Wondering How to Navigate Crypto Taxes in South Africa? Read our detailed guide on South African Crypto Taxes!
Wondering How to Navigate Crypto Taxes in South Africa? Read our detailed guide on South African Crypto Taxes!
Curious about crypto taxation in Luxembourg for 2023? Our guide covers everything you need to know about crypto taxation in Luxembourg.
Curious about the future of crypto taxation in Malaysia? Explore our 2023 Crypto Tax Guide for expert insights on crypto taxation in the region!
Malta is one of the friendliest countries in the world when it comes to crypto. It has enjoyed its presence on every crypto tax haven list on the internet, the reason being the lenient regulations and nominal taxes on crypto gains. Other countries have accepted crypto with open arms, but Malta has actively pursued the proliferation and large-scale adoption of crypto in the region with specialised legislation for defining and categorising crypto assets.
The primary roadblock to large-scale crypto adoption in most countries has been the uncertain crypto regulations. Malta realised this and has released multiple acts and legislations to nurture a thriving ecosystem for crypto enthusiasts. While the presence of such comprehensive regulations does remove confusion and chaos from the crypto scene, it also makes it a bit more complicated for investors to track these regulations and interpret them in the context of specific transactions. That’s why we created this detailed tax guide that explains the ins and outs of crypto taxation in Malta in a more digestible fashion.
Note that this guide is quite comprehensive and will be updated regularly to accommodate new guidelines. Therefore, we suggest revising this guide regularly to stay up to date with tax trends.
In Malta, the taxation of cryptocurrencies is governed by a regulatory framework comprising three main acts: the Malta Digital Innovation Authority (MDIA) Act, the Innovative Technology Arrangements and Services (ITAS) Act, and the Virtual Financial Assets (VFA) Act. These acts collectively aim to safeguard consumers, promote innovation, and ensure integrity within the crypto industry.
Under the Maltese regulatory structure, there are distinctions between trading, investing, and mining activities related to cryptocurrencies:
Capital gains on other assets, including cryptocurrencies and personal property, are generally not subject to specific capital gains tax in Malta. However, gains resulting from trading activities or frequent asset disposals may be treated as business income and subject to income tax.
The capital gains tax rates on cryptocurrencies and other assets in Malta range from 15% to 35%, depending on the individual's residential status. It's important for individuals engaged in cryptocurrency activities to consult with crypto-native tax consultants to navigate the complex realm of crypto taxation effectively and ensure compliance with relevant laws.
The simple answer to this question would be yes. Since Malta is the jewel of the EU’s crown, it enjoys certain regulatory benefits. As a member of the EU, Malta comes under the regulatory jurisdiction of directives like DAC-8 that compel crypto companies offering financial services in the region to comply with harsher crypto reporting norms. In line with DAC-8, crypto service providers are required to collect and share user details and investment records with all member states.
Moreover, there are directives like AMLD-6 that call for stricter KYC norms for crypto service providers in the EU. This means that the MFSA has access to your KYC details and can easily identify any discrepancies in your tax report by correlating your details with transactions on public ledgers and that could get you into a lot of trouble.
Therefore it would be in your best interest to report all your crypto transactions on your tax report and pay your crypto taxes judiciously.
As previously mentioned, a specific capital gains tax on cryptocurrency holdings doesn't exist. The tax treatment hinges on your crypto activities and residential status.
Cryptocurrency Trading can lead to income tax if deemed part of an active trading business. Frequent short-term transactions may be classified as business income rather than capital gains.
Investment activities involving long-term crypto holdings usually escape capital gains tax when you eventually sell.
Malta recognizes cryptocurrency mining as legitimate but assesses tax based on the scale and nature of mining operations.
Residential Status influences your tax obligations. Residents and non-residents may face different tax rates on crypto gains.
Income tax rates, covering cryptocurrency gains, range from 15% to 35%, contingent on residential status. Consulting crypto-savvy tax advisors can help navigate complex tax rules and ensure compliance with local laws, providing tailored guidance to individual circumstances.
In Malta, the capital gains tax rate can vary depending on several factors, including your residential status and the type of asset you're selling.
Calculating your capital gains or losses is a pretty straightforward process. You can simply use this formula to calculate your capital gains/losses:
For those of you who are not aware of what cost basis means. It is simply the price you pay to acquire a certain asset inclusive of any additional costs like gas fees or transaction fees.
Here’s an example:
Mario decides to buy 2 BTC for €30,000 and pays a transaction fee of €150 in the process. After 6 months, Mario sells these 2 BTC for €50,000 and pays a transaction fee of €200 in the process.
Total Transaction fees paid = €150 +€200 = €350
Disposal Amount = €50,000
Cost Basis = Price of the asset + Additional Charges = €30,000 + €350 = €30,350
Capital gains = Disposal Amount - Cost Basis = €50,000 - €30,350 = €19,650
Although there are no clear guidelines that explicitly dictate the tax deductibility of capital losses in Malta, if we consider crypto trades to be the same as regular trades, we can predict how these losses are viewed from a tax perspective.
