The Crypto World in Kuala Lumpur: Malaysia's Crypto Assets Taxation and Regulatory System

1. Overview of the Basic Taxation System in Malaysia

1.1 Malaysia's Taxation System

In Malaysia, tax types are divided into direct taxes and indirect taxes. Direct taxes include: income tax, real property gains tax, and petroleum income tax; indirect taxes include: domestic taxes, customs duties, import and export taxes, sales tax, service tax, and stamp duty. At the same time, the Federal Government of Malaysia and local governments implement a tax-sharing system, where the Federal Government manages national taxation and is responsible for formulating tax policies, which are executed by the Inland Revenue Board and the Royal Customs Department. The Inland Revenue Board is mainly responsible for direct taxes, such as income tax and petroleum tax; 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. State governments levy land tax, mineral tax, forest tax, license tax, entertainment tax, hotel tax, and house number tax.

1.2 Main Types of Taxes

1.2.1 Corporate Income Tax

Companies registered in Malaysia are required to pay income tax on all their revenue. For Malaysian domestic companies with paid-up capital of less than 2.5 million MYR (including 2.5 million MYR), the tax rate on the first 150,000 MYR of income is 15%, the portion from 150,000 to 600,000 is taxed at 17%, and thereafter income is taxed at the standard rate of 24%. For Malaysian domestic companies with paid-up capital exceeding 2.5 million MYR, the tax rate is 24%. The tax rate for foreign companies is uniformly 24%.

1.2.2 Personal Income Tax

Residents in Malaysia are subject to income tax on income earned in Malaysia and income remitted from outside Malaysia, as well as income earned by non-residents during their work period in Malaysia. The personal income tax rate in Malaysia ranges from 0% to 30%, with a rate of 0% for income up to 5000 MYR, and a rate of 30% for income exceeding 2 million MYR. The tax rate for foreign citizens is fixed at 30%.

1.2.3 Withholding Tax

Withholding tax is withheld and paid directly by the payer in Malaysia to the tax authority. Non-local companies or individuals are subject to withholding tax: special income (such as the use of movable property, technical services, and installation services for factories and machinery) is taxed at 10%; interest is taxed at 15%; for contract-based fees: contractors pay 10%, employees pay 3%; commissions, deposits, intermediary fees, etc. are taxed at 10%. According to the tax regulations regarding double taxation between the Malaysian government and the recipient's country, the withholding tax rates vary by country.

1.2.4 Real Estate Profit Tax

The Real Property Gains Tax applies to the sale of land and any property, options, or other rights related to land in Malaysia. This includes gains from the sale of shares in real estate companies. The tax rates are as follows: if sold within 3 years after acquisition, the rate is 30%; if sold in the 4th and 5th years after acquisition, the rates are 20% and 15% respectively; if sold in the 6th year or thereafter, the rate is 5%.

1.2.5 Import and Export Tax

Most imported goods in Malaysia are subject to import duties, which are divided into ad valorem rates and specific rates. Malaysia implements preferential tariffs with ASEAN countries, with import tax rates for industrial products ranging from 0-5%; it has import duties under the framework of the bilateral free trade agreement with Japan; it has import duties under the framework of the China-ASEAN Free Trade Area and the Korea-ASEAN Free Trade Area agreements with China and South Korea; and it has signed a free trade agreement with Australia, under which Malaysia will reduce or eliminate tariffs on over 97% of imported goods from Australia.

Malaysia imposes export taxes on resource products including crude oil, logs, sawn timber, and crude palm oil. The export tax rates based on value range from 0% to 20%.

2. Malaysia Cryptocurrency Tax Policy

2.1 Qualitative Analysis of Cryptocurrencies

Legally, cryptocurrencies are not considered legal tender in Malaysia. According to the National Bank Act of 2009 and the official statement released by Bank Negara Malaysia in 2014, cryptocurrencies like Bitcoin do not have legal tender status and cannot be used as an official means of payment. Merchants are not obligated to accept them, which also means that cryptocurrencies do not enjoy legal protection in terms of payments.

