Cryptocurrency Regulation in Malta

Malta is among the few jurisdictions in the European Union to have a clear regulatory framework concerning crypto assets and related services. A few years ago, the Maltese government decided to officially recognize and regulate businesses involved in cryptocurrencies with the aim of developing the innovative technology sector within Malta.

As with the other financial service providers in Malta, cryptocurrency businesses come under the Malta Financial Services Authority-which is concerned with ensuring the integrity of the financial services sector and stability within the financial sphere for the benefit and protection of consumers.

The Malta Digital Innovation Authority Act

By the enforcement of the Malta Digital Innovation Authority Act, 15 July 2018, the Government of Malta is accelerating the development of Malta as a centre of excellence for innovation-related activities. This Act refers to the establishment of the Malta Digital Innovation Authority that supports technological innovation through liaising with the relevant national authorities in Malta and enforcing regulations on persons and digitization.

Main objectives and principles of MDIA:

• Promotion of public policies which are conducive to techno-innovative endeavour;
• Encouragement of the development and use of techno-innovative technologies;
• Protection of Malta’s reputation as a jurisdiction of choice for techno-innovative technologies;
• Harmonization of national regulations with international standards and laws;
• Collaboration with other regulators on matters involving AML/CFT, data protection, and fair competition;
• Encouragement of more transparency and control in the usage of techno-innovative technologies.

The Innovative Technology Arrangements and Services Act

By adopting the Act on Innovative Technological Mechanisms and Services-ITAS Act, on 1 November 2018, the Government of Malta has increased its focus on standardizing regulation of rapidly evolving new technologies. The ITAS Act is applied by the MDIA.

The ITAS Act provides for the following:

• Principles for Registration of Innovative Technology Service Providers
• Guidelines for the conduct of innovative technology service providers – integrity, transparency, and knowledge
• Appointment and role of the Resident Agent where the applicants are not Malta residents

The ITAS Law defines Innovative Technology Solutions as software and architecture, implemented in the design and delivery of DLT, which is habitually, but not necessarily:

• Based on distributed, decentralized, general and/or replicated ledger
• Public, private or hybrid
• Permissioned, not-permissioned or hybrid
• Retroactive Interference – remains low, since the history of transactions is irrecoverable.
• Ciphertext
• Test-in-process

ITAS Law Definition of Innovative Technological Service:

• “Review or audit services referred to in this Law, referring to innovative technological mechanisms provided by system auditors”
• “Technical administrative services referred to in this Law, referring to innovative technological mechanisms provided by technical administrators”

THE PREVENTION OF MONEY LAUNDERING ACT

These AML/CFT principles have been reflected in the Law on the Prevention of Money Laundering, dated 23 September 1994, and the Regulations on the Prevention of Money Laundering and the Financing of Terrorism of 1 January 2018, being implemented by the Financial Information Analysis Unit – FIAU, while acting as a regulator of relevant innovative technological services. In this respect, procedures exist at the FIAU, which are legally binding.

Therefore, GAFI is empowered to collect, process, analyze, and disseminate information, even if it may be coming from regulated enterprises for the purpose of monitoring compliance with the relevant AML/CFT legislation.

Advantages

THE VIRTUAL FINANCIAL ASSETS ACT

The Maltese cryptocurrency regulatory framework covers the regulation of DLT, VFA by the Virtual Financial Assets Act that came into effect on November 1, 2018, and sets the rules for companies providing DLT products or services, including the licensing of cryptocurrency.

The DLT assets are defined as the Virtual tokens, VF, electronic money, and financial instruments that are inherently dependent on or use the DLT by the VFA Act.

The VFA is any form of digital record of the environment that is utilized as a digital medium of unit account or storage of value in which it is not a virtual token, electronic money, and financial instrument.

It distinguishes, within the regulatory framework of DFA, three kinds of permits: registration of WFA agents, registration of documents, and statements of WFA service providers.

WFA Agents

Where an issuer of VFA intends either to register white paper or to apply for a license of a VFA service provider, it shall appoint a VFA agent who will advise the company regarding its obligations, verify the compliance with all the requirements provided in the DFA Act, and receive and keep all documentation. The list of registered AFA agents is available within the Financial Services Register of the MFA.

Professional activities of an AFA agent:

• An advocate, accountant or auditor,
• A firm of advocates, accountants or auditors or corporate service providers;
• A legal organization wholly owned and controlled by persons, referred to in paragraphs (a) or (b), whether in Malta or in another recognized jurisdiction. There may also be included any other category of persons who have permits, qualifications and/or experience, who in the opinion of the Ministry of Foreign Affairs, is competent to perform prescribed functions.

