How Does a Blockchain Work?
Blockchain technology is the backbone of cryptocurrencies. It is a decentralized ledger that records all transactions across a network of computers. Each block in the chain contains a list of transactions, and once a block is completed, it is added to the chain in a linear, chronological order. This ensures the integrity and security of the data, as altering any information would require changing all subsequent blocks, which is practically impossible.
The Different Types of Crypto Assets and the important distinctions for Malta’s crypto tax
Crypto assets can be broadly categorized into several types, each with distinct features and purposes:
- Coins: These are digital currencies like Bitcoin and Ethereum, designed to be used as a medium of exchange or store of value. Coins operate on their own blockchain and are primarily used for transactions and as a means of payment.
- Tokens: Tokens represent assets or utilities on a blockchain and can be further divided into:
- Utility Tokens: These provide access to a product or service within a blockchain ecosystem. They are not intended to be used as a medium of exchange but rather to enable users to interact with a specific application or platform.
- Security Tokens: These represent ownership in an asset or company and are subject to securities regulations. Security tokens can provide holders with rights such as dividends, profit sharing, or voting power.
- Stablecoins: These are pegged to a stable asset like fiat currency to reduce volatility. Stablecoins aim to combine the benefits of cryptocurrencies with the stability of traditional currencies. Examples include USDC and Tether (USDT)
- E-Money Tokens (EMT): These are a type of crypto asset that purports to maintain a stable value by referencing the value of one official currency. They are regulated separately under the Markets in Crypto-Assets Regulation (MiCA) and are subject to specific regulations to be able to offer them to the public or admit them to trading on a crypto-assets trading platform12.
- Asset-Referenced Tokens (ART): These tokens have their value attached to a real-world asset or to several assets at the same time. This reference can be to securities, commodities, or real estate. ARTs are also regulated under MiCA and include stablecoins that are pegged to several fiat currencies simultaneously12.
- Non-Fungible Tokens (NFTs): These are unique and not fungible, meaning they cannot be exchanged on a one-to-one basis with other tokens. NFTs represent ownership of a specific item, such as digital art, collectibles, or other digital assets. They are often used in the context of digital art and gaming34.
- Decentralized Finance (DeFi) Tokens: These tokens are used within decentralized finance platforms to provide financial services such as lending, borrowing, and trading without the need for traditional intermediaries like banks. DeFi tokens often provide holders with governance rights, allowing them to vote on protocol changes and improvements.
Understanding the different types of crypto assets is crucial for tax planning and compliance with regulations. Each type of asset has unique features and tax implications, which must be considered when managing crypto investments.
Tax on Crypto Assets
The tax implications for crypto assets in Malta vary depending on the type of asset and the nature of the transaction. According to the guidelines by the Malta Tax authorities, the tax treatment is as follows:
- Coins: Generally treated as a medium of exchange and taxed similarly to foreign currency transactions.
- Utility Tokens: Not subject to tax if they do not have the characteristics of a security.
- Security Tokens: Subject to capital gains tax if they are considered securities.
Malta Crypto Taxation – Guidelines by the Malta Tax Authorities
Malta has established clear guidelines for the taxation of crypto assets. The Malta Tax authorities have outlined that no tax is levied on capital gains derived from crypto coins and utility tokens that do not have characteristics of a security. This favourable tax regime makes Malta an attractive destination for crypto traders and investors.
Current International Case Law about Crypto Tax
International case law on crypto tax is evolving, with various jurisdictions adopting different approaches. Malta's progressive stance and clear guidelines provide a stable and predictable environment for crypto investors. It is essential to stay updated with international developments to ensure compliance.
Why Setting Up a Company in Malta Makes Sense
Malta offers a stable and favorable environment for crypto businesses. Setting up a company in Malta provides several benefits, including a favourable effective tax rate and access to the European market. The process involves registering with the Malta Business Registry and complying with local regulations.
Malta Corporate Tax System
Malta's corporate tax system is designed to be competitive and attractive to businesses. Companies are subject to a standard corporate tax rate of 35%, but various incentives and refunds can reduce the effective tax rate significantly.
How Can We Support You?
Setting up a company in Malta to hold your crypto assets offers several advantages, including a favorable tax regime and robust legal safeguards. A Malta limited liability company provides protection and flexibility for managing your crypto investments. Our firm can assist you with the entire process, from company formation to ongoing compliance and tax planning.