Despite not recognising its monetary status, the Securities Commission of Malaysia considers a portion of cryptocurrencies (particularly cryptocurrencies with financing or investment characteristics) to be "digital assets" and is included in the securities regulatory framework under the Capital Markets and Services Act (CMSA). According to the regulations related to digital assets issued in 2019 and the subsequent Digital Asset Guidelines, all tokens with the nature of investment contracts, operated by a third-party management team, and expected to make a profit will be recognized as security tokens, and the issuance and trading activities must be approved by the securities regulatory authorities. Eligible digital asset trading platforms are also required to register as Recognized Market Operators, and platforms such as Luno, Tokenize, and SINEGY are currently licensed for compliance.

2.2 Cryptocurrency Taxation System

2.2.1 How to Tax

Malaysia does not consider cryptocurrencies as capital assets, and the country's tax authority has yet to release any clear guidelines regarding the taxation of cryptocurrency transactions. However, this does not mean that all cryptocurrency transactions are exempt from taxes.

Malaysia currently does not impose capital gains tax on cryptocurrencies held by individuals, but if it is related to business activities (such as enterprises or individuals engaged in cryptocurrency trading), the related income may be considered as business revenue and subject to taxation.

If the applicant is actively engaged in cryptocurrency trading or is recognized in some way as a "Day Trader," then they will be required to pay personal income tax. When cryptocurrency activities meet any of the following conditions, they may be identified by tax authorities as a Day Trader:

(1) Holding a large amount of cryptocurrency

(2) Short holding period

(3) High trading frequency

(4) Have handled, packaged, or promoted cryptocurrencies to enhance their market appeal.

(5) Selling cryptocurrency not due to coercion (for example, not due to urgent need for funds or property confiscation, etc.)

(6) The motive for the transaction is for commercial purposes.

(7) Short-term financing obtained for the purchase of cryptocurrency

(8) There are other relevant factors or supporting documents.

Due to the absence of capital gains tax in Malaysia, the Malaysian tax authorities may attempt to classify the applicant as a day trader—even if he is not actively trading. However, if the applicant can prove that he is merely holding long-term (hoarding coins) 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 engaged solely in day trading of cryptocurrencies are required to fulfill tax reporting obligations. The calculation of their taxable income follows relatively straightforward rules: the taxable income is recognized as the difference between the disposal price of the cryptocurrency and its cost basis (i.e., acquisition cost).

For taxpayers receiving transaction pair prices in the form of cryptocurrency, taxable income must be recognized 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 income tax must be declared and paid accordingly.

If the tax authority determines that a taxpayer's engagement in cryptocurrency trading constitutes a "risky business activity" as defined in Article 33(1) of the Income Tax Law, then according to that provision, all exclusive expenses incurred to generate such income (unless explicitly listed as non-deductible in Article 39) can be deducted before tax. This regulation extends to interest expenses and other costs directly associated with cryptocurrency holdings, thereby broadening the scope of applicable compliance cost deductions.

It should be particularly noted that although the current tax law theoretically distinguishes between capital holdings and operational transactions in terms of tax treatment, the boundary between the two is significantly blurred in practical operations. For example, when a taxpayer initially purchases Bitcoin for investment purposes, and subsequently uses it for debt repayment or other transaction scenarios, it may trigger a reclassification of the tax nature, leading to a dynamic adjustment of the tax base.

3. The Construction and Improvement of the Cryptocurrency Regulatory Framework in Malaysia

Malaysia is actively working to establish a comprehensive regulatory framework for the cryptocurrency industry. As the market develops and international trends evolve, Malaysia has gradually formed a dual-track regulatory system centered around the Securities Commission (SC) and the Central Bank (BNM), responsible for regulating the securities attributes of cryptocurrencies and managing financial stability areas such as payments and anti-money laundering.

This article briefly outlines 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 that their use is not regulated. It also warned the public to be aware of the risks associated with cryptocurrency trading.