VFA SERVICE PROVIDER LICENCE

Businesses who want to provide VFA services, should apply for a license through a registered VFA agent, using an online VFA service provider application form.

Registration fees:

• Class 1 – 3,000 EUR
• Class 2 – 5,000 EUR
• Class 3 – 7,000 EUR
• Class 4 – 12,000 EUR

Annual supervision fees:

• Class 1 – from 2,750 EUR
• Class 2 – from 4,500 EUR
• Class 3 – from 6,000 EUR
• Class 4 – from 25,000 EUR

Requirements to the Applicants

First, an applicant should either register the company or be from a recognized jurisdiction and open an office in Malta for the sole purpose of acting as a licensee whose actual activities are compatible with the description of authorized WFA services.

The operating structure of the firm should provide procedures for internal compliance control: AML/CFT, customer asset protection, cybersecurity, data protection, etc.

Besides that, to confirm the nature of the applicant’s activities concerning AFW Act coverage, all applicants shall pass a financial instrument test via a chosen AFA agent. These compose three categories: virtual tokens, financial instruments, and electronic money. If an applicant’s business is not related to any of the three above-named categories, then by default it falls into a category UFA.

Applicants must pass the eligibility and suitability test. Applicants must also fulfill the requirements for integrity, competence, and ability to pay. Besides, the basic requirement must be continuously complied after the business opens its gate. The assessment will be performed by:

• Person having in applicant
• Beneficial owner
• Administrative board member
• Senior manager
• MLRO
• Compliance officer
• Risk manager
• Any other person who will manage the applicant’s VFA business

Application process

Enterprises seeking either to register their white paper or to apply as a DFA service provider need to apply through a registered DFA agent. The list of registered AFA agents can be obtained from the Financial Services Register of the MFA. The application process may take either three to six months depending on whether additional documentation is required by IFAD.

Pre-submission steps:

• Acquire the Malta address at which law requires notices or documents to be served on the applicant
• Each beneficial owner, qualified owner, director, and senior manager must submit a personal questionnaire.

The overall application process is divided into three phases:

• Preparatory stage: Written notification from the applicant sent through the AFA agent to the Ministry of Foreign Affairs, regarding its intention to obtain the AFA license. The latter shall then have a pre-application meeting with the interested party. The applicant shall have 60 days after that to present their application.
• Pre-Licensing stage: In case the information at the application level is adequate and the fitness and fitness assessment has been completed, then a principal permit is issued by the Ministry of Foreign Affairs, valid for three months. The applicant shall, within three months, solve the possible issues detected and fulfill the pre-licensing requirements stated in the principle of approval.
• Post-licence and pre-business phase: New licensees can be subject to certain post-licence requirements before business commences within 12 months from the date of grant of the AFW service provider license.

The application must be supported by the following documents:

• Standard structure information on the direct and indirect owners of the association and the owners of interests
• Business plan summary: general business information, justification for applying for a specific DFA license, management information.
• Memorandum or Statute and Council Regulation
• Declaration form relating to a statement of reliability of the information provided and a notice of confidentiality
• Corporate Shareholder Questionnaire: includes Authorized Person, Regulatory History, Corporate Structure, etc.
• Eligibility assessment: details of proposed individual, competency issues, potential conflicts of interest
• Evaluation of outsourcing: details on outsourcing, mechanisms, and persons responsible

Crypto regulation in Malta overview

HOW TO OPEN A CRYPTOCURRENCY COMPANY IN MALTA

One of the most common legal structures of cryptocurrency companies in Malta is a Private Limited Liability Company (Ltd) which can be registered within 9 weeks.

A new company can be registered with the Malta Business Registry (MBR) either by the shareholders or by their authorised representatives such as lawyers or accountants.

