Updated Guidelines on Tax Treatment of Digital Currency Transactions

ftcimpact
Sep 13, 2022
2 min read

The guidelines were issued by IRBM on 26 August 2022

Let's have a look at the salient points:

“Digital currency” means a representation of value which is recorded on a distributed ledger whether cryptographically-secured or otherwise, that functions as a medium of exchange and is interchangeable with any money, including the crediting or debiting of an account

“Digital token” means a representation which is recorded on a distributed ledger whether cryptographcally-secured or otherwise

General tax treatment on digital currency transactions:

1. Generally, the taxability of digital currency transactions in Malaysia is based on Section 3 of the ITA 1967 where income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia is taxable

2. The IRBM regards the digital currency transactions to fall within the scope of Malaysian income tax if:

i. the key activities and business operations are performed in Malaysia

ii. the business has a presence in Malaysia

Revenue in nature:

A person who trade digital currencies actively may be viewed as generating revenue from the activity thus gains from this digital currencies trading is taxable.

Capital in nature:

Gains derived by individual who trade occasionally may be viewed as capital gains and not taxable in Malaysia.

Tax treatments on specific transactions:

1. Trading of digital currencies

> Similar to the trading of stock

> Profits derived are taxable

2. Mining of digital currencies

> With profit-seeking motive

> Subject to tax

3. Receiving and paying for business transactions in digital currencies

> Uses digital currencies as a mode of payment

> Accept digital currencies as payment for goods or services should record the sale based on the open market value of the goods or services in Ringgit Malaysia (RM)

4. Paying of salaries and wages to employees in digital currencies

> Payer: When salary and wages are paid using digital currencies, the payments are deductible to the business as an expenses.

> Payee (employees): the salary and wages received are taxable.

5. Investment in digital currencies and other transactions involving digital currencies

> Taxability is based on badges of trade

> For example, businesses that buy digital currencies for long-term investment purposes may enjoy a capital gain from the disposal of these digital currencies and gain will not be subject to tax.

Record keeping:

1.records to determine the nature of transaction – including whitepaper

2.records to determine the value of digital currency based on online exchange

3.date of transaction

4.name of the other party i.e. digital currency address

5.receipts of purchase/ transfer of digital currency

6.exchange records

7.other records such as records of agents, wallet keys, software

8.bank statements

9.receipts/invoices of business expenses

Source: https://phl.hasil.gov.my/pdf/pdfam/GUIDELINES_ON_TAX_TREATMENT_OF_DIGITAL_CURRENCY_TRANSACTIONS.pdf

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