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Malaysia is famous for its tropical climate and exquisite cuisine, but crypto enthusiasts love it for a different reason. Malaysia is one of the top recommendations for anyone looking to relocate to a crypto-friendly nation, thanks to the lenient tax regulations and an open crypto ecosystem that promotes blockchain adoption and offers a favourable regulatory landscape for crypto-based businesses.
The Inland Revenue Board of Malaysia (LHDN) has issued clear guidelines on how crypto transactions are taxed, and it’s good news for the most part. However, these guidelines are quite extensive and require a lot of effort to read and interpret. That’s why we created this detailed crypto tax guide to answer crucial questions like “How is Crypto Taxed in Malaysia?” “Can the Authorities Track Crypto Transactions?” “How is Crypto Income Taxed in Malaysia?” “How to File Crypto Taxes?” etc..,
Note that this guide will be updated regularly and we advise you to keep revisiting this guide to not miss out on crucial updates that might affect your crypto tax bill.
In Malaysia, the taxation of cryptocurrency transactions follows a clear distinction between capital gains and revenue gains. Capital gains or earnings obtained through crypto investments are not subject to taxation. This means that if individuals or businesses acquire cryptocurrency as a form of investment and hold it for an extended period, similar to traditional investment instruments, they are not obligated to pay taxes when they eventually sell or dispose of these assets.
On the other hand, revenue gains derived from cryptocurrency transactions are taxable. This applies to individuals or businesses actively engaged in crypto trading, where digital currencies are regularly bought and sold as a primary source of income. The gains generated from these trading activities are considered taxable in Malaysia.
Moreover, the taxation of cryptocurrency transactions may also depend on the location and presence of the business. If a business's key activities and operations related to cryptocurrency occur within Malaysia or if the company has a physical presence in the country, it may be subject to Malaysian taxation on cryptocurrency-related revenue gains.
The nature of gains or losses resulting from the disposal of crypto assets plays a crucial role in determining how they will be taxed. Transactions categorised as trading are taxable and any losses incurred while trading are tax deductible. However, capital gains transactions attract no taxation, and the associated losses are non-deductible.
As previously mentioned, Malaysia has a well-structured crypto landscape that offers a haven for crypto investors and blockchain-based businesses. However, this means that all exchanges and crypto-based businesses offering financial services in the region have to comply with the AML and anti-terror funding regulations.
This means that the authorities have access to your KYC details and crypto activity. These details can be correlated with the information on your tax return or data available on distributed ledgers to identify any unreported transactions. Therefore, we suggest reporting all your crypto transactions on your tax return and paying all your crypto taxes judiciously to avoid legal or tax complications in the future.
In Malaysia, capital gains from investments, including those from the sale of cryptocurrency held for the long term as a form of investment, are generally not subject to capital gains tax. This means that individuals or businesses who invest in cryptocurrencies to hold them for an extended period, similar to traditional investment instruments like stocks or real estate, do not incur capital gains tax when they eventually sell or dispose of their cryptocurrency holdings at a profit.
The absence of capital gains tax on such investments is advantageous for long-term investors, as it allows them to realize gains from their investments without additional taxation. However, it's important to note that specific tax laws and regulations may evolve, so it's better to stay informed about any changes in the tax landscape.
Note that while capital gains from long-term investments are generally not taxed, revenue gains from active cryptocurrency trading activities are subject to taxation in Malaysia. Income derived from trading crypto assets is taxed at the regular income tax rates.
Since there is no capital gains tax in Malaysia, income derived from trading cryptocurrencies regularly is taxed under the existing income tax rates. We have discussed income taxes in detail later in the guide.
Calculating your capital gains is pretty straightforward. You can use the following formula to calculate your capital gains or losses:
For those of you who aren’t familiar with the term “Cost Basis”, it is simply the amount you pay to acquire an asset inclusive of any additional costs like transaction fees or gas fees.
Here’s an example:
Consider the following transactions:
18/01/23 - Zikri Purchased 1 BTC for 1,00,000 MYR
27/08/23 - Zikri sold 1 BTC for 1,20,000 MYR
Let’s say Zikri paid 1,500 MYR in gas fees for each transaction.
Cost Basis = 1,00,000 MYR + 3,000 MYR = 1,03,000 MYR
Disposal Amount = 1,20,000 MYR
Capital Gain = Disposal Amount - Cost Basis = (1,20,000 - 1,03,000) MYR = 17,000 MYR
In Malaysia, losses incurred from crypto transactions may be eligible for tax deductions, given that certain criteria are met. These losses must be associated with trading activities, such as actively buying and selling cryptocurrencies. Losses incurred from sporadic disposal of crypto assets are not eligible for tax deductions.
Moreover, losses from trading can only offset profits generated from the same source. They cannot be used to offset income derived from other sources.
No current guidelines dictate how lost or stolen assets are viewed from a tax perspective. However, the LHDN will likely offer some relief after making an individual analysis of claims on a case-by-case basis, given that you have the supporting documents to prove the ownership of assets before losing them.
