Kuala Lumpur’s Crypto World: Malaysia’s Cryptocurrency Taxation and Regulatory System
1 Overview of Malaysia’s Tax System
– Malaysia’s Tax System
Malaysia’s tax categories are divided into direct and indirect taxes. Direct taxes include income tax, real estate gains tax, and petroleum income tax, while indirect taxes include excise duty, customs duty, import and export duties, sales tax, service tax, and stamp duty. The federal government manages national taxation and formulates policies executed by the Inland Revenue Board and the Royal Customs Department. The Inland Revenue Board focuses on direct taxes like income and petroleum taxes, while the Royal Customs Department handles indirect taxes. State governments levy taxes on land, minerals, forests, licenses, entertainment, hotels, and property.
– Main Types of Taxes
– Company Income Tax
All income of companies registered in Malaysia is subject to income tax. For Malaysian companies with paid-up capital below MYR 2.5 million, the tax rate is 15% for the first MYR 150,000, 17% for income between MYR 150,000 and MYR 600,000, and 24% for income beyond that. Companies with paid-up capital above MYR 2.5 million and all foreign companies are taxed at 24%.
– Personal Income Tax
Residents’ income in Malaysia and income remitted from abroad, as well as non-residents’ income earned during work in Malaysia, are subject to income tax. The personal income tax rate ranges from 0% to 30%, with income up to MYR 5,000 taxed at 0% and income exceeding MYR 2 million taxed at 30%. Foreigners are subject to a flat tax rate of 30%.
– Withholding Tax
Withholding tax is deducted and paid directly to the tax authorities by Malaysian payers. Non-local companies or individuals are subject to withholding tax: 10% for special income (use of movable property, technical services, etc.), 15% for interest, 10% for contractors’ fees, 3% for employees’ fees, and 10% for commissions, etc. Tax rates may vary based on double taxation agreements between Malaysia and the recipient’s country.
– Real Estate Gains Tax
Real estate gains tax applies to the sale of land and related rights in Malaysia. The tax rate is 30% if sold within 3 years of acquisition, 20% in the 4th year, 15% in the 5th year, and 5% if sold in the 6th year or later.
– Import and Export Duties
Most imported goods in Malaysia are subject to import duties, which can be ad valorem or specific rates. Malaysia offers preferential tariffs with ASEAN countries (0-5% for industrial products), bilateral free trade agreements with Japan, regional agreements with China and South Korea, and a free trade agreement with Australia, which eliminates over 97% of tariffs on goods from Australia. Export duties are levied on resource products like crude oil and palm oil, with ad valorem rates ranging from 0% to 20%.
2 Malaysia’s Crypto Taxation Policy
– Definition of Cryptocurrency
Cryptocurrencies are not legal tender in Malaysia. Under the 2009 Central Bank of Malaysia Act and a 2014 central bank statement, cryptocurrencies like Bitcoin lack legal tender status and are not recognized as official payment methods. However, the Securities Commission regulates some cryptocurrencies (those with financing or investment features) as “digital assets” under the Capital Markets and Services Act. Security tokens, which involve investment contracts managed by third parties with profit expectations, require approval for issuance and trading. Digital asset trading platforms must register as “Recognized Market Operators,” with platforms like Luno and Tokenize already compliant.
– Cryptocurrency Taxation System
– How It’s Taxed
Cryptocurrencies are not considered capital assets in Malaysia, and no explicit guidelines for taxing crypto transactions exist. However, this doesn’t mean all crypto transactions are tax-free.
Malaysia doesn’t impose capital gains tax on individually held cryptocurrencies, but business-related activities (e.g., crypto trading businesses) are taxed as operating income. Active traders or “day traders” must pay personal income tax. Characteristics of day traders include:
① Holding large amounts of crypto
② Short holding periods
③ High trading frequency
④ Processing, packaging, or promoting crypto to enhance market appeal
⑤ Selling crypto for reasons other than duress
⑥ Commercial motives for transactions
⑦ Securing short-term financing for crypto purchases
⑧ Other relevant factors or evidence
Without capital gains tax, the Malaysian tax authority might classify applicants as day traders even if they aren’t actively trading. However, long-term holders who can prove their intent isn’t trading for profit won’t be taxed.
