Author: FinTax
1. Overview of Malaysia’s basic tax system
1.1 Malaysia’s Tax System
Taxes in Malaysia are divided into direct taxes and indirect taxes. Direct taxes include income tax, real estate surplus tax and petroleum income tax, etc.; indirect taxes include domestic taxes, customs duties and import and export taxes, sales tax, service tax and stamp duty, etc. At the same time, the federal government and local governments in Malaysia implement a tax-sharing system. The federal government manages national taxes and is responsible for formulating tax policies, which are implemented by the Inland Customs Department and the Royal Customs Department. The Inland Customs Department is mainly responsible for direct taxes, such as income tax and petroleum taxes; while the Royal Customs Department is responsible for indirect taxes, including domestic taxes, customs duties, import and export taxes, sales tax, service tax and stamp duty, etc. State governments levy land taxes, mineral taxes, forest taxes, license taxes, entertainment taxes, hotel taxes and house number taxes, etc.
1.2 Main types of taxes
1.2.1 Corporate income tax
Companies registered in Malaysia are subject to income tax on all their income. For Malaysian companies with paid-in capital of less than RM2.5 million (inclusive), the first RM150,000 of income is taxed at 15%, the portion between RM150,000 and RM600,000 is taxed at 17%, and the income thereafter is taxed at the standard rate of 24%; for Malaysian companies with paid-in capital of more than RM2.5 million, the tax rate is 24%; the tax rate for foreign companies is 24%.
1.2.2 Personal income tax
Residents are subject to income tax on income earned in Malaysia, income remitted from outside Malaysia, and income earned by non-residents while working in Malaysia. The personal income tax rate in Malaysia is 0%-30%, with a tax rate of 0% for amounts below RM5,000 and a tax rate of 30% for amounts exceeding RM2 million. The tax rate for foreign citizens is fixed at 30%
1.2.3 Withholding Tax
Withholding tax is withheld and paid directly to the tax bureau by the payer in Malaysia. Non-local companies or individuals are subject to withholding tax: 10% for special income (use of movable property, technical services, provision of plant and machinery installation services, etc.); 15% for interest; 10% for contract fees obtained under the contract: 10% for contractors and 3% for employees; 10% for commissions, deposits, agency fees, etc. According to the tax regulations on double taxation between the Malaysian government and the country where the payee is located, the withholding tax rates vary from country to country.
1.2.4 Real estate profit tax
Real property gains tax applies to the sale of land and any title, option or other right related to land in Malaysia. This includes gains from the sale of shares in a real estate company. The tax rate is: 30% if sold within 3 years of acquisition; 20% and 15% if sold in the 4th and 5th years after acquisition respectively; 5% if sold in the 6th year or later after acquisition.
1.2.5 Import and export taxes
Most of the imported goods in Malaysia are subject to import tax, which is divided into ad valorem and specific rates. Malaysia implements preferential tariffs with ASEAN countries, with the import tax rate for industrial products ranging from 0-5%; implements import tax under the framework of bilateral free trade agreement with Japan; implements import tax under the framework of regional free trade agreement of China-ASEAN Free Trade Area and Korea-ASEAN Free Trade Area with China and South Korea; and signs a free trade agreement with Australia, according to which Malaysia will reduce or exempt more than 97% of tariffs on goods imported from Australia.
Malaysia imposes export tax on resource-based products including crude oil, logs, sawn timber and crude palm oil. The ad valorem export tax rate ranges from 0 to 20%.
2. Malaysia’s Cryptocurrency Tax Policy
2.1 Qualitative Analysis of Cryptocurrency
From a legal perspective, cryptocurrencies are not considered legal tender in Malaysia. According to the National Bank Act 2009 and the official statement issued by the National Bank of Malaysia in 2014, cryptocurrencies such as Bitcoin are not legal tender and cannot be used as an official means of payment. Merchants are not obliged to accept them, which also means that cryptocurrencies do not enjoy legal protection at the payment level.