We suggest seeking the guidance of an experienced tax professional to gain more clarity on the subject.
There is no legal way to avoid paying crypto taxes entirely unless you’re an occasional investor with a long-term perspective. However, there are strategies you can use to lower your tax bill:
Professional traders can offset their trading losses against their gains to lower their tax bill in Malaysia. Note that these losses can only be used to write off gains incurred from trading cryptocurrencies frequently.
Since crypto-to-crypto trades aren’t taxable in Malaysia, you can convert your crypto assets into stablecoins when disposing of them to avoid tax implications.
The examples we have used so far are simplistic and do not reflect the complexity of real-world transactions. Traders/Investors usually buy multiple assets of the same kind at different prices throughout the tax year. This makes cost-basis calculations very complicated because identifying the cost basis is tricky when you have multiple acquisition prices for the same asset.
That’s why tax authorities across the globe recommend using specialized accounting methods for accurate cost-basis calculations. The LHDN recommends using the FIFO (First-In-First-Out) accounting method.
The FIFO accounting method states that the earliest asset acquired is the first one sold.
Let’s look at an example to understand how it works:
Consider the following transactions:
21/02/23 - Rayyan bought 1 ETH for 10,000 MYR
28/03/23 - Rayyan bought 1 ETH for 8,000 MYR
18/05/23 - Rayyan bought 1 ETH for 11,000 MYR
04/06/23 - Rayyan sold 1 ETH for 15,000 MYR
Now, since the FIFO accounting method states that the first asset bought is the first one sold. The cost basis for this disposal would be equal to the acquisition price of the ETH token acquired on 21/02/23.
Cost Basis = 10,000 MYR
Disposal Amount = 15,00 MYR
Capital Gains = Disposal Amount - Cost Basis = 15,000 MYR - 10,000 MYR = 5,000 MYR
Income derived from crypto assets as a trader, miner, or as a business is taxable as income under the regular income tax rates. However, one must satisfy at least one of the following criteria to be categorized as a trader in Malaysia:
1. High Volume Trades
2. High-Frequency Trades
3. Short Ownership Duration
4. Promoting crypto projects
5. Selling without actual need for capital
6. Business Mindset
7. Selling assets to finance crypto trades
Moreover, mining is also a taxable event in Malaysia. Tokens received as compensation for mining are treated as income and are taxed under the regular income tax laws. Any expenses or losses incurred while mining or trading are considered tax deductible.
The following income tax rates apply to Individual tax-payers in Malaysia:
Listed below are some tax-free crypto Transactions:
Listed below are some taxed crypto transactions:
Crypto mining is subject to taxation based on the profit-seeking motive behind the mining activities in Malaysia. If an individual or entity is involved in crypto mining as a business for making a profit, they are liable for income tax. This means that any gains derived from cryptocurrency mining activities are considered taxable income.
However, the taxation of cryptocurrency mining also allows for the deduction of related expenses incurred in the mining process. These deductible expenses can include costs associated with mining equipment, electricity consumption, maintenance, and other related expenses. These deductions serve to reduce the taxable income incurred from mining.
It's important to note that the tax treatment of profits generated from cryptocurrency mining depends on whether these gains are categorized as capital or revenue in nature.
The tax treatment of crypto staking remains somewhat unregulated and falls within the framework of the country's existing tax laws. As of now, there are no specific provisions or rules within the Malaysian Income Tax Act (ITA) that explicitly address the taxation of returns obtained through cryptocurrency staking.
Cryptocurrency staking rewards are akin to income, and taxpayers may be required to report and potentially pay taxes on these earnings, following the principles of the ITA. However, due to the lack of specific guidance, the precise tax treatment of staking rewards may vary among individuals and corporate taxpayers.
We suggest seeking guidance from an experienced tax consultant to gain more clarity on the subject.
In Malaysia, the taxation of digital currency acquired through airdrops and forks hinges on its specific usage and the nature of the gains derived from it. When individuals receive digital currency through airdrops or as a result of a hard fork, it is generally not considered taxable income at the time of receipt. This means that there is no immediate tax liability associated with acquiring these tokens through such events.
If an individual receives tokens through airdrops or forks and subsequently uses them in transactions where they are exchanged for goods or services, the value of the tokens involved in these exchanges may become subject to income tax.
Moreover, the gains realized from the future sale or disposal of tokens acquired through airdrops or forks could be subject to taxation if they are characterized as revenue gains. This means that if an individual or entity generates profit from selling these tokens, and this profit is seen as part of their income, it may be taxable.
Crypto Gifts and Donations are tax-free in Malaysia.
There is no specific guidance on the tax treatment of gains derived from crypto margin trades, futures, and CFDs. Any transactions involving such trades will likely be treated the same way as regular trades and attract similar tax implications.
The tax implications of these gains would depend on whether it is capital or revenue in nature. Gains from frequent trades would be categorized as revenue and taxed under the existing income tax laws.
