Tax Treatment of Transactions in Crypto Assets

The manner in which transactions in crypto assets are brought to tax in different jurisdictions often offers opportunities for individuals and corporates alike, to structure their position to obtain desired tax outcomes. On the other hand, the way tax authorities in different countries treat crypto transactions can be confusing and can lead to a minefield that one needs to navigate to avoid unpleasant tax positions. 

Malta makes a significant distinction between capital transactions (investing) on one hand and regular trading transactions on the other hand. Such a distinction, can be used to achieve specific tax outcomes that optimise one’s entry and exit into the crypto asset (and the financial) markets. This article provides a high-level summary of the manner in which Malta taxes transactions in crypto assets.

Trading vs capital transactions

Malta brings to tax all transactions of a trading and revenue nature, but has an exhaustive list of assets and transactions that are brought to tax when such transactions are of a capital nature. In the case of crypto assets, in order for such assets to fall within the taxation net (on capital gains), they need to be classified as securities, which requires the crypto assets to carry a right to the profits of the issuer, and moreover, such a right is not a fixed right of return.

Therefore, transactions of a capital nature in crypto coins and utility tokens (which typically do not grant any rights to profits) by persons (this includes both individuals and companies) fall outside the scope of Maltese income tax. 

 In order to distinguish between trading and capital transactions, Maltese jurisprudence makes reference to badges of trade, indicators that are utilised by courts of justice to arrive at a reasonable classification of a particular transaction or activity. In the case of crypto transactions, the relevant badges of trade are: the intention of the person at the time of acquisition and whilst holding the asset, the period for which the token or coin was held, the frequency of trading, and the time interval for which the asset was held prior to the disposal thereof. 

In summary, Maltese resident persons who dispose of crypto assets that are held as capital assets and who do not trade therein would not be subject to any Maltese tax on any capital gain crystallised through the sale. 

On the other hand, in the case of active trading, this is brought to tax in Malta. However, through the utilisation of corporate structures and Malta’s refundable tax credit system, the effective tax on the profits can be significantly reduced. Quazar offers complimentary advisory services to assist in setting up your activities in a tax and business efficient manner. 

Get in Touch:

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Matthew Aquilina

maquilina@quazar.mt / +356 2388 4600