Malaysia's 20% Crypto Ownership Faces Tax Scrutiny

Malaysia has seen a significant rise in cryptocurrency ownership, with approximately 20% of its population engaging in digital asset investments. As cryptocurrencies become more integrated into the financial system, understanding local tax obligations is crucial. The Inland Revenue Board of Malaysia (IRBM or LHDN) oversees all aspects of crypto taxation, ensuring that individuals and organizations accurately report and label their crypto activities to avoid legal troubles.

Cryptocurrencies in Malaysia are regulated under the Income Tax Act 1967 (ITA) by the IRBM. The government treats cryptocurrencies as possession items rather than official currency. The IRBM uses a “badges of trade” framework to determine whether crypto activities are considered investment (non-taxable) or trading (taxable). Bank Negara Malaysia and the Securities Commission Malaysia do not recognize cryptocurrencies as currency but as investment assets. Currently, there are no specific crypto tax laws, but general tax principles apply to crypto transactions.

In Malaysia, capital gains tax does not apply to long-term crypto investments, making them tax-free. Income tax, however, is applicable to active trading, mining, staking, airdrops, and receiving crypto as income or payment. Malaysia does not impose Goods and Services Tax (GST) or Value Added Tax (VAT) on crypto transactions, and there are no wealth or inheritance taxes on cryptocurrency assets.

Individual income tax rates in Malaysia range from 0% for income up to RM5,000 to 28% for income above RM1,000,000. For companies, the corporate income tax rate is 24% for those with capital of RM2.5 million or more, and 15% or 17% for small businesses with capital of RM2.5 million or less and income of RM50 million or less.

Crypto transactions are taxed based on their nature. Buying and selling crypto is taxable only if considered trading. Profits from crypto mining and staking are taxed as income, and receiving crypto as salary or payment is taxed based on its market value. Crypto-to-crypto trades are taxable if part of trading activities, and DeFi activities, lending, and yield farming are usually taxable as income. NFT transactions are taxable if they are frequent and profit-driven.

Individuals and businesses must report crypto earnings as either personal or business income. Taxes are filed using standard LHDN forms via e-Daftar, with crypto income reported under “other income” for individuals. Complete records, including transaction logs, wallet addresses, invoices, and KYC documents, must be maintained for seven years. Personal income tax returns are due by April 30, while business income is due by June 30. Penalties for failure to file or underreporting include fines and imprisonment.

Crypto trading losses can only offset profits from trading, not other income types. Capital losses from investments are not deductible, as capital gains are not taxed. For businesses, allowable deductions include expenses directly incurred for generating income, like trading fees and platform costs. General business tax incentives may apply if criteria under the ITA are met.

The IRBM monitors crypto activity through data-sharing with licensed exchanges and uses blockchain analytics tools to trace wallet addresses and transaction history. Non-compliance may lead to fines, additional taxes and interest, criminal charges for tax evasion, and imprisonment in severe cases. Taxpayers must keep adequate and correct records to avoid audits, investigations, and legal action. The IRBM may request proof of transactions at any time.

Malaysia’s tax system for crypto is still evolving. While it currently offers favorable treatment for long-term investors, the IRBM may introduce clearer rules or new tax measures. The government is open to digital innovation and blockchain but is becoming stricter with reporting requirements and new obligations for both individuals and businesses.

In conclusion, Malaysia’s taxation of cryptocurrencies focuses on earnings from trading, mining, or staking, which are taxable as income, while capital gains from crypto are tax-free. Keeping accurate records and reporting in a timely manner is essential for compliance. Seeking professional advice to stay updated with changes in crypto tax obligations is advisable.