ICOs are special events that allow investors to own native tokens from unreleased projects in exchange for mainstream tokens like Bitcoin and Ethereum. They are similar to IPOs in the regular securities market.
The LHDN has yet to release specific guidelines on the taxation of ICOs. However, since these tokens cannot be viewed as revenue due to their non-recurring nature, ICOs would likely attract no tax implications in Malaysia.
While there are no specific guidelines addressing the taxation of NFT transactions, purchasing, selling, and exchanging NFTs will probably result in similar tax obligations as conventional digital asset transactions.
If the NFT trades occur regularly then they would likely attract income tax. However, if they are infrequent, the gains might be exempt from taxation due to the absence of capital gains tax in Malaysia. To gain a deeper understanding of NFT taxation, it's advisable to consult with an experienced tax professional.
DAOs are member-owned communities with a shared vision. All the decisions in a DAO are made by the members in the absence of central leadership. They are new-age institutions that aim to democratize decision-making and allow people to have a say in decisions that directly affect them. DAOs are often called the soul of Web3 and allow members to earn rewards in multiple ways. DAO contributors are rewarded for their contributions to the organization, similar to how centralized organizations pay salaries to their employees. They also pay out bounties for one-time projects and redistribute any profits generated through operations.
There are no guidelines around the taxation of tokens received from DAOs, although these tokens would only be taxable if they are recurring and have enough volume to be categorized as revenue.
We suggest seeking guidance from an experienced tax consultant to better understand how such transactions are taxed.
There are no guidelines regarding DeFi taxation in Malaysia. DeFi encompasses a suite of fairly complex transactions, and interpreting the current guidelines in the context of these transactions lends credence to the notion that any income derived from such transactions would only be taxable if it is recurring and can be viewed as revenue.
We suggest seeking guidance from an experienced tax professional to gain more clarity on DeFi taxation.
The deadline for submitting individual tax returns for residents and non-residents with regular income is April 30th of the following year. Whereas, the tax deadline for individual tax returns for residents and non-residents with business income is June 30th of the following year.
You can file your tax return online using the e-Daftar portal. Note that one must always complete his/her tax calculations and keep relevant documents handy to avoid complications while filing the tax return.
Tax-payers are expected to maintain the following documents for a smooth tax filing experience in Malaysia:
Now that you’re aware of how your crypto transactions are taxed and what forms you need to fill out to complete your tax report, here’s a step-wise breakdown of how Kryptoskatt can make this task easier for you:
1. Visit Kryptoskatt.com and sign up using your email or Google/Apple Account
2. Choose your country, currency, time zone, and accounting method
3. Import all your transactions from wallets and crypto exchanges
4. Choose your preferred report click on the generate report option on the left side of your screen and let Kryptoskatt do all the accounting.
Once your Tax report is ready, you can download it in PDF format.
There’s not much to avoid when it comes to crypto taxes since most crypto transactions are tax-free in Malaysia. However, if you do want to lower your tax bill, you can refer to the above section titled “Crypto Tax Breaks Malaysia” where we have discussed tax-saving strategies in detail.
The question can be better phrased as “Is investing in crypto legal in Malaysia?” and the answer is yes. Malaysia stands out as a cryptocurrency-friendly nation, offering a welcoming environment for crypto enthusiasts with its favorable ecosystem and accommodating tax regulations. Investing in cryptocurrency assets is straightforward, particularly for casual investors who typically incur no tax obligations.
In Malaysia, the taxation of cryptocurrency transactions involves distinguishing between capital gains and revenue gains. Capital gains, which stem from cryptocurrency investments held as long-term assets, are generally not subjected to taxation. This means that individuals or businesses acquiring cryptocurrencies for investment purposes and holding them over an extended period are typically exempt from taxes when they eventually sell or dispose of digital assets.
On the other hand, revenue gains arising from frequent cryptocurrency transactions, where digital currencies are actively traded as a primary source of income, are subject to taxation. If cryptocurrency is used as part of business activities performed within Malaysia or if a business has a physical presence in the country, the revenue gains from cryptocurrency transactions may be subject to Malaysian taxation.
The nature of gains or losses resulting from the disposal of digital currencies or tokens plays a critical role in determining tax liability. Transactions considered trading in nature are taxable, with corresponding losses being deductible. In contrast, transactions categorized as capital in nature are typically not subject to taxation, and associated losses are not deductible.
No, there is no dedicated capital gains tax in Malaysia, and hence most transactions resulting in a capital gain are tax-free.
We’ve already discussed how to file your crypto taxes in the above sections of the guide offering a stepwise breakdown of the entire process. However, we agree that it is unreasonably complicated even for someone with a fair amount of prior knowledge. However, there’s an easy way to file your crypto taxes using a crypto tax software called Kryptos.
All you need to do is log in on the platform, add all your trading accounts, wallets, and Defi accounts, and sip coffee while Kryptos does all the heavy lifting for you. The platform auto-fetches all your transactions from the tax year. It generates a legally compliant tax report within minutes while also suggesting ways to lower your tax bill. It works like magic, all you need to do is try it once.