The question of crypto tax Malaysia then arises given the growing trend in cryptocurrency investment in Malaysia. If the applicant day trades cryptocurrency or gets cryptocurrency as income, he is subjected to income tax rates in Malaysia.
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IS CRYPTOCURRENCY SUBJECT TO MALAYSIAN INCOME TAX?
Inland Revenue Board of Malaysia (“IRBM”) has not yet published official instructions on how to tax bitcoin transactions. The IRB, however, highlighted Section 3 of the Income Tax Act of 1967 (the “ITA”) and indicated that the above-mentioned provision might be applied to active cryptocurrency traders. As a result, active cryptocurrency dealers are covered by the ITA’s present provisions.
The IRB stated that the facts and circ*mstances of the case would establish if there is a pattern of the badges of trade and whether the profits from cryptocurrency operations are taxed.
If someone is identified as an active trader of cryptocurrencies, their net gains from those activities would be liable to income tax and need to be reported in the “any other income” part of their income tax filings.
They would therefore need to maintain accurate accounting records and company records in Malaysia to be subject to audits by the appropriate law enforcement agencies.
Foreign Source Income
Taxpayers can claim that the money received from the bitcoin transaction is from foreign sources and is thus exempt from tax because it was earned elsewhere than in Malaysia.
The IRBM will probably contest this claim, in which case the taxpayer would have to show that the transaction was actually carried out outside of Malaysia. This task is made more challenging for the taxpayer by the travel limitations brought on by the pandemic.
Since cryptocurrencies are digital assets, anywhere in the globe, a transaction may be completed with the press of a button on a laptop or smartphone. As a result, the taxpayer would struggle to demonstrate the transaction’s place of execution or its original source.
Income from Hobby or Investment
Taxpayers may contend that they only purchased cryptocurrencies as a hobby or long-term investment. However, a business’s profits can also be taxed if they are a by-product of a hobby or other non-commercial activity.
Tax Residency
To avoid being categorized as a Malaysian tax resident, the taxpayer is free to relocate anywhere in the globe. These Malaysian taxpayers can sell their Bitcoins from anywhere without paying the high cross-border transaction costs due to the cryptocurrency’s overall global nature.
These taxpayers can contend that as they are not Malaysian tax residents, they are not liable for Malaysian income tax.
HOW IS CRYPTO TAXED IN MALAYSIA?
Due to the absence of capital gains taxes, most cryptocurrency taxes in Malaysia are tax-free. Therefore, selling or using cryptocurrency is tax-free. However, this does not imply that all of the cryptocurrency transactions would be tax-free.
The applicant must pay income taxes if he actively trades cryptocurrency or if his actions classify him as a day trader. 3% to 30% of the income is taxed on income in Malaysia, depending on the tax level.
You will be considered a day trader if any of the following apply to your cryptocurrency activities:
- Large number
- Short period of ownership
- High-frequency exchanges
- Work done (by you) to increase the marketability of cryptocurrencies
- Not offered for sale in a forced manner (e.g., the sudden need of cash; foreclosure)
- The motive is business
- Obtaining short-term financing to buy cryptocurrency
- Additional elements/documentation
Since there are no capital gains taxes in Malaysia, the LHDN will attempt to classify the applicant as a day trader even if he is not. However, he won’t be taxed if he can show that he is not a trader and is merely hoarding the cryptocurrency holdings.
HOW TO CALCULATE CRYPTO TAXES IN MALAYSIA
Only day traders in Malaysia are required to calculate their cryptocurrency taxes. And carrying that out is fairly easy. To figure out your gain, simply deduct the cryptocurrency’s cost basis (acquisition cost) from the selling price.
Relating to receiving payment in cryptocurrency, the applicant must pay income tax based on the fair market value of the cryptocurrency (at the time of acquisition).
All costs completely and exclusively incurred in earning such income will be deductible under Section 33(1) of the ITA provided that they are not expressly excluded under Section 39 of the ITA if the taxpayer is determined to be engaging in an adventure in the nature of a trade. Therefore, taxpayers may even deduct any interest expenses or other expenses that are directly tied to holding the bitcoin.
Although it might be challenging to distinguish between capital and earnings in practice, a person may initially buy bitcoin for investments before using it to pay off debts.
CRYPTO TAXABLE MALAYSIA EVENTS
Receiving Payment in Crypto
Payment in cryptocurrencies is seen as equivalent to payment in any other kind of fiat money. As a result, cryptocurrency income is subject to income tax.
Bitcoin mining
Mining incentives from cryptocurrencies are viewed as income as well. As a result, it will be taxed similarly to receiving payment in cryptocurrency.
Cryptocurrency Staking
Staking is an alternate way to earn returns on cryptocurrencies. Staking is the process of keeping cryptocurrency in a digital wallet to support the blockchain network’s security and functionality. By locking the cryptocurrency, the exchange will offer rewards, which are typically in the form of the wallet owner’s preferred cryptocurrency.
This idea is comparable to making a fixed deposit with an authorized bank to get interest payments. Individuals who get interest income from deposits made with authorised banks are exempt from paying taxes on that income. The same cannot be stated about returns from bitcoin staking, as neither the ITA nor any regulations specifically mention such returns as being exempt from tax in Malaysia.
As a result, just like with cryptocurrency trading, Section 3 of the Internal Revenue Code may one day force both individual and business taxpayers who receive incentives from staking cryptocurrency to pay taxes on such profits.
The same income tax rates apply to incentives for staking or lending as they do to the previous two transactions.
TAX-FREE CRYPTO TRANSACTIONS IN MALAYSIA
- Selling or Spending Crypto
- Swapping Crypto
- Gifting Crypto
- Airdrops & Hardforks
- Crypto Donations
- Buying and Holding Crypto
- Transferring Crypto Between Wallets
HOW TO REPORT CRYPTO TAXES IN MALAYSIA?
In Malaysia, the fiscal year begins on January 1 and ends on December 31.
One must submit the income tax return by April 30 if they received any day trading or salary revenue in cryptocurrency. That can be done through the e-Daftar web portal.
Relin Consultants can provide a Malaysia company registration service, company secretary, registered office address, and Malaysia nominee director services. Post incorporation, our team can assist with monthly, quarterly, and annual statutory filing requirements.