In 2018, BNM issued the "Draft Policy Guidelines on Anti-Money Laundering and Counter Financing of Terrorism for Virtual Currency Exchanges" (Anti-Money Laundering and Counter Financing of Terrorism – Policy on Digital Currencies), designating platforms providing cryptocurrency services as "reporting institutions" and requiring them to implement strict customer identity verification, transaction record-keeping, and suspicious transaction reporting systems. This measure marks Malaysia's beginning to incorporate cryptocurrencies into financial regulatory oversight, focusing on anti-money laundering and financial transparency to establish a basic risk prevention and control mechanism.

In 2019, SC announced new digital currency regulatory rules under Capital Markets and Services ( Prescription of Securities ) ( Digital Currency and Digital Token ) Order 2019, which for the first time brought digital currencies with securities characteristics under the regulatory scope of the Capital Markets and Services Act.

In 2020, the SC released more systematic Guidelines on Digital Assets, detailing: the application conditions for ICOs, the use of funds, and investor thresholds; compliance requirements for Digital Asset Exchanges (DAX), such as KYC, investor protection, technical safeguards, etc.; specific standards for operators regarding information disclosure, internal controls, compliance reporting, and other content. The guidelines fill many gaps in the previous regulatory system, providing legal basis for token issuance and platform operations, with strong enforceability.

In 2021-2022, Malaysian regulators focused on platform compliance and aligning with international standards. The SC strengthened enforcement against unauthorized crypto platforms, frequently issuing the Investor Alert List to warn users against trading on unregistered platforms. At the same time, they collaborated with international regulatory organizations such as IOSCO and FATF to research and assess emerging asset forms like DeFi, stablecoins, and NFTs, not immediately banning them but maintaining a cautious watch.

On August 19, 2024, the Securities Commission of Malaysia (SC) revised the "Digital Asset Guidelines." This update clarifies the status of digital currencies as securities under the "Capital Markets and Services Act" and specifies the requirements for fundraising through ICOs and IEOs, as well as the operational regulations for digital asset custody services.

4. Summary and Outlook

The Malaysian government has adopted a prudent and gradual approach to the regulation and taxation of cryptocurrencies, emphasizing the need to moderately open up innovation space while ensuring the stability of the financial system and the safety of investors. Malaysia has gradually established a clearer regulatory framework for cryptocurrencies through the Securities Commission and the Central Bank, incorporating digital assets with securities characteristics under the Capital Markets and Services Act, requiring crypto trading platforms to obtain licenses and strictly fulfill anti-money laundering (AML/CFT) obligations. For ICOs, IEOs, and digital asset trading activities, the Digital Asset Guidelines provide specific legal basis and operating norms, promoting the compliant development of the crypto market.

In terms of taxation, although Malaysia has not yet imposed capital gains tax on cryptocurrencies, tax authorities have clearly stated that individuals or enterprises involved in active trading, crypto rewards, mining, and other profit-making activities must include the relevant income in their income tax declarations. This "use-based" taxation method not only maintains the tax base but also provides policy cushioning for long-term holders, preserving the market's flexibility and attractiveness.

As the acceptance of cryptocurrencies continues to rise in Malaysia, the number of users on compliant trading platforms such as Luno and Tokenize is steadily growing, indicating a trend of steady market expansion. Meanwhile, regulators have also begun to pay attention to emerging forms such as NFTs, stablecoins, and DeFi, participating in regional regulatory cooperation and CBDC exploration projects, laying the groundwork for future policy iterations.

In the future, the development of the cryptocurrency market in Malaysia is expected to further evolve towards "deeper compliance and regional collaboration." With the promotion of international regulatory standards (such as FATF recommendations and the MiCA framework), Malaysia may strengthen cross-border data exchange, stablecoin reserve regulation, and platform audit mechanisms. At the same time, digital tax compliance will also become a trend, driving cryptocurrencies to officially integrate 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 manageable.