The Malaysian government has adopted a cautious and gradual strategy for cryptocurrency regulation and taxation, focusing on maintaining financial system stability and investor safety while moderately opening up space for innovation.

1. Overview of Malaysia’s Taxation System

1.1 Structure of Malaysia’s Tax System

Malaysia’s taxes are categorized into direct and indirect taxes. Direct taxes include income tax, real estate gains tax, and petroleum income tax, while indirect taxes encompass domestic taxes, customs duties, import and export taxes, sales tax, service tax, and stamp duty. Malaysia’s federal and local governments operate under a separate tax system, where the federal government manages national taxes and sets tax policies executed by the Inland Revenue Board and the Royal Customs Department. The Inland Revenue Board primarily handles direct taxes like income and petroleum tax, whereas the Royal Customs Department oversees indirect taxes such as domestic taxes, customs duties, import and export taxes, sales tax, service tax, and stamp duty. State governments levy taxes such as land tax, mineral tax, forest tax, license tax, entertainment tax, hotel tax, and property tax.

1.2 Key Tax Types

1.2.1 Corporate Income Tax

Companies registered in Malaysia must pay income tax on all earnings. Local companies with paid-up capital of 2.5 million ringgit or less have a tax rate of 15% on the first 150,000 ringgit of income, 17% on the next portion up to 600,000 ringgit, and 24% on remaining income. Companies with capital exceeding 2.5 million ringgit and foreign companies are taxed at a flat rate of 24%.

1.2.2 Personal Income Tax

Residents’ income in Malaysia, income remitted from abroad, and non-residents’ income earned while working in Malaysia are subject to income tax. Personal income tax rates in Malaysia range from 0% to 30%, with incomes up to 5,000 ringgit taxed at 0%, and incomes over 2 million ringgit taxed at 30%. Foreign citizens are taxed at a fixed rate of 30%.

1.2.3 Withholding Tax

Withholding tax is deducted and paid directly by Malaysian payers to the tax authorities. Non-local entities must pay withholding tax: special income (use of movable property, technical services, factory and machinery installation services, etc.) is taxed at 10%; interest at 15%; contract fees: contractors pay 10%, employees pay 3%; commissions, deposits, and intermediary fees are taxed at 10%. Withholding tax rates vary according to double taxation agreements between Malaysia and the recipient’s country.

1.2.4 Real Estate Gains Tax

This tax applies to the sale of land and any related rights in Malaysia, including gains from selling shares in real estate companies. The rates are: 30% if sold within 3 years of acquisition; 20% and 15% if sold in the 4th and 5th year; 5% if sold in the 6th year or later.

1.2.5 Import and Export Tax

Most imports in Malaysia are subject to import tax, with rates based on ad valorem or specific tax criteria. Malaysia offers preferential tariffs with ASEAN countries, with industrial product import rates between 0% and 5%; has bilateral trade agreements with Japan; and regional free trade agreements with China and Korea under the China-ASEAN and Korea-ASEAN frameworks; a free trade agreement with Australia allows Malaysia to exempt over 97% of tariffs on Australian imports.

Malaysia imposes export taxes on resources like crude oil, logs, sawn timber, and crude palm oil, with rates ranging from 0 to 20% based on value.

2. Malaysia’s Cryptocurrency Tax Policy

2.1 Legal Status of Cryptocurrency

In Malaysia, cryptocurrencies are not recognized as legal tender. According to the Central Bank of Malaysia Act 2009 and a statement from the Central Bank in 2014, cryptocurrencies like Bitcoin lack legal tender status, meaning they cannot be used for official payments, and merchants are not obligated to accept them. Consequently, cryptocurrencies do not have legal protection in terms of payment.

However, the Malaysian Securities Commission views some cryptocurrencies, especially those with investment or fundraising features, as “digital assets” and regulates them under the Capital Markets and Services Act (CMSA). According to the 2019 digital asset regulations and subsequent guidelines, tokens that have investment contract characteristics, are managed by third-party teams, and are expected to generate profits are considered security tokens. Their issuance and trading require approval from the securities regulator. Qualified digital asset trading platforms must register as “Recognized Market Operators”, with platforms like Luno, Tokenize, and SINEGY already licensed.

2.2 Cryptocurrency Tax System

2.2.1 Taxation Approach

Cryptocurrencies are not classified as capital assets in Malaysia, and the tax authorities have not issued specific guidelines for taxing cryptocurrency transactions. Nonetheless, not all cryptocurrency transactions are exempt from taxes.

Currently, Malaysia does not impose capital gains tax on cryptocurrencies held by individuals. However, income from businesses related to cryptocurrency trading may be taxable as business income.