Although it does not recognize its currency status, the Securities Commission of Malaysia still regards some cryptocurrencies (especially those with financing or investment characteristics) as "digital assets" and includes them in the securities regulatory framework under the Capital Markets and Services Act (CMSA). According to the digital asset regulations issued in 2019 and the subsequent Digital Asset Guidelines, all tokens with investment contract nature, operated by a third-party management team, and with profit expectations will be identified as security tokens, and issuance and trading activities must be approved by the securities regulatory authorities. Qualified digital asset trading platforms must also register as "Recognized Market Operators". Currently, platforms such as Luno, Tokenize and SINEGY have obtained compliance licenses.
2.2 Cryptocurrency tax system
2.2.1 How to levy taxes
Malaysia does not consider cryptocurrencies as capital assets, and the country’s tax bureau has not yet issued any clear guidelines on the taxation of cryptocurrency transactions. But this does not mean that all cryptocurrency transactions are tax-free.
Malaysia currently does not impose capital gains tax on cryptocurrencies held by individuals, but if the person is engaged in related business (such as a company or individual engaged in the buying and selling of cryptocurrencies), the related gains may be regarded as business income and subject to tax.
If the applicant actively trades cryptocurrencies, or is somehow identified as a "day trader," then he will be required to pay personal income tax. Cryptocurrency activities may be identified as day traders by the tax authorities when they meet any of the following conditions:
- Large amount of cryptocurrency held
- Shorter holding period
- High transaction frequency
- Processed, packaged or promoted cryptocurrencies to increase their market appeal
- The person is not forced to sell the cryptocurrency (e.g. not due to urgent need for funds or property confiscation)
- The transaction is motivated by commercial purposes
- Obtain short-term financing for purchasing cryptocurrencies
- The existence of other relevant factors or supporting documents
Since Malaysia does not have a capital gains tax, the Malaysian Inland Revenue Board may try to classify the applicant as a day trader - even if he does not actively trade. However, if the applicant can prove that he is just holding (hoarding) for the long term and not trading for profit, then he will not be taxed.
2.2.2 Tax calculation method
Under the current tax framework in Malaysia, entities that only engage in intraday trading of cryptocurrencies are required to fulfill tax filing obligations, and the calculation of their taxable income follows a relatively simple rule: the difference between the disposal price of the cryptocurrency and its cost basis (i.e. the acquisition cost) is recognized as taxable income.
For taxpayers who receive transaction consideration in the form of cryptocurrency, they must confirm taxable income based on the fair market value of the cryptocurrency at the time of acquisition in accordance with the relevant provisions of the Income Tax Law, and declare and pay income tax accordingly.
If the tax authorities determine that a taxpayer's cryptocurrency trading constitutes a "risky business activity" as defined in Section 33(1) of the Income Tax Act, then all exclusive expenses incurred to generate such income (unless expressly listed as non-deductible items under Section 39) are tax deductible before tax. This provision extends to interest expenses and other costs directly related to cryptocurrency holdings, thereby broadening the scope of eligible cost deductions.
It should be pointed out that although the current tax law theoretically distinguishes between the tax treatment of capital holdings and operating transactions, in practice the boundary between the two is significantly ambiguous. For example, when a taxpayer initially purchases Bitcoin for investment purposes and subsequently uses it for transaction scenarios such as debt repayment, it may trigger a re-identification of the tax nature, which in turn leads to a dynamic adjustment of the tax base.
3. The establishment and improvement of Malaysia’s crypto regulatory framework
Malaysia is actively working to establish a comprehensive regulatory framework for the cryptocurrency industry. With the development of the market and the evolution of international trends, Malaysia has gradually formed a dual-track parallel regulatory system with the Securities Commission (SC) and the National Bank (BNM) as the core, which are responsible for the securities attribute supervision of cryptocurrencies and the management of financial stability areas such as payment and anti-money laundering.
