Author: FinTax

1. Overview of Malaysia's Basic Tax System

1.1 Malaysia's Tax System

Malaysia's 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 Malaysian federal government and local governments implement a tax-sharing system, with the federal government managing national taxation and 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 collect 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 must pay income tax on all their income. For Malaysian domestic companies with paid-up capital below 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 150,001 to 600,000 MYR is taxed at 17%, and income thereafter is taxed at the standard rate of 24%; for Malaysian domestic companies with paid-up capital above 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 must pay income tax on income earned in Malaysia and income remitted from abroad, as well as non-residents earning income during their work in Malaysia. The personal income tax rate in Malaysia ranges from 0% to 30%, with a rate of 0% for income up to 5,000 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 directly withheld and paid to the tax authority by the payer in Malaysia. Non-local companies or individuals are subject to withholding tax: special income (use of movable property, technical services, provision of factory and machinery installation services, etc.) is taxed at 10%; interest is taxed at 15%; contract fees: contractors pay 10%, employees pay 3%; commissions, guarantees, intermediary fees, etc. are taxed at 10%. The withholding tax rates vary by country based on the double taxation agreements between the Malaysian government and the recipient's country.

1.2.4 Real Property Gains Tax

Real property gains tax applies to the sale of land and any property rights, 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: if sold within 3 years of 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 later, the rate is 5%.

1.2.5 Import and Export Taxes

Most imported goods in Malaysia are subject to import tax, with rates divided into ad valorem and specific rates. Malaysia implements preferential tariffs with ASEAN countries, with import tax rates for industrial products ranging from 0% to 5%; it has bilateral free trade agreements with Japan; and it has regional free trade agreements with China and South Korea under the China-ASEAN Free Trade Area and the Korea-ASEAN Free Trade Area frameworks; and it has signed a free trade agreement with Australia, under which Malaysia will reduce 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 ad valorem export tax rates range from 0% to 20%.

2. Malaysia's Cryptocurrency Tax Policy

2.1 Classification of Cryptocurrency

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

Despite not recognizing their monetary status, the Securities Commission of Malaysia considers some cryptocurrencies (especially those with financing or investment characteristics) as "digital assets" and includes them under the securities regulatory framework of the "Capital Markets and Services Act" (CMSA). According to the digital asset regulations released in 2019 and the subsequent "Digital Asset Guidelines," tokens that have the nature of investment contracts, are operated by a third-party management team, and have profit expectations will be classified as security tokens. Issuance and trading activities must be approved by the securities regulatory authority. Qualified digital asset trading platforms must also register as "Recognized Market Operators," with platforms like Luno, Tokenize, and SINEGY already obtaining compliance licenses.

2.2 Cryptocurrency Taxation System

2.2.1 How Tax is Levied

Malaysia does not view cryptocurrencies as capital assets, and the country's tax authority has not issued any clear guidelines regarding the taxation of cryptocurrency transactions. However, this does not mean that all cryptocurrency transactions are tax-exempt.

Currently, Malaysia does not impose capital gains tax on cryptocurrencies held by individuals, but if one is engaged in related business activities (such as buying and selling cryptocurrencies as a business or individual), the related income may be considered business income and subject to tax.

If an applicant actively engages in cryptocurrency trading or is recognized as a "Day Trader" in some way, they will need to pay personal income tax. When cryptocurrency activities meet any of the following conditions, they may be classified by the tax authority as day trading:

1. Holding a large quantity of cryptocurrency
2. Holding for a short period
3. High trading frequency
4. Previously processed, packaged, or promoted cryptocurrencies to enhance their market appeal
5. Selling cryptocurrencies not due to forced reasons (e.g., not due to urgent need for funds or property confiscation)
6. Trading motivated by commercial purposes
7. Obtaining short-term financing to purchase cryptocurrencies
8. Other relevant factors or supporting documents

Since Malaysia does not have a capital gains tax, the tax authority may attempt to classify the applicant as a day trader—even if they are not actively trading. However, if the applicant can prove that they are merely holding long-term (hoarding) and not trading for profit, they will not be taxed.