Requirements for a Private Limited Liability Company:

• 1-50 shareholders (no local shareholders required)
• Minimum authorised capital applicable to a relevant VFA class must be possessed
• A locally registered office address, however an operational office isn’t legally required
• At least one director
• A company secretary who doesn’t have to be a resident in Malta
• A compliance officer, an AML/CFT officer and a risk manager (no nationality requirements)

Required documents:

• A Memorandum and Articles of Association
• Form BO1, which includes information on the identification of the company’s beneficial owners
• Proof of locally registered office address
• Proof of transferred share capital, such as a bank deposit slip
• Notarized photocopies of shareholders’ passports

Key steps of opening a cryptocurrency company in Malta:

• Verification and reservation of a unique company name which must end with an Ltd
• Opening of an account with a bank
• Transfer of authorized share capital
• Registration fees settlement
• Submission of registration documents with the MBR
• Obtaining a certificate of registration from the MBR which permits the commencement of the activities
• Application for a VFA service provider licence
• Taxation registration with the Commissioner for Revenue (CFR)

REPORTING REQUIREMENTS

All Maltese private limited companies are required to prepare annual audited financial statements, which is also a requirement for the purpose of preparing annual tax returns. The audit would be performed by independent auditors registered with the local Board of Accountants and qualified in conformity with ISAs.

An annual report needs to be filed every year on the anniversary of the date on which it was registered. The return form should be filed with the IDB within 42 days from the date of its completion. The refund form should be submitted together with a payment of 100-1400 EUR according to the authorized capital.

Along with that, one copy of the balance sheet and other annual reports as well as one copy of the audit report and of the report of the directors shall be presented along with it. Annual accounts need to be approved within 10 months from the end of the financial year and after that a grace period of 42 days is allowed.

Auditing exemptions are applied to the new enterprises which meet the following criteria:

• The annual turnover of the company does not exceed EUR 80,000 or a proportional amount if the relevant accounting period does not exceed 12 months.
• The qualifications of all the shareholders of the company are met by: a shareholder is deemed to satisfy the qualification requirement if he/she has successfully completed his/her formation at at least 3 ICF or equivalent level recognized by the Malta Qualifications Recognition Information Centre, which completed such studies no earlier than 3 years from the date of incorporation of the company.

TAXATION FRAMEWORK

Malta has more than 70 international double taxation agreements, making it an attractive jurisdiction. In addition, VFA companies can obtain clarity from crypto-specific tax guidelines issued by the CFR office. They determine the application of income tax, stamp duty and VAT rates to transactions or arrangements related to DLT assets.

The VFA Tax Principles clarify that the processing of VAT, stamp duty and income tax on any DLT-asset will depend on the purpose of use of the asset, not on the category of asset. For example, transactions subject to VAT should be analysed on the basis of the nature of the activity, the status of the parties involved and the specific circumstances of the particular case.

For tax purposes, DLT assets are divided into the following categories:

• Coins – cryptocurrencies, functionally constituting the cryptomized equivalent of fiat money (created for use as a means of payment or exchange, or function as a means of preserving value)
• Financial tokens – equivalent to shares, bonds, units in collective investment schemes or derivatives
• Utilitarian tokens – utility, value or use is limited solely to the acquisition of goods or services either exclusively within the DLT platform on or to which they are issued or within the limited network of DLT platforms

Standard tax rates in Malta:

• Corporate Income Tax – 35%
• Value Added Tax – 18%
• Stamp Duty – 2-5%

Examples of tax benefits:

• According to the VFA Tax Guidelines, funds raised from the issuance of financial tokens at the time of the initial offer are not subject to corporate income tax
• The tax regime for transactions involving coins, such as Bitcoin, is identical to the tax regime of transactions with fiat money, so the profits from isolated transfers of cryptocurrency are not taxed
• VFA service providers in Malta can apply for the Highly Qualified Professionals Policy (HQP), allowing them to take advantage of a flat tax rate of 15% up to a maximum return of EUR 5 million. Any excess of the specified amount is exempt from tax

Our highly experienced and reliable lawyers will be delighted to provide you with tailored support in establishing a cryptocurrency company in Malta and in obtaining a VFA service provider licence. We closely monitor local regulations and are therefore well equipped to guide our clients through every stage of the process.

ESTABLISH A CRYPTO COMPANY IN MALTA

Operating in Malta, crypto companies will find themselves in a well-thought-through regulatory framework, set up with the protection of customers, investors, market integrity, and the country’s reputation in mind. For this reason, the requirements for a fully licensed Maltese cryptocurrency company are high. But if you are well-prepared to comply with them, you certainly will unlock the numerous benefits of this crypto-friendly jurisdiction.

What are some remarkable advantages of the Maltese business environment?

• Favours the tax system: tax incentives with a low effective corporate income tax rate of 5-7%, international double taxation agreements, and relatively low VATs.
• Malta is an EU member that opens up to the entire vast market of the EU.
• Innovation-oriented, well-educated workforce that can give a boost to your business
• One of the official languages in Malta is English, which will be of great help in the incorporation and operation.
• Reliable banking system: Malta is ranked 17th in the Global Competitiveness Index 2017-2018 with respect to the reliability of banks.

