in the country and has taken an effective approach to regulating virtual financial assets.
Following the implementation of MiCA, service providers are expected to operate under a single license throughout the European Union. In light of this development, the MFSA has taken steps to revise its regulatory framework for crypto companies. MiCA is set to come into effect in 2024, ushering in new rules for the EU region.
This report by Coinpedia provides comprehensive coverage of the latest developments in Malta’s crypto regulatory landscape.
Malta’s Crypto Policy
The crypto regulations established in Malta in 2018, namely the MDIA Act, ITAS Act, and VFA Act, serve as a governance framework to bring clarity to this previously unregulated market. One key aspect of this policy is the classification of Distributed Ledger Technology (DLT) assets.
DLT assets, including all globally used cryptocurrencies, are classified into four categories under the Income Tax Act (ITA):
1. Coins
2. Financial tokens
3. Utility tokens
4. Hybrid tokens
Maltese tax laws take into account the nature of the virtual asset transaction, the parties involved, and the specific circumstances of each transaction. Once classified, DLT transactions may be subject to regular income tax or other applicable tax rules based on their category.
Basics of Taxation on Crypto in Malta
In Malta, cryptocurrency is subject to taxation under a government-directed regulatory framework established by the MDIA, ITAS, and VFA acts. The regulatory system in Malta distinguishes between trading, mining, and investing in cryptocurrencies.
1. Trading: Individuals engaged in frequent and short-term transactions to profit from price fluctuations are considered traders. Taxation for traders depends on the scale and frequency of their trading activities.
2. Investing: Investors hold their assets for extended periods and may have different tax rules compared to traders.
3. Mining: Mining is a legitimate activity in Malta and is subject to taxation and other regulatory requirements based on the scale and nature of the mining operations.
Each activity is governed by different rules and regulations under the VFA Act.
Taxation on Crypto Gains in Malta
Capital gains or assets such as cryptocurrencies are generally subject to capital gains tax in Malta. Gains made from trading activities may be treated as business income and taxed accordingly. The capital gains tax rates on crypto range from 15% to 35% depending on the taxpayer’s residential status.
Taxation on Mining Activities in Malta
Taxation on mining in Malta is progressive. If mining is conducted on a part-time basis, favorable tax rates may apply. Individuals engaged in part-time employment and part-time self-employment in Malta may benefit from 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 regulatory ecosystem that is friendly towards crypto by introducing three bills in 2018 to supervise and tax cryptocurrency exchanges. These bills focus 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 using cryptocurrencies is exempt from VAT in the European Union.
Maltese Crypto Acts
1. Malta Digital Innovation Authority (MDIA) Act: This act aims to promote innovation and integrity in the crypto space. It provides a legal framework for crypto users and came into effect on July 15, 2018. The objectives include promoting public policies for technological innovation, encouraging the use of innovative technologies, protecting Malta’s reputation as a progressive nation, and promoting transparency and control in the use of innovative technologies.
2. Innovative Technology Arrangements and Services (ITAS) Act: Passed 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 as software used in the design and delivery of DLT, with specific characteristics and protections. It also defines innovative technological services related to system auditors and technical administrators.
3. Virtual Financial Assets (VFA) Act: Enacted in 2018, this act establishes a regulatory framework for virtual financial assets, including crypto tokens. It sets out requirements for businesses involved in Initial Coin Offerings (ICO) and crypto exchanges.
Crypto Regulatory Advantages in Malta
Malta offers several advantages when it comes to cryptocurrency:
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 framework for startups.
3. Investor protection: The VFA Act includes disclosure requirements for ICOs and mandatory licensing for crypto service providers, ensuring investor protection.
4. International recognition: Malta’s internationally recognized approach to crypto has attracted numerous crypto companies to the island.
Final Thoughts
When the Markets in Crypto Assets (MiCA) regulation was introduced, the Maltese government took proactive steps to align its crypto regulations with the new requirements. The MFSA opened doors to public consultation in 2023, aiming to refine regulations for exchanges, custodians, and portfolio managers in the crypto industry. This demonstrates Malta’s willingness to adapt to innovative reforms in the realm of cryptocurrencies.
Tags: Crypto news, Cryptocurrency