With more and more investors interested in cryptocurrency, there's also a need to understand how cryptocurrency investments are regulated in Malaysia so that we can invest in cryptos without breaking Malaysia law.
Here are the highlights to the cryptocurrency regulations in Malaysia:
1) The Securities Commission Malaysia (SC) will regulate the issuances of digital assets via initial coin offerings (ICO) and the trading of digital asset exchanges in Malaysia.
2) ICO issuers and digital asset exchanges are involved in the issuance of dealing of digital assets with a payment function will need to comply with relevant Bank Negara Malaysia (BNM) laws and regulations relating to payments and currency matters.
3) BNM reiterates that digital assets are not legal tender in Malaysia. members of the public are advised carefully evaluate the risks associated with dealings in digital assets.
4) The SC has invited and engaged with existing digital asset platform operators, with arrangements put in place to facilitate operations of these platforms, subject to fulfilling the conditions specified by SC.
5) With regard to ICO, no person shall conduct an ICO without the prior authorization of the SC.
6) The SC recognizes the potential use cases of blockchain and digital assets in enhancing efficiencies in the capital market including lowering post trade latency and counterparty risks, and enabling seamless regulatory reporting and compliance. Digital assets also have the potential to act as an alternative asset class for investors. In line with the SC's mandate to promote the capital market development, the SC seeks to develop a regulatory framework that will balance promoting innovation with ensuring proper safeguards to protect the integrity of the capital market and investors' interest.
7) BNM also issued warning in January 2014, that Bitcoin is not recognized as legal tender in Malaysia. The Central Bank does not regulate the operations of Bitcoin. The public is therefore advised to be cautious of the risks associated with the usage of such digital currency.
8) Prior to recent developments with respect to the regulation of digital assets as securities, it appears that the Inland Revenue Board (IRB) considered that the Income Tax Act 1967 was applicable to cryptocurrency traders. Section 3 of the Act provides that tax shall be charged upon the income of any person accruing in or derived from Malaysia. The IRB had taken action against a cryptocurrency exchange business in early 2018, freezing its account in Malaysia and seeking to ensure it was complying with tax and record-keeping requirements.
9) Malaysia does not tax capital gains from the sale of investments or capital assets other than those related to land and buildings, but so far did not provide specific guidance regarding the shift to regulating digital assets as securities on the application of the Income Tax Act.
Reference is inserted below for more details. Note that most of the policies are update latest in 2019. In summary, points 1 to 4 indicate that as long as the company abides to the laws of Malaysia, companies can operate cryptocurrencies trading as long as it's been successfully registered with the SC. Other platforms such as Binance, Crypto.com, Celsius Network, etc. can utilize Point 4 and work with the Malaysia SC to provide their services under their regulation, which will prompt more investors into cryptocurrencies legally. Point 6 gives a green light for the SC to be open-minded about how cryptocurrencies can help in improving the lives of the people in Malaysia financially, giving people an alternative way to invest and be financially free with cryptos.
Despite from point 7 that Bitcoin is not recognized as a legal tender in Malaysia, Bitcoin is actually, in my opinion, not a good asset to be a medium of exchange as the transaction speeds are very slow (7 TPS) as compared to VISA's 4000TPS, and the value inflation of the bitcoin with increasing interest in the asset will fortify bitcoin as a store of value, like gold.
Point 8 & 9 are the complicated ones. The Inland Revenue Board (LHDN for Malaysian readers), has clarified that cryptocurrency investors who are actively trading their assets at the digital asset exchange (DAX) are required to declare their gains for their annual income tax. However, LHDN does not provide any specific details on how the earnings from cryptocurrency transactions are treated. So the regulators must approach the situation on a case-by-case basis to determine if the profit obtained is taxable.
According to the LHDN communication director, Ranjeet Kumar, if the transaction is more of a capital gain, passive or as done occasionally, unplanned or unsystematic, then the profit from such sale and purchase is a tax-free income. On the other hand, if there are trades occur actively, systematically and repeatedly, the profits generated from these transactions are subject to income tax. In addition, Malaysian Association of Tax Accountants president suggested LHDN not to rush into taxing the new asset class. Therefore, at the moment as long as we buy and hold cryptos, while staking them to generate passive income, it will be considered tax-free income. If you do a lot of trading with cryptocurrencies, then you might have to declare income tax for this. So be a HODLer, not a trader!
If you're a miner (or probably a validator for a crypto project that involves in the proof-of-stake consensus), ensure that transaction records and relevant documents are kept for 7 years for audit purposes.
For a bonus story, I've also found some notable companies under the SC's "Investor Alert" list which you can take note of:
As far as I'm concern, all three companies are globally recognized, but I would trust BINANCE more than Bittrex and eToro as Binance is currently the biggest cryptocurrency exchange market in the world offering the most investing services and trading pairs. Bittrex is also a promising exchange where you can also invest in tokenized US stocks such as TSLA, AAPL, AMZN, etc with your cryptos such as BTC, ETH and many more.
Invest what you're willing to lose, and at your own risk.
Reference:
https://www.loc.gov/law/help/cryptoassets/malaysia.php
https://themalaysianreserve.com/2021/01/05/active-cryptocurrency-traders-not-spared-from-lhdn/