The principal law regulating companies in Malta is the Companies Act 1995, which was largely modeled on the United Kingdom Companies Act 1985 and is in conformity with the relevant EU directives. Inter alia, it provides a legal framework for: incorporation and management and winding up/insolvency.

The Malta Business Register fulfills the obligations related to the public register of Maltese companies. The MBR is responsible for the registration of companies and business documents, issuance of certificates, collection of fees and fines, and publication of notices.

Among such bodies is the Malta Financial Administration (), the supervisor of Maltese crypto companies, with which one needs to be prepared to deal if the goal is to set up a fully licensed crypto company in Malta. It has as its key function the compliance with anti-money-laundering/counter-financing of terrorism provisions.

You do not have to possess Malta citizenship to get equal rights concerning the creation and running of a crypto company in Malta.

Types of Maltese business entities

In general, private and public limited liability companies suit most of the models of activity that have something to do with cryptography. These types of companies allow their shareholders to profit from the activity but, on the other hand, do not make them responsible for its liabilities and debts.

The general requirements for the name of the company include:

• Should not be too identical to the name of any other company in Malta – because it may cause confusion
• Authorities will reject the name of any company if it is considered offensive or undesirable
• Authority will also reject a name if that name was reserved for another company’s registration not more than three months prior to the date of the second request

The following below are the documents required for the incorporation of a company in Malta:

• Memorandum of association
• Articles of association
• Certified photocopies of shareholders’ passports
• Form BO1 containing detailed information on the identification of owners-beneficiaries of the company
• Confirmation of local registered office address
• Certificate of transfer of share capital—for example, bank statement

The Memorandum Of Association Of Any Limited Liability Company Must Have The Following:

• Stating that it’s a private company
• Company name
• Names and addresses of each subscriber
• Registered office address in Malta and company e-mail address
• Company premises
• Amount of authorized share capital with which the company is applying for registration
• No. and value of shares, no. of shares held by each subscriber, and amount of money paid in respect of each share – in case of classified shares, the rights pertaining to each share have to be stated
• Number of directors, names, and addresses
• How the company will be represented, including those responsible for representation
• Names and addresses of first company secretaries
• Where applicable, the period during which a company is established

The following documents shall be attached to the Memorandum of Association of a joint-stock company – Plc:

• Total or estimated amount of all expenses to be borne by the corporation before it may commence business, including all expenses incurred in operations for obtaining authorization
• Description of every benefit extended to any person who has contributed to the promotion of the corporation or to the transactions preliminary to the obtaining of authorization before the corporation is permitted to commence its business operations.

The requirements for the authorized capital depend on the type of crypto-activity planned. Today, they are divided into the following classes:

Private Limited Liability Company (Ltd)

In Malta, the most common legal type of cryptocurrency companies is undoubtedly a Private Limited Liability Company (Ltd), commonly adopted to operate small and medium-scale enterprises.

The main requirements for a private limited liability company (LLC):

• Its name must be followed by the words Private Limited Company or the word Limited or its abbreviation Ltd
• 1-50 shareholders are permitted, no local shareholder is required.
• The minimum paid-up share capital requisite in respect of the class of VFA for which an application is being made
• Address of Maltese registered office but an active office is not legally required
• At least one director
• Company secretary – this does not need to be resident in Malta
• Compliance Officer, AML/CFT Officer, and Risk Management Officer – no nationality requirement

An LLC can be exempted from auditing if the following criteria are met:

• The highest annual turnover of the firm does not exceed 80,000 EUR or a proportional amount if the reporting period does not reach 12 months;
• All the shareholders of the company meet the shareholder qualification criterion; a shareholder shall be considered to satisfy the criteria if he/she has completed his/her formation at least at the IWC level 3 or equivalent recognized by the Maltese Information Centre for Recognition of Qualifications, not earlier than three years from the date of incorporation of the company

To be exempted, the company has to apply to the IDB within six months from the end of the reference period for which exemption applies.

Open Limited Liability Company (PLC)

If you are planning to establish your crypto company on a larger scale, consider the incorporation of PLC that is authorized to issue its shares to the public to raise funds and whose shares can be traded in the stock exchange.