Malta's tax rules allow for the deduction of trading losses incurred in any trade, business, profession, or vocation. These losses can be used to reduce chargeable income or gains, potentially resulting in lower tax liabilities for the taxpayer. However, there may be specific regulations or limitations regarding the treatment of cryptocurrency losses, so it's advisable to consult with a tax professional or authority in Malta for precise guidance on cryptocurrency-related deductions.
There are no clear guidelines on whether lost or stolen assets are considered for tax deductions. However, the authorities will likely analyse individual cases and offer some form of relief based on the total value of the loss and the circumstances that led to them.
Therefore, we suggest contacting the MFSA directly to report your lost or stolen assets and seek relief.
As mentioned above, individuals can deduct their capital losses from their gains and reduce their tax liabilities in Malta. Moreover, Malta also offers some personal deductions and allowances to individual investors that can be utilised to lower tax liabilities.
The most significant ones are mentioned below:
The examples we have used above are primitive and do not reflect the complexity of real-world capital gains taxations. When a person buys or sells crypto there are instances where he/she buys the same asset at different prices at different instances. And when that happens, it becomes very confusing for investors to identify their cost basis. That is why one should rely on specialised accounting methods as specified by tax authorities to avoid confusion and error in cost-basis calculations.
Malta follows the International Financial Reporting Standards (IFRS) put forth by the International Accounting Standards Board (IASB). The IFRS are a set of accounting standards put forth to specify how certain transactions are to be reported on financial statements. Since the IFRS specifies the use of FIFO and ACB as accepted accounting methods, it is likely that the use of these accounting methods is permissible in Malta.
The MFSA does not specify explicitly which accounting method to use for cost-basis calculations in Malta. So we will discuss both accounting methods in detail.
FIFO or the First-In-First-Out accounting method states that the acquisition price of the earliest asset you buy is to be used as the cost basis for capital gains calculations upon disposal.
The average cost basis method simply states that the cost basis for an asset is simply equal to the average acquisition price of all tokens that you currently have in your portfolio.
Here’s an example to understand how these methods work.
Consider the following transactions:
17/01/22 - Jack bought 1 ETH for €1,400
19/02/22 - Jack bought 1 ETH for €1,800
28/05/22 - Jack bought 1 ETH for €1600
21/06/22 - Jack sold 1 ETH for €2,400
According to FIFO, the first acquisition determines the cost basis.
Cost basis = €1,400
Disposal Amount = €2,400
Capital Gains = Disposal Amount - Cost Basis = €2,400 - €1,400 = €1,000
The ACB method considers the average acquisition price as the cost basis.
Cost Basis = (€1,400 + €1,600 + €1,800)/3 = €1,600
Disposal Amount = €2,400
Capital Gains = €2,400 - €1,600 = €800
Notice how the capital gain changes when you use different accounting methods.
As previously mentioned, all gains from crypto trades and income derived from income-bearing crypto transactions attract income tax in Malta. Revenue from mining, staking, yield farming, ICOs, Airdrops, or any other source attracts income tax in Malta.
The income tax rates in Malta are as follows:
The following transactions are tax-free in Malta:
The following transactions are taxed in Malta:
Crypto mining is subject to taxation, and the tax treatment depends on factors like the nature and scale of mining activities, individual or business tax status, and income derived from mining.
Income generated from cryptocurrency mining is generally considered taxable income, subject to personal or business income tax rates, depending on whether it's conducted as a personal activity or a business venture. Business income may be taxed differently from individual income.
Cryptocurrency miners may be eligible to deduct certain expenses associated with mining, such as electricity costs and hardware expenses, to reduce their taxable income.
Malta typically doesn't impose capital gains tax on cryptocurrency sales, but specific circumstances and the intent behind selling mined cryptocurrencies can impact tax liability.
Maintaining meticulous records of mining activities, expenses, and cryptocurrency sales or transfers is crucial for accurate tax reporting.
Although mining and staking are two very different ways of adding and validating new blocks of transaction on public ledgers (blockchain), most countries in the EU consider both mining and staking to be the same from a tax perspective, and Malta is no exception.
The taxation of staking rewards is the same as mining rewards.
Tokens received through Hardforks and Airdrops are taxed based on their utility as DLT assets. If you use the token as a means of payment, store of value, or a medium of exchange in the digital realm then these tokens would be categorised as a coin. However, if you use these tokens for buying a product or a service in the physical world, then these tokens are categorized as Utility tokens and taxed accordingly.
But since coins and utility tokens are not on the list of capital assets in the income tax act, the capital gains on their disposal do not attract income tax. We suggest seeking the guidance of an experienced tax professional to gain some clarity on the subject.
Note that soft forks do not attract any taxes since no new tokens are generated and redistributed to the chain participants during the chain split.
