Written by: TaxDAO
1. Introduction
Malta is located in the central Mediterranean Sea, with a superior geographical location. It is a hub connecting Europe, North Africa and the Middle East. In terms of economy, Malta is mainly based on the service industry, especially tourism, finance and information technology industries. In recent years, Malta has actively promoted the development of blockchain and cryptocurrency industries and is known as the "Blockchain Island". Its financial and legal environment has attracted a large number of international investors and companies. As a member of the European Union, Malta has adopted a positive regulatory attitude in the field of cryptocurrency and blockchain, becoming a global leader in this field. This article will analyze Malta's crypto asset system from four aspects: basic tax system, cryptocurrency tax system, cryptocurrency regulatory policy, summary and outlook, and predict its future development direction.
2. Malta’s basic tax system
2.1 Malta Tax System
Malta has a progressive tax rate, with personal income tax rates ranging from 0% to 35%. The government taxes residents on their worldwide income, while non-residents are taxed only on income generated in Malta. Residency is defined primarily based on the length of time an individual has lived in Malta and the principle of the center of economic interests. Malta also offers special tax programs for expatriates and high net worth individuals, such as the Malta Retirement Program and the Global Residence Program, which offer fixed tax rates and tax relief benefits. According to the Maltese Constitution, tax powers are mainly concentrated at the national level, and local governments have more limited tax powers. In addition, Malta's tax system is dominated by income tax and value-added tax. Other major taxes include capital gains tax, property tax, import and export tariffs, and wage and salary taxes. Local governments have the power to levy real estate taxes, business taxes, and license and registration fees. Special taxes such as consumption taxes and environmental taxes are levied on specific goods, services, and environmental protection. The government aims to ensure fiscal revenue through comprehensive taxes, support socio-economic development, and attract foreign investment and promote international business activities through tax incentives.
2.2 Income Tax
According to the Maltese tax law, a Maltese tax resident company is a legal entity whose principal place of business or effective management is located in Malta. In tax treaties, Malta generally follows the concept of resident companies as stipulated in the OECD Model Convention. In the Model Convention, a resident company refers to a person who is taxed in the country under the laws of that country due to its location, residence, place of management, place of establishment (tax treaty with Malta) or other similar conditions, but does not include a person whose income is derived solely from that country. In principle, if a legal entity does not meet the definition of a Maltese tax resident company, it is considered a Maltese non-resident company. Corporate income tax is levied on legal persons such as enterprises and companies engaged in business activities in Malta. Non-resident companies with a permanent establishment in Malta need to pay corporate income tax in Malta on the income of the permanent establishment and income derived from Malta, while non-resident companies without a permanent establishment in Malta only need to pay corporate income tax on income derived from Malta. The income of non-resident companies is subject to different tax rates depending on its source and nature, but net taxable gains from the sale of immovable property and shares and income from short-term construction, installation and similar works are taxed at a higher rate. In certain circumstances, if such companies are deemed to have income for income tax purposes and have a permanent establishment or fixed business in Malta, they will be subject to the taxation rules for Maltese resident companies from the time of the determination and will be taxed in the same manner as branches of foreign companies registered in Malta. Capital gains from the sale of fixed assets, shares and immovable property are considered ordinary income and are subject to corporate income tax. The corporate income tax rate in Malta is 35%, but this can be reduced through the tax credit mechanism, making it a relatively low corporate income tax rate compared to most countries.
Under Malta's tax law, a person who has a personal permanent residence in Malta is considered a Maltese resident. If such a person also has a personal permanent residence abroad, the main factor determining his tax residency is the location of his centre of vital interests. An individual shall be considered a Maltese resident if, in a calendar year, his income from sources in Malta exceeds 50% of his total income or if the main place of his professional activities is located in Malta. Individuals who do not meet the above conditions are non-residents. Maltese residents are subject to personal income tax on all their worldwide income; non-resident individuals who have the following two situations are subject to personal income tax in accordance with the law: one is that they operate and obtain income through a permanent establishment in Malta, and the other is that they obtain income from sources in Malta. Foreigners residing in Malta are taxed only on their income in Malta. Personal income tax is subject to progressive tax rates, with the highest tax rate being 35%.
