Currently, Maltese companies carrying out activities involving distributed ledger technology (DLT) are obligated to pay the same types of taxes as any other business. They can also avail of tax allowances and incentives, as well as benefit from Malta’s substantial network of the double tax elimination agreements.
Maltese crypto companies might be subject to paying the following taxes:
- Corporate Income Tax (CIT) – 35%
- Value Added Tax (VAT) – 18%
- Stamp Duty (SD) – 2-5%
- Social Security Contributions (SSC) – vary depending on an employee’s age, salary and other conditions
The taxes are administered by the Commissioner for Revenue (CFR) who issued guidelines determining the application of the Income Tax, Stamp Duty and VAT to the activities involving DLT assets. The foundational rule is that VAT, Stamp Duty, and Income Tax handling of any DLT asset depends on the purpose for which the asset is used, not the category of the asset.
Nevertheless, for the taxation purposes, DLT assets are divided into the following categories:
- Coins – cryptocurrencies, functionally constituting the cryptographic equivalent of fiat money (created to be used as a means of payment or medium of exchange, or function as a store of value)
- Financial tokens – analogous to equities, debentures, units in collective investment schemes or derivatives
- Utility tokens – utility, value or application is restricted to the acquisition of goods or services either solely within the DLT platform on, or in relation to which they are issued or within a limited network of DLT platforms
The financial year typically coincides with the calendar year, but under certain circumstances companies can also choose to change the dates by submitting a written request to the CFR.
In order to ensure proper calculation of taxable income and allowable deductions, all Maltese companies must keep meticulous records of income and expenditure as determined in the Article 19 of the Income Tax Management Act.
Corporate Income Tax
Companies registered in Malta are required to pay corporate income tax on their income worldwide. Activities related to DLT assets are governed by the current provisions of the Income Tax Act and are analysed by reference to the nature of the activity, the status of the parties and the specific facts and circumstances of the particular case.
Principles of the income tax regime:
- The tax value of transactions with DLT assets is determined by reference to the market value of the DLT asset; the market value can be determined either by the relevant Maltese authority or by reference to the average quoted price on reputable exchanges
- Proper and adequate records of transactions with DLT assets must be maintained at all times; values expressed in cryptocurrency are converted into a reporting currency in which the taxpayer submits its financial statements
- Payments made or received in cryptocurrency are considered as payment in any other currency for income tax purposes (e.g. for businesses paying wages or accepting payments for products or services in cryptocurrency the general taxation principles are still applied)
Examples of the application of general taxation principles to transactions with DLT assets:
- Profits from coin exchange activities are considered as profits from fiat currency exchange business and proceeds from the sale of coins held as trade reserve in business are regular income
- Profits earned by the owner of financial tokens on his holdings, such as payments equivalent dividends, interest, bonuses, etc., in cryptocurrency or in other currency are treated as income
- The ability to tax the transfer of financial or communal tokens depends on whether the transfer is a trade transaction or a transfer of fixed capital
- If the transfer is a trade transaction, the payment is treated as a receipt in the revenue account
- Normal income tax rules apply and, accordingly, profits from the sale of tokens that would have been acquired with intent to resell with profit or from profitable activities should be treated as trading profits
- If the transfer of financial tokens is not a trade transaction, it should be determined whether they can be treated as securities that are subject to capital gains tax regulations under section 5 of the Income Tax Act
- The capital collected for the initial offer is not regarded as the income of the issuer and the issuance of new tokens is not considered as transfer for capital gains taxation purposes
- Profits or profits derived from the provision of services or products to token holders are treated as income
When calculating the taxable amounts, it is worth remembering that the Maltese tax system allows each company engaged in activities related to DLT assets to benefit from more than 70 international agreements on the elimination of double taxation, which ensures that income from crypto-activities is not taxed twice.
Value Added Tax
Currently, VAT guidelines are provided for coins, financial and communal tokens and initial offers. Activities related to DLT assets are analysed according to their nature, the status of the parties and the specific facts and circumstances of the particular case.
The following legislation applies to DLT enterprises:
- The VAT Act (Cap 406, Laws of Malta)
- EU VAT directive (2006/112/EC)
- Provisions and case law of the Court of Justice of the European Union (EU) applicable to specific transactions
If the place of delivery of the goods or services is not in Malta, the rules of another relevant jurisdiction shall apply. In the case of providing electronic services to clients based in the EU, the enterprise may register and take into account the VAT of another EU country under the Mini One Stop Shop (MOSS) scheme.
Guide to coins:
- If the instrument serves as a means of payment accepted by certain operators, it is treated as fiat money for the purposes of VAT application, which means the exchange of cryptocurrencies to other cryptocurrencies or fiat money is exempt from VAT
- Services of digital wallet providers are exempt from VAT when they are clearly related to the permission of users to hold and use cryptocurrencies
- Cryptographic mining itself does not fall within the scope of VAT if there is no recipient, but if crypto-mining service providers are paid for such actions as transaction verification, the standard VAT rate applies
- Cryptographic exchange platforms are taxed VAT when they charge users for their services (e.g., by charging a transaction fee or commission)
The following VAT rules apply to markers:
- If financial tokens are issued solely for the purpose of raising capital, they are not subject to VAT because they do not represent the provision of products or services
- If the utility token is characterized as a voucher (issued for exchange for specific products or services provided by a known supplier), it is usually subject to VAT
The initial proposals should be considered as follows:
- If investors transfer their money to finance the project and at these stages no specific products or services are provided, VAT is not charged
- If the issued tokens give rights to identifiable products or services, such activities are subject to VAT
If transfers involve DLT assets that have the same characteristics as marketable securities defined in the Duty on Documents and Transfers Act (DDTA), they are normally subject to the Stamp Duty. However, every transaction has to be analysed individually by looking at the nature and circumstances of activities and the profile of the involved parties.
The team of Regulated United Europe (RUE) is pleased to offer tailored taxation advice to everyone who’s interested in running a crypto company in Malta and, for that matter, in standing out in the market. We can also guide you through the company formation and crypto licensing processes in Malta,as well as provide financial accounting services. Our experienced lawyers will be happy to familiarise you with all cryptocurrency regulations in Malta.
At the moment, the main services of our company are legal and compliance solutions for FinTech projects. Our offices are located in Tallinn, Vilnius, Prague, and Warsaw. The legal team can assist with legal analysis, project structuring, and legal regulation.