The statutory requirements for Public Limited Liability Company (Plc):

• The name should end with the words Public Limited Company or abbreviation Plc.
• At least two shareholders, no limit on the number of shareholders.
• At least two directors. They form a board of directors for smooth external and internal activities. The appointed directors must sign a Memorandum of Association and a charter to express agreement to serve as directors.
• Secretary
• Before registration, at least 25% of equity is to be transferred.
• The company’s directors, regardless of the size of the company, shall appoint an auditor who resides in Malta and is registered with the Malta Board of Accountants.

A Plc should be under obligation to prepare a balance sheet, profit and loss statement, reports of directors and auditors which would reflect a clear understanding of the financial position of the company, profits and losses, assets, and liabilities. The audited accounts shall be presented to the members of the General Assembly for approval within seven months from the end of the relevant reporting period and submitted to the IDB.

Any legal entity, be it Ltd or Plc, may be set up as either a trading or holding company. While the former is a natural choice for those who intend to purchase and sell products or services and assume all the risks and liabilities connected therewith, the latter owns only assets, i.e. shares and intellectual property, and is chosen for the purposes of asset holding inasmuch as apportionment of income to shareholders at an effective tax rate, separation of assets and avoidance of double taxation.

Malta

Capital	Population	Currency	GDP
Valletta	519,562	EUR	$32,912

What you need to do

You can register a new company within three months, provided that all necessary documentation is carefully prepared and properly submitted. If you do not want to go to Malta, signing a power of attorney is an effective solution.

To create a cryptocurrency company in Malta, take the following steps:

• Check and reserve a unique company name
• Find office space in Malta (it can also be a virtual office) and get a legal address where the Maltese authorities will deliver notices or documents in accordance with the law
• Open a local bank account
• Transfer of the share capital required for the selected class of crypto operations
• Pay company registration fee
• Submit an application for registration of the company together with the necessary documents to the IDB
• Obtain a certificate of registration with the IDB
• Company registration with the Revenue Commissioner (CFR) for tax purposes
• Apply for VFA Provider License

Any operation of your company in Malta or from Malta can only be operational when it is completely licensed by MFSA. To begin with the application procedure, send by way of a written notice your intention to MFSA through the chosen VFA agent who will see the complete application procedure to its logical end including the submission of the online VFA Service Provider application form.

Taxation of crypto companies in Malta

The CFR does the tax administration and has issued guidelines on how income tax, stamp duty, and VAT would apply to the activity relating to assets based on DLT. A basic rule is that VAT, stamp duty, and income tax on any DLT asset depend upon the purpose for which the asset is being used rather than on the category of asset.

Following are the typical taxes levied on Maltese crypto companies:

• Corporate Income Tax or CIT – 35% is governed by the Income Tax Management Act
• Value Added Tax or VAT – 18% is governed by the Value Added Tax Act
• Stamp Duty or SD – 2%-5% is governed by the Duty On Documents And Transfers Act
• Social Security Contributions (SSC) – depending on employee’s age, salary, and other conditions; regulated by the Social Security Act

Tax value for DLT assets transactions determined with reference to the market value of DLT assets. Payments in cryptocurrency are considered as a payment in any other currency for corporate income tax purposes. Correct application of corporate income tax requires proper records of transactions involving the DLT assets. Values expressed in cryptocurrency should be converted into accounts in fiat currency in which the taxpayer submits financial statements.

Many DLT-related activities are exempt from VAT, for example:

• If a crypto-asset is used as a means of payment that some operators accept, it already takes the place of fiat money, so exchange with either other cryptocurrencies or fiat does not imply a charge of VAT. The crypto-mining activity itself is outside the scope of VAT only in a case when there is no recipient; otherwise, any cases where crypto-mining service providers are paid for a certain activity mean the application of VAT.
• If financial tokens are issued only to raise capital, then this would not fall under the VAT ambit since the activity in such cases would not constitute the supply of goods or services.

If you are determined to create a successful cryptocurrency business in Malta, then our trusted and dynamic team of the Regulated United Europe (RUE) will be happy to support you at every stage. We provide professional legal support for company creation, crypto-licensing, and taxation. Moreover, we will gladly interfere if you need accounting services. Contact our specialized experts today for individual consultation.

We also offer Virtual Office services, whereby there is no need to spend expensive money on renting offices, equipment, and personnel. It is a very profitable solution for a small business that would like to give the impression of a large company by having access to such physical office functions as business address, conference rooms, and reception while reducing costs and preserving the advantages of telecommuting. Learn about our virtual office here.

Also, lawyers from Regulated United Europe provide legal support for crypto projects and assist in adaptation to MICA regulations.