It is important to note that Malta taxes capital gains, which primarily apply to gains arising from the sale of fixed assets, shares and other capital assets. Capital gains tax rates may vary depending on the type of asset and the holding period. Typically, lower rates are applied to long-term held assets, while shorter-term held assets are taxed at higher rates. When calculating taxable capital gains, the asset's sale price is taken into account, less the original purchase price and related expenses, with only the actual increase in value being taxed. Malta also offers some tax incentives and exemptions, such as for internal corporate restructurings and certain transactions for international investors.
2.3 Value Added Tax
Malta's VAT applies to income from the sale of goods, provision of services, rental income and the importation of goods and services. Non-VAT taxable income is used together with VAT taxable income to determine the applicable tax rate. When taxpayers meet their tax obligations and enjoy their exemption rights, the tax passed on to consumers due to investment expenditure must be adjusted in subsequent tax years. Currently, the basic VAT rate in Malta is 18%, with a preferential rate of 5% or zero tax rate applicable to certain specific goods and services. Malta's VAT system is designed to ensure fair and effective taxation, while encouraging the development of specific industries and the improvement of social welfare.
2.4 Other taxes
Most countries impose property taxes on citizens to pay for public services and infrastructure. However, as a small open economy that relies on attracting foreign investment and businesses, Malta has chosen to exempt property taxes to enhance its international competitiveness. By exempting property taxes, Malta hopes to attract more foreign investment and wealthy individuals to purchase real estate and promote economic development. To fill the gap in property taxes, Malta's tax structure mainly relies on other forms of taxation, such as income tax, real estate transfer tax and stamp duty.
Malta has implemented a withholding tax (WHT) regime on transfers of immovable property. With effect from 1 January 2015, transfers of immovable property in Malta are generally subject to a withholding tax of either 8% or 10% on the value of the property transferred, depending on when the immovable property was acquired. In certain specific cases, the withholding tax rate may differ. In particular, a concessionary rate of 5% is available for the first €400,000 of the value of the transfer, provided that certain conditions are met. Transfers of immovable property acquired by death or donation are subject to a withholding tax of 12% on the difference between the value of the transfer and the value of the acquisition, or to the default rate of the transfer value as set out above. The first €100,000 of gains arising from the first transfer of any rights under an immovable property or the termination or suspension of any rights will be taxed at 15%.
Stamp duty is also an important part of the Maltese tax system. Stamp duty applies to transfers of immovable property and transfers of market securities. For transfers of immovable property, both residents and non-residents are taxed at a rate of 5%, while transfers of immovable property in Gozo are taxed at a rate of 2%. For transfers of market securities, the rate is 2%; if it involves the transfer of shares in a real estate company, the rate is 5%. Malta also provides a number of stamp duty exemptions, such as the reorganization of shareholdings, which are exempt from stamp duty. The exchange of partnership interests from one company to another within the same group of companies, or the transfer of partnership interests between partnerships, is also exempt from stamp duty. In addition, stamp duty is levied at a reduced rate of 1.5% on the gratuitous transfer (i.e. donation) of market securities or commercial leases to close relatives. This concession applies to donations made by public contracts before January 1, 2025.
Malta's tax system is designed to ensure reasonable taxation of different incomes, promote market transparency and regulation, and provide a variety of tax incentives and exemptions to support the development of specific areas and the healthy development of the economy. Through these measures, Malta not only maintains the fairness and transparency of the tax system, but also effectively attracts international investment and promotes sustained economic growth.
3. Malta’s Crypto Taxation Regime
Malta's cryptocurrency tax system is relatively clear, and the treatment of crypto assets is mainly subject to general tax laws. The income from cryptocurrency transactions is considered capital gains and is subject to personal income tax or corporate income tax. The income generated by companies and individuals when buying and selling cryptocurrencies should be taxed according to Malta's progressive tax rates, which depend on the trader's total income.
Malta does not generally apply VAT to cryptocurrency transactions because Malta is a member of the European Union. Under EU law, cryptocurrencies are considered part of financial services and the purchase and sale of cryptocurrencies are not subject to VAT. However, businesses and individuals engaged in cryptocurrency transactions must fulfill the corresponding tax reporting obligations. In particular, when businesses engage in cryptocurrency-related businesses, they must report their transaction details to the Malta Revenue Department (IRD) and comply with relevant anti-money laundering (AML) and customer due diligence (CDD) regulations. Through these measures, the Maltese government ensures transparency and compliance in the cryptocurrency market, prevents tax evasion and money laundering, and protects the legitimate rights and interests of investors and consumers.
