The Maltese government enacted a series of laws in 2018 aimed at providing regulatory certainty over the use and development of cryptocurrencies within its jurisdiction. The laws provide a framework through which virtual currencies and the individuals or entities that work with them are regulated. The taxation of cryptoassets in Malta is determined based upon both the purpose and context for which the assets are used. Thus, any returns from cryptoassets classified as financial tokens are treated as income for tax purposes, and capital gains tax may be chargeable if the cryptoasset meets the definition of a security under article 5 of the Income Tax Act.
The Maltese government has actively encouraged the development of cryptocurrency and has issued many consultation documents and other papers that discuss its regulation and development, with the aim of providing “the necessary legal certainty to allow this industry to flourish.” In 2018, Malta enacted the Virtual Financial Assets Act, the Innovative Technology Arrangement and Services Act, and the Malta Digital Innovation Authority Act. The intention behind these laws is to provide regulatory certainty, protect those who invest in virtual currencies, and encourage development in the innovative technology sector in Malta.
The Malta Commissioner for Revenue issued guidance on the taxation of distributed ledger technology (DLT) assets in 2018 that covers how the income tax, stamp duty, and value added tax (VAT) apply to cryptocurrencies. The guidelines divide tokens into different categories:
- financial tokens (security tokens), which are “DLT Assets exhibiting qualities that are similar to equities, debentures, units in collective investment schemes, or derivatives and including Financial Instruments”;
- Utility tokens, which are “DLT Assets whose utility, value or application is restricted solely to the acquisition of goods or services either solely within the DLT platform on, or in relation to which they are issued or within a limited network of DLT platforms”; and
- Hybrid tokens, which are a mixture of both financial and utility tokens, the treatment of which depends upon the manner in which the token is used.
The guidance notes that the taxation of any token “will not necessarily be determined by its categorisation, but will depend on the purpose for and context in which it is used.”
Any returns derived from assets classified as financial tokens are to be treated as income for tax purposes. The profits, value of any transferred assets, or consideration of any transaction that involves cryptoassets are to be determined by reference to the cryptoassets’ market value. The market value must be determined by referring to the rate established by the Maltese authorities, and in cases where this is not available, by reference to the average quoted price on reputable exchanges on the date of the transaction, or by such other methodology deemed acceptable by the Commissioner for Revenue.
The Income Tax Acts require individuals to maintain proper records, and this extends to transactions involving DLT assets. Any value in these assets must be determined in accordance with the currency the taxpayer uses to present their financial statements.
Any payments made using cryptoassets are treated in the same manner as any other currency for income tax purposes and there is no distinction in how revenue is recognized or how taxable profits are calculated. This principle applies to all forms of remuneration. Notably:
The return derived by the owner of financial tokens on his holdings, such as payments equivalent to dividends, interest, premiums etc., in a cryptocurrency or in another currency, or in kind, is treated as income.
The tax treatment of the transfer of financial tokens hinges on whether it is a trading transaction or the transfer of a capital asset. Profits from trading transactions are taxable, but capital gains are only chargeable if the financial token meets the definition of a security under article 5 of the Income Tax Act. Transfers made in the course of business are taxed as a trading transaction. To help determine whether the transaction is a trading or non-trading transaction, the income tax rules apply, and the “badges of trade” test (a set of principles derived from case law) may be used. Any profits derived from the sale of cryptoassets acquired with the intention of making a profit are treated as trading profits.
If the transfer of cryptoassets are not considered to be in the nature of a trading transaction, it must then be determined whether the cryptoassets meet the definition of securities under Article 5 of the Income Tax Act, which provides:
“securities” shall mean shares and stocks and such like instrument that participate in any way in the profits of the company and whose return is not limited to a fixed rate of return, units in a collective investment scheme as defined in article 2 of the Investment Services Act, and units and such like instruments relating to linked long term business of insurance.
If the cryptoassets meet this definition, they are subject to capital gains tax. Cryptoassets that do not meet this definition fall outside the scope of capital gains tax. This analysis also applies to the transfer of convertible tokens until they are converted into securities.
VAT is applied to cryptoassets according the provisions of the VAT Act.
There are no taxation laws or rules that specifically apply to the mining of cryptoassets in Malta. Guidance on the VAT treatment of DLT notes that mining typically falls outside the scope of VAT unless the miner provides other services:
For the purposes of VAT a chargeable event would arise where a supply of services is made for a consideration by a taxable person acting as such. Moreover, as established by caselaw, there must be a direct link between the consideration payable and the supply made, and where, there is a reciprocal performance between the supplier and the recipient of the services.
Accordingly, where constituting a service for which compensation arises in the nature of newly minted coins, mining normally does not have a particular recipient of such service thereby, in that case, falling outside the scope of VAT since there would be no direct link between the compensation received and the service rendered and, there would be no reciprocal performance between a supplier and a receiver.
On the other hand, should miners receive payment for other activities, such as for the provision of services in connection with the verification of a specific transaction for which a specific charge to a specific customer is made, a chargeable event for VAT purposes would be triggered. In that case, in so far that such service would be deemed to take place in Malta, Maltese VAT would be applicable at the standard rate.
B. Airdrops, Staking, Forging, and Forks
There appear to be no specific tax laws or policies on airdrops of cryptoassets in Malta. Tax may be chargeable depending upon the circumstances of the airdrop. There also does not appear to be tax laws or policies that apply to staking or forging for proof of stake cryptocurrencies, or to forks in blockchains.
Prepared by Clare Feikert Ahalt
Senior Foreign Legal Specialist
 Id. at 2.
 Id. at 3.
 Id. at 4.
 Id. at 5.
 Guidelines on the Income Tax Treatment of Transactions or Arrangements Involving DLT Assets, supra note 6, at 5.
 Income Tax Act, cap. 123, art. 5(1).
 Guidelines on the Income Tax Treatment of Transactions or Arrangements Involving DLT Assets, supra note 6, at 6.
Last Updated: 02/05/2021