This article briefly summarizes the dynamic changes in Malaysia’s cryptocurrency regulatory framework over the past decade:
In 2014, BNM announced that cryptocurrencies are not considered legal tender and do not regulate their use. It also warned the public about the risks of cryptocurrency transactions.
In 2018, BNM released the Anti-Money Laundering and Counter Financing of Terrorism – Policy on Digital Currencies, which listed cryptocurrency service providers as “reporting institutions” and required them to implement strict customer identity verification, transaction record keeping and suspicious transaction reporting systems. This measure marks the beginning of Malaysia’s inclusion of cryptocurrency in its financial regulatory vision, and focuses on anti-money laundering and financial transparency to establish a basic risk prevention and control mechanism.
In 2019, the SC announced new digital currency regulatory rules, the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, which for the first time included digital currencies with securities characteristics within the regulatory scope of the Capital Markets and Services Act.
In 2020, the SC released a more systematic Guidelines on Digital Assets, which detailed: ICO application conditions, fund use, investor thresholds; compliance requirements for digital asset exchanges (DAX), such as KYC, investor protection, technical support, etc.; and specific standards for operators' information disclosure, internal control, compliance reporting, etc. The Guidelines filled many gaps in the previous regulatory system, making token issuance and platform operations more legally enforceable and highly enforceable.
In 2021-2022, Malaysian regulators will focus on platform compliance and alignment with international standards. The SC will strengthen enforcement against unauthorized crypto platforms and frequently publish Investor Alert Lists to remind users to avoid trading on unregistered platforms. At the same time, it will cooperate with international regulatory organizations such as IOSCO and FATF to conduct research and evaluation on emerging asset forms such as DeFi, stablecoins, and NFTs. It will not immediately ban them, but will maintain a cautious attitude.
On August 19, 2024, the Securities Commission of Malaysia (SC) revised the Digital Asset Guidelines. The update clarified the status of digital currencies as securities under the Capital Markets and Services Act, and detailed the requirements for fundraising through ICOs and IEOs, as well as the operating regulations for digital asset custody services.
4. Summary and Outlook
The Malaysian government has adopted a prudent and gradual strategy in the regulation and taxation of cryptocurrencies, emphasizing the moderate opening of innovation space under the premise of ensuring the stability of the financial system and the safety of investors. Malaysia has gradually established a relatively clear crypto regulatory framework through the Securities Commission and the National Bank, and included digital assets with securities nature in the Capital Markets and Services Act, requiring crypto trading platforms to obtain licenses and strictly fulfill anti-money laundering (AML/CFT) obligations. For ICO, IEO and digital asset trading activities, the Digital Asset Guide provides specific legal basis and operating specifications, promoting the compliance development of the crypto market.
In terms of taxation, although Malaysia has not levied capital gains tax on cryptocurrencies, the tax authorities have clearly stated that individuals or companies involved in active trading, crypto rewards, mining and other profit-making activities must include relevant income in income tax declarations. This "use-oriented" taxation method not only maintains the tax base, but also provides a policy buffer for long-term holders, maintaining the flexibility and attractiveness of the market.
As the acceptance of cryptocurrencies in Malaysia continues to rise, the number of users of compliant trading platforms including Luno and Tokenize continues to grow, and the market is showing a steady expansion trend. At the same time, regulators have also begun to pay attention to emerging forms such as NFT, stablecoins, and DeFi, and have participated in regional regulatory cooperation and CBDC exploration projects, laying the foundation for future policy iterations.
In the future, the development of Malaysia's crypto market is expected to further evolve towards "deepening compliance and regional coordination". With the promotion of international regulatory standards (such as FATF recommendations and MiCA framework), Malaysia may strengthen cross-border data exchange, stablecoin reserve supervision and platform audit mechanisms. At the same time, digitalization of tax compliance will also become a trend, promoting the formal integration of cryptocurrencies into the mainstream financial system. Under such a policy tone, Malaysia is expected to steadily release the growth potential of the crypto economy while ensuring that risks are controllable.