In order to promote the development of blockchain and cryptocurrency enterprises, Malta provides a series of tax incentives. Qualified enterprises can enjoy a lower corporate income tax rate and reduce the actual tax burden through a tax credit mechanism. Malta provides a variety of tax incentives for enterprises using blockchain technology to encourage research and development and innovation. Specifically, eligible enterprises can obtain tax credits of up to 25% to 70% on R&D expenditures, depending on the size of the enterprise and the nature of the project. In addition, Malta provides preferential tax treatment for start-ups and early-stage companies, which can benefit from reduced corporate tax rates and additional deductions for qualified expenditures. In terms of intellectual property, Malta provides a preferential tax system for income from qualified intellectual property, and investors can enjoy substantial tax reductions on income generated from intellectual property such as patents, copyrights and trademarks.
In order to avoid double taxation of international investors on their global income, Malta has also signed an extensive network of double taxation treaties. These tax policies and incentives demonstrate Malta's intention to become a leading center for the blockchain and cryptocurrency industry, providing a favorable tax environment for global businesses and investors.
4. Malta’s cryptocurrency regulatory policy
Malta is also one of the earliest countries in the world to develop a comprehensive legal framework to regulate blockchain and cryptocurrency. Its regulatory policies mainly revolve around laws such as the Virtual Financial Assets Act (VFAA), the Innovative Technology Arrangements and Services Act (ITAS) and the Malta Digital Innovation Authority Act (MDIA). In 2018, Malta passed the Virtual Financial Assets Act (VFAA), which defines and classifies cryptocurrencies and related activities in detail and establishes specific regulatory requirements. Under this law, virtual financial asset service providers (VASPs) engaged in cryptocurrency trading, management and custody must register with the Malta Financial Services Authority (MFSA) and comply with strict regulatory standards. These standards include anti-money laundering (AML) and counter-terrorism financing (CFT) measures, transparency requirements and regular reporting.
In addition, companies conducting initial coin offerings (ICOs) in Malta are required to submit detailed white papers to the MFSA, disclosing details of the project, including the functions, risks and planned use of funds of the tokens. The MFSA will review and approve these white papers. All virtual financial asset service providers (VASPs) must comply with international AML/CFT standards, including conducting due diligence on customers, reporting suspicious transactions and maintaining transaction records. Under the Innovative Technology Arrangements and Services Act (ITAS), Malta also established the Innovative Technology Arrangements and Services Authority (MDIA), which is responsible for certifying and regulating the application of blockchain and other innovative technologies to ensure the security and transparency of the technology. The Digital Innovation Agency Act established the Malta Digital Innovation Agency (MDIA), which is responsible for promoting and regulating the country's digital innovation, including blockchain and cryptocurrency. Malta's cryptocurrency regulatory framework ensures the transparency and security of the cryptocurrency market and protects the rights and interests of investors through strict legal and regulatory measures, while encouraging financial technology innovation and industry development. This comprehensive and strict regulatory approach not only ensures the healthy development of the market, but also provides a regulatory model for other countries around the world to learn from.
5. Summary and Outlook of Malta’s Crypto Asset Regime
Malta's crypto asset tax system is relatively clear and forward-looking, and its tax provisions are mainly attached to general tax laws. Malta's treatment of crypto assets mainly follows its legal characterization of virtual financial assets, treating the proceeds from cryptocurrency transactions as capital gains, which are subject to personal income tax or corporate income tax, and exempting cryptocurrency transactions from value-added tax. Malta imposes strict tax reporting and anti-money laundering requirements on companies and individuals engaged in cryptocurrency transactions to ensure compliance and market transparency. Although the main purpose of Malta's tax system is to protect the interests of investors and prevent financial risks, the Maltese government is clearly encouraging the development of the crypto asset sector, and actively attracts blockchain and cryptocurrency companies through the Innovative Technology Arrangements and Services Act (ITAS) and other preferential policies to promote financial technology innovation and industry development.
Looking ahead, Malta will continue to take the lead in global crypto asset regulation and taxation. As countries around the world become more accepting of cryptocurrencies, Malta may further improve its tax system to adapt to the development and changes in the cryptocurrency market, and is expected to find the best solution between balancing economic development, financial security and monetary sovereignty, and continue to maintain its leading position in the field of crypto assets. By continuously adjusting and optimizing tax policies, Malta can not only attract more blockchain and cryptocurrency companies, but also occupy a more advantageous position in the international financial market, and promote the continued growth and innovation of the domestic economy.