There is no clear guidance on how crypto gifts and donations are viewed from a tax perspective. However, if we consider crypto gifts and donations to be the same as fiat ones, we can infer the following:
There is no gift, inheritance, or estate tax in Malta and gifting crypto assets is likely tax-free. When it comes to donations there are no guidelines regarding the same. We do suggest seeking the guidance of an experienced tax professional to better understand their taxation.
Any gains derived from margin or leverage trades are considered to be the same as the ones derived from regular trades. The MFSA doesn’t make any exceptions between the two trade types and the tax implications are the same even for Crypto Future and Derivatives.
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.
In Malta, ICOs are subject to varying tax implications based on factors such as token classification and the nature of the income generated. Firstly, income tax may apply if tokens from an ICO are considered revenue. The tax rate depends on whether the income is categorised as business income or capital gains.
Regarding VAT, ICOs are generally treated as taxable services, making VAT potentially applicable to the consideration received for the tokens. However, specific token types and transactions may have exceptions and unique VAT rules.
Capital Gains Tax could be relevant if ICO tokens are held as capital assets and later sold.
The tax rate depends on the holder's residency status and the duration of token ownership.
Moreover, if an ICO results in the formation of a corporate entity in Malta, any dividends or distributions made to token holders might be subject to taxation.
NFTs in Malta are categorized based on specific criteria outlined in the VFA-NFT guidelines. To qualify as an NFT, an asset must demonstrate both uniqueness and non-fungibility, applying to both the NFT itself and the assets, rights, or utilities it represents. If an NFT is part of a large series or collection, its fungibility may be affected, potentially leading to its disqualification as non-fungible. A unique identifier or label alone is insufficient to establish uniqueness. These guidelines came into effect on July 1, 2023, and apply to all NFT-related activities.
The taxation of NFTs depends heavily on whether they classify as DLT assets and we suggest seeking the advice of an experienced tax professional to have more clarity on the subject.
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 democratise 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.
Although there is no guidance on how income from DAOs is taxed, it will likely attract income tax in Malta. We do suggest seeking guidance from an experienced tax professional to gain some clarity on the taxation of such transactions.
There are no guidelines that dictate the taxation of specific DeFi transactions in Malta. However, we do know that income from staking and lending on DeFi platforms attracts income tax in Malta.
We suggest seeking guidance from experienced tax professionals to gain more clarity on DeFi taxation.
The deadline for filing your tax return in 2023 is June 30.
You can submit your income tax return online by logging into https://mytax.cfr.gov.mt using your e-id account. If you don’t already have your e-ID account yet, you can request your e-ID by calling 25904300 or sending a request by email to firstname.lastname@example.org.
There is no official list of documents released by the MFSA as of now. However, one should maintain the following documents as a precautionary measure to avoid complications when filing their tax returns.
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 Kryptos can make this task easier for you:
Visit kryptos.io and sign up using your email or Google/Apple Account
Choose your country, currency, time zone, and accounting method
Import all your transactions from wallets and crypto exchanges
Choose your preferred report and click on the generate report option on the left side of your screen and let Kryptos do all the accounting.
Once your Tax report is ready, you can download it in PDF format.
If you still need clarification regarding the integrations or generating your tax reports, you refer to our video guide here.
Although it's impossible to avoid crypto taxes entirely, there are exemptions and deductions offered by the tax authorities that you can use to lower your tax bill. Mentioned below are some of them:
1. Is Crypto Legal in Malta?
Yes, investing in crypto is legal in Malta, as the country has established a regulatory framework to govern the cryptocurrency industry, ensuring legality and security for investors.
2. How is Crypto Taxed in Malta?
Cryptocurrency taxation in Malta involves capital gains tax on trading activities, subject to varying rates based on the taxpayer's residence status. Mining is considered a trade or business and is taxable. ICOs and airdrops are taxable when they generate income. The country offers deductions and incentives, such as those for startups, intellectual property, R&D, and renewable energy investments, helping to mitigate tax liabilities for investors. Additionally, Malta has double taxation treaties to avoid dual taxation on foreign income for its residents. These measures create a comprehensive framework for cryptocurrency taxation in Malta.
3. Does Malta have a Capital Gains Tax?
Yes, Malta has a capital gains tax. Capital gains tax in Malta applies to various assets, including real estate, securities, and specific business assets. The tax rate may vary based on factors like the type of asset, the holding period, and the taxpayer's residence status. However, Malta offers exemptions and deductions that can significantly reduce the capital gains tax liability in some instances, especially for residents and companies. It's advisable to consult with a tax expert or authority for specific details on capital gains tax rates and exemptions applicable to your situation in Malta.
4. How can Kryptos simplify crypto taxes for you?
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 and generates a legally compliant tax report within a matter of minutes while also suggesting ways to lower your tax bill. It works like magic, all you need to do is try it once.
All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!