Overview of Cryptocurrency Taxation and Regulation in Malaysia

1. Overview of the Malaysian Tax System

Malaysia's tax system includes two main categories: direct taxes and indirect taxes. Direct taxes cover income tax, real property gains tax, and petroleum income tax; indirect taxes include domestic tax, customs duties, import and export taxes, sales tax, services tax, and stamp duty. The country implements a federal and local tax distribution system, with the federal government responsible for formulating national tax policies, executed by the Inland Revenue Board and the Royal Customs Department. The Inland Revenue Board mainly manages direct tax matters, while the Royal Customs Department is responsible for the collection of indirect taxes. State governments have the authority to collect local taxes such as land tax, mineral tax, and forest tax.

Introduction to Major Taxes

1. Corporate Income Tax:

   • Local companies with paid-up capital not exceeding 2.5 million MYR: The first 150,000 MYR income tax rate is 15%, from 150,001 to 600,000 MYR is 17%, and the portion exceeding that is 24%.
   • Local and foreign companies with paid-in capital exceeding 2.5 million MYR: unified tax rate of 24%.

2. Personal Income Tax:

   • Residents are subject to a progressive tax rate of 0%-30%, with no tax for amounts below 5,000 MYR and a tax rate of 30% for amounts above 2 million MYR.
   • Non-resident fixed tax rate of 30%.

3. Withholding Tax:

   • For certain types of income for non-resident enterprises or individuals, such as special income, interest, contract fees, etc., the tax rate ranges from 3% to 15%.

4. Real Estate Profit Tax:

   • Different tax rates apply based on the holding period, from 30% for sales within 3 years of acquisition to 5% for sales in the 6th year and beyond.

5. Import and Export Tax:

   • Most imported goods are subject to import duties, which are divided into ad valorem tax and specific tax.
   • Impose an export tax of 0-20% on certain resource-based products.

2. Crypto Assets Tax Policy

the legal positioning of Crypto Assets

Malaysia does not recognize the legal status of Crypto Assets as a currency, but the Securities Commission regards some Crypto Assets as "digital assets" and includes them in the securities regulatory framework. Tokens with the nature of investment contracts are classified as securities tokens, and their issuance and trading must obtain regulatory approval.

tax treatment

Although Malaysia has not yet issued specific tax guidelines for Crypto Assets, certain activities related to Crypto Assets may have tax implications:

1. Individuals holding Crypto Assets are generally not subject to capital gains tax.
2. The profits from engaging in Crypto Assets trading activities may be considered taxable income.
3. Frequent traders or "day traders" may need to pay personal income tax.

The criteria for determining whether one is a "day trader" include several factors such as the amount held, holding period, trading frequency, and trading motivation.

Tax Calculation Method

1. Intraday trading profit calculation: disposal price minus acquisition cost.
2. Receive compensation in Crypto Assets: Recognize taxable income at the fair market value at the time of receipt.
3. Related fee deductions: Eligible exclusive expenses can be deducted before tax.

It is worth noting that the tax treatment of Crypto Assets may be adjusted due to changes in the purpose of use and the nature of transactions.

3. Evolution of Crypto Assets Regulatory Framework

Malaysia is gradually establishing a dual-track regulatory system centered around the Securities Commission (SC) and the Central Bank (BNM), which are respectively responsible for the regulation of the securities attributes of Crypto Assets and the management of financial stability.

Main developments in the regulatory framework:

• 2014: BNM clarified the status of Crypto Assets as non-legal tender.
• 2018: BNM published anti-money laundering guidelines, bringing Crypto Assets service providers under regulation.
• 2019: The SC included certain crypto assets under the securities regulatory framework.
• 2020: SC released the "Digital Asset Guidelines," comprehensively regulating ICOs, exchange operations, and more.
• 2021-2022: Strengthen law enforcement against unauthorized platforms, focusing on emerging asset forms.
• 2024: SC updates the "Digital Asset Guidelines" to further clarify the securities attributes of digital currencies and related regulatory requirements.

4. Future Outlook

Malaysia has adopted a prudent and gradual approach to the regulation of crypto assets, ensuring financial stability and protecting the interests of investors while leaving room for innovation. With the maturation of the market and the promotion of international standards, it is expected that Malaysia will further improve its regulatory framework:

1. Strengthen cross-border regulatory cooperation, enhance data exchange and stablecoin regulatory capabilities.
2. Promote the digitalization of tax compliance to facilitate the integration of the Crypto Assets economy with traditional finance.
3. Closely monitor emerging fields such as NFT and DeFi, and adjust regulatory strategies accordingly.
4. Continue to participate in CBDC research and explore innovative applications of digital currency.

Through these initiatives, Malaysia is expected to gradually unleash the growth potential of the Crypto Assets economy under the premise of controllable risks, consolidating its competitive advantage in the Southeast Asian fintech sector.