Malaysia Crypto License - Costs and Process in 2024 (2024)

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The legality of cryptocurrency business in Malaysia

Cryptocurrency business is legal in Malaysia, however, it is strongly regulated. It is important to get familiar with all the regulations and restrictions applicable to crypto companies in Malaysia in order to understand the licensing framework.

Crypto businesses are supervised by the Securities Commission of Malaysia (Suruhanjaya Sekuriti). They fall under the scope of the Regulated Market Operators framework, which are licensed and regulated by the SC.

In order to stay within the law, a cryptocurrency business in Malaysia should not only get a crypto license, but comply with an important set of regulations. It is therefore very important to acknowledge the numerous requirements and obligations of a crypto licensed company in Malaysia.

Cryptocurrency regulation in Malaysia

Companies willing to provide cryptocurrency services in Malaysia are ruled by the Capital Markets and Services Act of 2007 (amended numerous times since then). This text defines how financial markets and institutions are functioning and regulated in Malaysia.

This act also poses the Securities Commission (SC) as the supervisory authority for Regulated Market Operators (RMO), entities which are provided a license to operate in a financial field. This is the case of cryptocurrency, with the Digital Asset Exchange framework (DAX), which is a subdivision of the RMO framework.

To expand on this framework, the Security Commission has issued Guidelines for Regulated Market Operators and additional Guidelines for Digital Asset Exchanges. These two texts are, in addition to the Capital Markets and Services Act, the legal framework that constitutes the cryptocurrency regulation in Malaysia.

Cryptocurrencies are defined as securities in Malaysia since an order passed in 2019, the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order. This classification has several implications, the most important being that cryptocurrency are strongly regulated in Malaysia. Only about a dozen digital assets are legal in Malaysia, as a cryptocurrency or a token must be validated by the SC before being legally sold and exchanged in Malaysia.

Malaysia Virtual Cryptocurrency Registry

In Malaysia, the virtual registry of cryptocurrency companies is publicly available on the internet. It can be found freely on the website of the Securities Commission of Malaysia, on this page.

The registry shows the existing licensed companies, but also the previously licensed companies. It is apparent upon consulting the register, that most of the companies who got a crypto licensed in Malaysia before 2019 and the introduction of the current framework have ceased to work in the country.

The registry is not regularly updated and does not include detailed information on the license holding companies : only the company name and address in Malaysia are disclosed.

Crypto-authorization process in the Malaysia Virtual Currency Registry

The process to receive a crypto authorization in Malaysia and register into the virtual currency registry is notorious to be one of the most complex in Asia.

There are many elements to prepare carefully, including on the financial and human levels, before beginning the process to get a VASP license in Malaysia.

The registration of Malaysia Company in Register of crypto currency companies

In order to register a Malaysian company in the national register of crypto currency companies, a project must establish a company in Malaysia. It is important to note that a company registered in Labuan, a free economic zone of Malaysia, cannot apply for the Malaysia crypto license, as there is a different license in force in this region (see: Labuan crypto license).

The company must appoint a board of directors and a responsible officer and fulfill a certain number of requirements, such as holding a minimum share capital of 5.000.000 MYR (about 1.050.000 USD) and preparing certain internal procedures (audit, risk management, AML-CFT, etc).

Everything must be ready before carrying out an application to the Securities Commission. The Malaysian regulator will then assess the compliance of the project with the laws and rules in order to decide whether it will grant a crypto license or not.

Governmental Statements on Crypto in Malaysia

The Government of Malaysia has adopted a strict position on crypto, while keeping it legal. When an order was passed in 2019, qualifying cryptocurrencies as securities, it also created the necessity for every existing crypto asset to receive an approval by the Securities Commission in order to be legally sold and exchanged in Malaysia.

A notable case that shows the severity of the Malaysian regulator may be the recent ban of famous crypto exchange Huobi in Malaysia. As it was available to Malaysian citizens and offering crypto assets that are not authorized, it was forced to close its operations in Malaysia.

Requirements for companies engaged in crypto activities in Malaysia

The Securities Commission has laid out a certain number of requirements to be met by companies willing to engage in crypto activities in Malaysia.

Among the principal requirements for the DAX license, the following criteria must be met:

• Establish a company in Malaysia (not in Labuan);
• Have a minimum paid up capital of at least 5.000.000 Malaysian Ringgit, plus an additional 5.000.000 in the case of a Digital Broker;
• Ensure that all the members of its board are fit and proper and have professional qualification for their position;
• Appointment of a responsible person for compliance and contact with the Securities Commission. This role can only be fulfilled by the CEO, CFO or COO of the company;
• Draft policies and procedures pertaining to the good conduct of financial services: measures against proprietary trading, conflicts of interest, insider trading, making use of non-publicly available information, etc.

A DAX operator in Malaysia must have strong risk management processes and systems, in order to prevent all sorts of risks. This includes financial risks, customer identification, legal risks, operational risks, technical risks and physical risks. All of these should be audited periodically.

A crypto licensed company in Malaysia should also establish an internal audit function.

Only crypto assets which have been validated by the SC can be provided by the DAX operator. These include only the following crypto assets: BTC, ETH, AVAX, MATIC, BCH, XRP, LTC, SOL, LINK, UNI & ADA.

The crypto company should also establish systems and controls to maintain accurate records of all transactions. It should also take every possible measure to protect clients’ assets and data. For example, the clients’ assets shall be into segregated accounts, separate from the DAX operator accounts.

Finally, a DAX operator in Malaysia should ensure at all times sufficient liquidity for solvability. This requirement is further emphasized for companies operating a Digital Broker model.

The process of setting up a company for a cryptocurrency business in Malaysia

In the process of forming a cryptocurrency business in Malaysia, a company should be set up with the licensing requirements in mind.

Though it is not difficult to create a company in Malaysia, this company is required to hold a paid up share capital of 5.000.000 MYR, that is more than 1.000.000 USD. It should also appoint the board of directors and the responsible person before application.

The usual incorporation process takes 1 to 2 business weeks, but the necessity to adapt the company to the needs of the DAX framework can extend the process a little bit.

Taxation for cryptocurrency companies in Malaysia

For cryptocurrency companies in Malaysia, profit will be taxed on the gross income generated during the year. DAX operators can only register as Resident Companies in Malaysia, with an income tax rate of 24%.

There is no withholding tax in Malaysia, though royalties are subject to taxes (5 to 10% depending on the country).

Despite being classified as securities in Malaysia, proceeds from cryptocurrency trading (capital gains) are not subject to taxation.

Obligations for crypto companies in Malaysia

Once a crypto company successfully receives the DAX license in Malaysia, it is liable to respect some obligations, according to the law.

At all times, a crypto company must ensure the fair and transparent operation of its platform. It should consistently enforce policies and procedures relative to the trading, clearing and settlement of digital assets on the platform and monitor transactions on a permanent basis.

A crypto company must always be careful with the cryptocurrency it provides in its services. Not only should they be approved by the Securities Commission but it should be sourced from a Virtual Asset Service Provider that is either licensed in Malaysia or compliant with the FATF guidelines on AML-CFT (this is the case for the majority of crypto licenses in the world as of 2023).

DAX operators are not allowed to provide financial assistance to investors.

Sanctions for violating Malaysia crypto-business obligations

Performing crypto activities in Malaysia without a license, or violating the law as a licensed crypto company, will lead to severe sanctions.

As it is considered a financial crime and a legal offence, a wrongdoing company will most certainly be banned, its license revoked, and the participants sanctioned of fines and possibly imprisonment for the most extreme cases.

This is another demonstration of the severity of Malaysia toward cryptocurrency and its position to regulate them very strongly.