The Malaysian government will maintain a friendly attitude towards cryptocurrency and blockchain holdings for the long term and intends to establish itself as the cryptocurrency center of Asia.
By: Meng Xin
Malaysia has a strong and diverse economy with low inflation rates, making its legal currency one of the most stable in the world. Currently, Malaysia's regulatory environment for cryptocurrencies is very friendly, allowing approved cryptocurrency trading, but cryptocurrency exchanges must comply with the regulations of the Securities Commission Malaysia (SC) and local laws.
In terms of policy trends, Malaysia intends to challenge the central positions of Hong Kong and Singapore in the cryptocurrency field and establish itself as the cryptocurrency center of Asia. Malaysia is steadily expanding its ecosystem for venture capital firms and web3 startups, with CoinGecko being a notable success story.
In terms of the legal environment, Malaysia's attractiveness in the cryptocurrency field is attributed to factors such as the common law court system, proficiency in English, and its sound regulatory framework. These key advantages, including no capital gains tax on cryptocurrencies and a higher level of labor education with English as the primary language, contribute to enhancing Malaysia's overall attractiveness.
Development of Malaysia's legal and policy framework for cryptocurrency
In Malaysia, cryptocurrency is legal. The Malaysian government has established relevant laws and regulations to ensure the stability and transparency of the cryptocurrency market. However, as an emerging market, its regulatory authorities are still working to understand and keep up with the development of cryptocurrencies and take measures to protect investors from potential risks.
In Malaysia, cryptocurrency is considered as property. This is a fundamental legal issue, as property can be owned by individuals and is endowed with ownership rights that can be enforced worldwide. With the provision of the 1956 Civil Law Act, the adoption of English common law has long been a practice in Malaysian courts. Therefore, discussing the attitude of English courts is meaningful. In October 2018, a Malaysian court heard a case related to cryptocurrency. The court ruled that although cryptocurrency is not the country's legal tender, cryptocurrency trading is not illegal. Most importantly, the court classified cryptocurrency as a commodity, as the legal tender is used to purchase cryptocurrency, and the method of measuring the value of cryptocurrency is similar to shares.
In 2019, Malaysia enacted the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, which brought cryptocurrencies (also known as digital currencies) under regulation. According to the 2019 Order, all digital currencies and digital tokens that meet the standards prescribed in the 2019 Order will be deemed as securities as defined by the Malaysian securities law. Nevertheless, the Securities Commission Malaysia explicitly stated that digital currencies and digital tokens are neither legal tender nor regulated payment instruments under the supervision of Bank Negara Malaysia (BNM).
After the enactment of the 2019 Order, the Securities Commission Malaysia also issued the Digital Asset Guidelines in 2020, which came into effect on October 28, 2020. The guidelines stipulate requirements related to activities such as fundraising through the issuance of digital tokens, the initial operation of exchange platforms for digital tokens, and the custody, storage, holding, or management of digital assets for others. The 2020 guidelines allow the Securities Commission Malaysia to grant exemptions from certain requirements of the guidelines upon application by relevant parties, providing some flexibility in regulation.
In January 2021, the Securities Commission Malaysia revised the Recognized Markets Guidelines 2015, implementing new requirements for electronic platforms that facilitate the trading of digital assets.
The Securities Commission Malaysia has approved the trading of cryptocurrencies such as BTC, ETH, AVAX, and MATIC.
Tax policies for cryptocurrency trading in Malaysia
In Malaysia, cryptocurrency trading, including the sale or use of cryptocurrencies, is generally tax-exempt due to the lack of capital gains tax.
However, engaging in active cryptocurrency trading or behavior that classifies individuals as day traders may subject them to income tax ranging from 3% to 30%, depending on their income level. To be classified as a day trader, certain criteria must be met, such as high-volume trading, short-term holding, high-frequency trading, efforts to increase market liquidity, and commercial motives. Evidence must be provided to the Inland Revenue Board of Malaysia (LHDN) to prove that individuals are not traders but hold cryptocurrencies for investment purposes to avoid taxation.
Advice for prospective investors
The potential development and changes in Malaysia's cryptocurrency regulatory environment remain uncertain. The Securities Commission Malaysia (SCM) and Bank Negara Malaysia (BNM) have not yet issued official regulations on cryptocurrency trading and investment activities. Cryptocurrency exchanges are currently constrained by existing anti-money laundering and counter-terrorism financing laws and some voluntary conduct guidelines established by industry organizations such as ACCESS Malaysia.
As cryptocurrency becomes increasingly popular globally, the SCM and BNM may formulate formal domestic regulatory policies in Malaysia. These developments may restrict certain aspects of trading activities or impose new taxes on cryptocurrency transactions. However, the Malaysian government believes that cryptocurrency and blockchain have the potential to drive domestic economic development. The Ministry of Finance views digital assets and their underlying blockchain technology as having the potential to achieve innovation in new industries. In particular, they believe that digital assets can serve as an alternative fundraising channel for entrepreneurs and new businesses, as well as an alternative asset class for investors.
Therefore, the Malaysian government will maintain a friendly attitude towards cryptocurrency and blockchain holdings for the long term and intends to establish itself as the cryptocurrency center of Asia, challenging the central positions of Hong Kong and Singapore in the cryptocurrency field.
References:
"Malaysia Cryptocurrency Market Research Report," miix capital, January 2, 2024, https://www.techflowpost.com/article/detail_15431.html
Regulation of digital banking and cryptocurrencies in Malaysia, Rodney D’Cruz, December 28, 2021, Asia Business Law Journal, https://law.asia/zh-hans
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