– Calculation Method
Entities engaged solely in crypto day trading must file tax returns. Taxable income is calculated as the difference between the disposal price and the cost base (acquisition cost). For taxpayers receiving crypto as payment, taxable income is determined by the crypto’s fair market value at acquisition, and income tax must be declared and paid accordingly.
If the tax authority deems crypto transactions as “hazardous business activities” under the Income Tax Act Section 33(1), all exclusive expenses (unless explicitly non-deductible under Section 39) can be deducted pre-tax. This includes interest and other costs directly related to holding crypto, broadening the scope of compliant cost deductions.
It’s important to note that while tax law theoretically distinguishes between capital holdings and operational transactions, the practical boundary is significantly blurred. For example, if a taxpayer initially buys Bitcoin for investment and later uses it for debt settlement, the tax nature may be reclassified, dynamically adjusting the tax basis.
3 Evolution of Malaysia’s Crypto Regulatory Framework
Malaysia is actively building a comprehensive regulatory framework for the crypto industry. With market development and evolving international trends, Malaysia has formed a dual regulatory system led by the Securities Commission (SC) and the Central Bank (BNM), overseeing crypto’s securities attributes and financial stability aspects like payments and anti-money laundering.
Here’s a brief overview of Malaysia’s crypto regulatory changes over the past decade:
In 2014, BNM declared crypto not legal tender, unregulated, and warned the public about crypto transaction risks.
In 2018, BNM issued the Anti-Money Laundering and Counter Financing of Terrorism – Policy on Digital Currencies, classifying crypto service platforms as “reporting institutions” and requiring strict customer due diligence, transaction record-keeping, and suspicious transaction reporting. This marked Malaysia’s entry into crypto financial regulation, focusing on AML and financial transparency.
In 2019, SC introduced new digital currency regulations under the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, bringing securities-like digital currencies into the Capital Markets and Services Act’s regulatory scope.
In 2020, SC launched more systematic Guidelines on Digital Assets, detailing ICO application conditions, DAX compliance requirements, and operational standards. This filled many regulatory gaps, providing legal clarity for token issuance and platform operations.
From 2021 to 2022, Malaysian regulators focused on platform compliance and international standard alignment. SC intensified enforcement against unauthorized crypto platforms, frequently updating investor alert lists, and collaborated with international bodies like IOSCO and FATF to assess emerging assets like DeFi and NFTs with caution.
On August 19, 2024, SC revised the Digital Asset Guidelines, clarifying digital currencies as securities under the Capital Markets and Services Act and specifying fundraising requirements for ICOs and IEOs, as well as operational norms for digital asset custody services.
4 Summary and Outlook
Malaysia’s government has adopted a prudent and progressive strategy in crypto regulation and taxation, emphasizing financial stability and investor protection while allowing innovation. Through SC and BNM, Malaysia has established a clear crypto regulatory framework, incorporating securities-like digital assets into the Capital Markets and Services Act, requiring licensed crypto trading platforms and strict AML/CFT compliance. The Digital Asset Guidelines provide legal basis for ICOs, IEOs, and trading activities, promoting market compliance.
Although Malaysia hasn’t imposed capital gains tax on crypto, the tax authority has clarified that individuals or businesses engaged in active trading, crypto rewards, or mining must declare related profits as income tax. This “usage-oriented” taxation maintains the tax base while offering long-term holders policy flexibility, preserving market attractiveness.
As crypto acceptance in Malaysia grows, compliant trading platforms like Luno and Tokenize are expanding, showing a steady market growth trend. Meanwhile, regulators are focusing on emerging forms like NFTs, stablecoins, and DeFi, participating in regional regulatory cooperation and CBDC projects, laying the groundwork for future policy iterations.
Looking ahead, Malaysia’s crypto market is expected to evolve toward “deepened compliance and regional coordination.” With the adoption of international standards like FATF recommendations and MiCA, Malaysia may enhance cross-border data exchange, stablecoin reserve regulation, and platform auditing. Digital tax compliance is also becoming a trend, integrating crypto into the mainstream financial system. Under this policy framework, Malaysia is poised to steadily unlock crypto-economic growth while keeping risks manageable.
Reference
- https://relinconsultants.com/crypto-taxes-in-malaysia/
- https://www.binance.com/zh-CN/square/post/9286135369001
- https://www.pwc.com/my/en/assets/publications/Taxavvy/2024/pwc-taxavvy-budget-2025-edition-chinese.pdf