2.2.2 Tax Calculation Method

Under the current tax framework in Malaysia, only entities engaged in day trading of cryptocurrencies are required to fulfill tax declaration obligations, and the calculation of their taxable income follows relatively straightforward rules: the taxable income is determined by the difference between the disposal price of the cryptocurrency and its cost basis (i.e., acquisition cost).

For taxpayers receiving transaction consideration in the form of cryptocurrency, they must recognize taxable income based on the fair market value of the cryptocurrency at the time of acquisition according to the relevant provisions of the "Income Tax Act" and declare and pay income tax accordingly.

If the tax authority determines that the 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 explicitly listed as non-deductible under Section 39) can be deducted before tax. This provision extends to interest expenses and other costs directly related to cryptocurrency holdings, thereby broadening the scope of compliant cost deductions.

It is important to note that although the current tax law theoretically distinguishes between capital holdings and operational trading, there is significant ambiguity in practical operations. For example, if a taxpayer initially purchases Bitcoin for investment purposes and later uses it for debt settlement, it may trigger a reclassification of the tax nature, leading to dynamic adjustments of the tax base.

3. Building and Improving Malaysia's Cryptocurrency Regulatory Framework

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 on the Securities Commission (SC) and Bank Negara Malaysia (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 do not regulate their application. It also warned the public to be aware of the risks of cryptocurrency trading.

In 2018, BNM released the draft "Anti-Money Laundering and Counter Financing of Terrorism – Policy on Digital Currencies," categorizing platforms providing cryptocurrency services as "reporting institutions," requiring them to implement strict customer identity verification, transaction record-keeping, and suspicious transaction reporting systems. This measure marked the beginning of Malaysia's inclusion of cryptocurrencies in financial regulation, focusing on anti-money laundering and financial transparency to establish basic risk prevention mechanisms.

In 2019, the SC announced new digital currency regulatory rules under 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 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, investor thresholds; compliance requirements for digital asset exchanges (DAX), such as KYC, investor protection, technical safeguards, etc.; and specific standards for the operating party's information disclosure, internal control, and compliance reporting. This guideline filled many gaps in the previous regulatory system, providing a legal basis for token issuance and platform operations with strong enforceability.

From 2021 to 2022, Malaysian regulatory authorities focused on platform compliance and alignment with international standards. The SC strengthened enforcement against unauthorized cryptocurrency platforms, frequently issuing investor alert lists to remind users to avoid trading on unregistered platforms. At the same time, it collaborated with international regulatory organizations such as IOSCO and FATF to research and assess emerging asset forms like DeFi, stablecoins, and NFTs, not immediately prohibiting them but maintaining a cautious approach.

On August 19, 2024, the Securities Commission of Malaysia (SC) revised the "Digital Asset Guidelines." This 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 operational norms for digital asset custody services.

4. Conclusion and Outlook

The Malaysian government has adopted a cautious and gradual strategy regarding the regulation and taxation of cryptocurrencies, emphasizing a moderate opening of innovative space while ensuring the stability of the financial system and the safety of investors. Malaysia is gradually building a clearer regulatory framework for cryptocurrencies through the Securities Commission and Bank Negara Malaysia, incorporating digital assets with securities characteristics into the regulatory scope of the "Capital Markets and Services Act," requiring cryptocurrency 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 bases and operational norms, promoting the compliant development of the cryptocurrency market.

In terms of taxation, although Malaysia has not yet imposed capital gains tax on cryptocurrencies, the tax authorities have clearly stated that individuals or businesses involved in active trading, cryptocurrency rewards, mining, and other profit-making activities must include the related income in their income tax declarations. This "use-oriented" taxation approach maintains the tax base while providing policy buffers for long-term holders, preserving the market's flexibility and attractiveness.

As the acceptance of cryptocurrencies in Malaysia continues to rise, the number of users on compliant trading platforms such as Luno and Tokenize is steadily increasing, indicating a trend of gradual market expansion. At the same time, regulatory authorities are beginning to pay attention to emerging forms such as NFTs, stablecoins, and DeFi, and are 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. Additionally, tax compliance digitization is likely to become a trend, facilitating 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 cryptocurrency economy while ensuring that risks remain controllable.

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