The new legislative package is made up specifically of:. This regulatory and legislative package addresses a regulatory lacuna for coins and tokens that did not classify as either pure utility tokens, e-money or securities but were still capable of having financial characteristics. This led to the creation of the term virtual financial asset VFA , being an asset that went beyond pure utility in that it was exchangeable for a negotiable value but fell short of being a security.
A main feature of these rules is the financial instrument test, and respective guidelines, issued by the Malta Financial Services Authority, which aims at establishing whether a DLT asset qualifies as electronic money, a financial instrument, a virtual financial asset or a virtual token.
These initiatives certainly did not go unnoticed in the crypto space. For a while, Malta became a Mecca for the crypto community and many players, including some big names, made Malta their base. Alas, the timing was not right. In November , the Commissioner for Revenue also issued a set of guidelines on the income tax treatment of transactions or arrangements involving DLT assets.
No specific tax rules were created for the crypto-world; instead, existing rules were interpreted in the context of this new asset class. Coins are not considered as having any characteristic of a security and are functionally the cryptographic equivalent of fiat currencies. Financial tokens, on the other hand, are defined as being similar to equities, debentures, units in collective investment schemes or derivates including financial instruments.
Utility tokens are categorised as DLT assets whose utility, value or application is restricted solely to the acquisition of goods or services either solely within the DLT platform in relation to which they are issued, or within a limited network of DLT platforms. This would include all DLT assets that are tokens whose utility is restricted solely to the acquisition of goods or services, whether or not listed on a DLT exchange, may be transferred on a peer-to-peer basis, or may be converted into another type of DLT asset: however, the latter only applies until such time as it is so converted.
There is no connection to the equity of the issuer and there are no characteristics of a security. In the case of a hybrid token, the Revenue looks at the use of the asset. If the asset is utilised in one instance as a utility token, then it is treated as such. However, if on another occasion the hybrid is utilised as a coin, then it is treated as a coin for tax purposes.
It is important to consider therefore that the tax treatment of any DLT asset will ultimately depend on its purpose, and the context for which it is used, and not on pure categorisation alone. The implications may be significant for income tax purposes in that coins and utility tokens are not on the list of capital assets in the Income Tax Act, the transfer of which triggers income tax on capital gains. Securities, on the other hand, are, and gains made on the transfer of crypto assets that are considered to be security tokens would therefore be taxable.
Unfortunately, the Revenue did not extend its written guidance on the situs of crypto assets. Suffice it to say, however, that if the private keys of such security tokens exist solely on a wallet or other form of cold storage situated in Malta, then such assets would likely be deemed sited in Malta. If, on the other hand, coins or tokens are held on a foreign-based centralised exchange, it is likely that the situs thereof would be determined by the location of the exchange.
Persons who are both domiciled and resident in Malta are taxed on a worldwide basis. However, persons who become ordinarily resident in Malta without acquiring a domicile of choice in Malta are taxed on a source and remittance basis only: that is, on income arising in Malta and on income excluding capital gains arising outside of Malta that is remitted to Malta. Capital gains arising outside Malta in the hands of such persons would not be subject to tax in Malta even if remitted to Malta.
The concept of domicile is not indigenously defined in Maltese law but is applied reference to British law from where it derives. As in the UK, every individual has a domicile of origin that is acquired at birth but can be changed by choosing a permanent home in another country or tax jurisdiction domicile of choice. Unlike in the UK, however, there are no deemed domicile rules and the acquisition of a domicile of choice is very much a facts and circumstances test.
The concept of residence in Maltese tax law is based on a combination of physical presence in Malta coupled with the intent to reside in Malta, as evidenced by facts and circumstances. An individual intending to establish his residence on the island would be considered ordinarily resident regardless of the duration of his stay in any particular year.
The Income Tax Act considers an individual resident in Malta if present in Malta except for such temporary absences as to the Commissioner may seem reasonable and not inconsistent with the claim of such individual to be resident in Malta. Temporary residents, on the other hand, are those who are in Malta for some temporary purpose only and not with any intent to establish residence therein and who do not actually reside in Malta at one or more times for a period equal in the whole to six months in a year.
If an individual is absent from Malta, he may continue to be considered ordinarily resident in Malta if personal, social and economic ties with Malta are retained. A higher minimum tax may apply in case of residence in Malta under special tax programs aimed at high net worth individuals seeking to reside in Malta and who may remit larger amounts of foreign-sourced income into Malta at a reduced flat tax rate.
It is important to consider here that a number of requirements would apply in this case, in particularly property rental or ownership, passing a fitness and properness test, demonstration of economic self-sufficiency and health insurance requirements.
Having established his place of residence and centre of vital interests in Malta, Mr X can set out to plan and restructure his wealth with a certain degree of certainty and peace of mind. Most importantly for Mr X, the transfer of his coin and most of his tokens would not be subject to any capital gains tax in Malta. During the flagship show on Clubhouse, Ten lucky Black Bitcoin Billionaires will be selected randomly from the signup list and sent 1,, satoshis on Cash App.
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