Individuals actively trading cryptocurrencies or identified as “Day Traders” must pay personal income tax. The tax authorities might classify someone as a day trader if they meet criteria such as:

1. Holding large amounts of cryptocurrency
2. Short holding periods
3. High trading frequency
4. Engaging in activities to enhance the market appeal of cryptocurrencies
5. Selling not due to necessity (e.g., not due to urgent financial needs)
6. Trading for commercial purposes
7. Using short-term loans to purchase cryptocurrencies
8. Other relevant factors or documentation

Without capital gains tax, the Malaysian tax authorities might categorize someone as a day trader even without active trading. However, proving long-term holding for non-profit purposes can exempt them from taxes.

2.2.2 Tax Calculation

Under Malaysia’s tax system, only those engaged in day trading of cryptocurrencies must file tax returns. Taxable income is calculated as the difference between the selling price of the cryptocurrency and its acquisition cost.

Taxpayers receiving payments in cryptocurrencies must report taxable income based on the fair market value at the time of receipt, as per the Income Tax Act.

If deemed “risky business activities” under Section 33(1) of the Income Tax Act, all related expenses, unless explicitly non-deductible, can be deducted. This includes interest and other costs directly linked to cryptocurrency holdings, broadening deductible expenses.

While theoretical distinctions exist between capital holdings and business transactions, practical boundaries are blurred. For instance, using initially purchased Bitcoin for investment later in transactions like debt settlement may alter its tax status, affecting the tax base.

3. Development of Malaysia’s Cryptocurrency Regulatory Framework

Malaysia is actively working to establish a comprehensive regulatory framework for cryptocurrencies. As the market evolves, Malaysia has developed a dual-track regulatory system led by the Securities Commission (SC) and the Central Bank (BNM), overseeing securities aspects and financial stability areas like payments and anti-money laundering.

Key developments in Malaysia’s cryptocurrency regulation over the past decade include:

In 2014, BNM declared cryptocurrencies are not legal tender and do not fall under its regulation, cautioning the public about transaction risks.

In 2018, BNM issued draft guidelines for virtual currency exchanges, requiring platforms to implement strict customer verification and transaction reporting, marking the start of financial regulation for cryptocurrencies focused on anti-money laundering and transparency.

In 2019, SC introduced rules under the Capital Markets and Services Act, regulating digital currencies with securities features for the first time.

In 2020, SC released detailed Guidelines on Digital Assets, covering ICO conditions, fund use, investor thresholds, and compliance requirements for digital asset exchanges, filling regulatory gaps and ensuring legal compliance.

From 2021 to 2022, regulators focused on platform compliance and international standards, with SC enforcing actions against unauthorized platforms and collaborating with international bodies to study new assets like DeFi and NFTs.

On August 19, 2024, SC updated the Digital Asset Guidelines, clarifying digital currencies as securities and setting requirements for ICO and IEO fundraising and digital asset custody operations.

4. Summary and Outlook

The Malaysian government has taken a careful and step-by-step approach to regulating and taxing cryptocurrencies, focusing on ensuring financial system stability and investor safety while allowing some room for innovation. Through the Securities Commission and the National Bank, Malaysia has established a clear regulatory framework for cryptocurrencies. This framework includes classifying digital assets with securities characteristics under the Capital Markets and Services Act, requiring cryptocurrency exchanges to be licensed, and enforcing strict anti-money laundering (AML/CFT) obligations. The “Digital Asset Guidelines” offer precise legal and operational standards for ICOs, IEOs, and digital asset trading, fostering a more compliant crypto market.

Regarding taxation, Malaysia has not yet implemented capital gains tax on cryptocurrencies. However, tax authorities have clarified that individuals or businesses engaged in active trading, receiving crypto rewards, or mining must report these earnings as taxable income. This “use-based” tax approach helps maintain the tax base while offering policy relief for long-term holders, preserving market flexibility and appeal.

As cryptocurrency acceptance grows in Malaysia, with an increasing number of users on regulated platforms like Luno and Tokenize, the market is steadily expanding. Regulatory bodies are also beginning to pay attention to new developments such as NFTs, stablecoins, and DeFi, and are participating in regional regulatory collaborations and CBDC exploration projects, setting the stage for future policy advancements.

Looking ahead, Malaysia’s crypto market is likely to evolve towards deeper compliance and regional collaboration. With the adoption of international regulatory standards like the FATF recommendations and MiCA framework, Malaysia may enhance cross-border data sharing, stablecoin reserve oversight, and platform auditing processes. Additionally, the digitalization of tax compliance is expected to become a trend, further integrating cryptocurrencies into the mainstream financial system. With these policies, Malaysia aims to safely tap into the growth potential of the crypto economy while keeping risks manageable.

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