Malta’s Prime Minister Joseph Muscat has described his country as the global trailblazer in the regulation of blockchain-based businesses and the jurisdiction of quality and choice for world class fintech companies.
New research from Morgan Stanley confirms PM Muscat’s assertions. Malta now accounts for the largest share of cryptocurrency trading volume in the world.
The report ties Malta’s success to three new cryptocurrency bills adopted by parliament on April 24. The bills grant regulatory power to the Malta Financial Services Authority to publish and enforce specific rules regarding cryptocurrencies.
Malta Digital Innovation Authority Bill. It establishes the Malta Digital Innovation Authority, which on a voluntary basis, will certify blockchain platforms to ensure credibility and provide legal assurances regarding cryptocurrencies.
Innovative Technology Arrangements Bill. It provides a framework for the registration of technology service providers and the certification of technology arrangements concerning system administrators and auditors.
Cryptocurrencies are currently unregulated under Maltese law and exchanges of cryptocurrencies are deemed equivalent to commodity trading. A company utilizing cryptocurrencies isn’t required to obtain a license from the Malta Financial Services Authority unless it qualifies as a collective investment scheme or carries on the business of a financial institution or payment service provider, in which case the company would need to be appropriately licensed under the Financial Institutions Act.
Further, cryptocurrencies aren’t considered investment instruments under the Investment Services Act and don’t trigger any licensing requirements under the act.
Maltese has no tax legislation regulating cryptocurrencies as a medium of exchange. Only if the sale of cryptocurrency is done “on a habitual basis and/or the length of ownership is very short,” the consideration of the sale may be considered as being income and therefore subject to income tax at 5 percent.
But because the Maltese Value Added Tax (VAT) Department follows the European Court of Justice judgment in Hedqvist (C-264/14), transactions to exchange traditional currencies for units of cryptocurrency and vice versa are exempt from VAT as well.
Despite emerging as the global cryptocurrency trading hub, Malta has not yet taken any known action in cases where crytocurrencies were were used for money-laundering or other fraudulent acts.
Malta has acted against financial institutions for other reasons. After adopting the European Union’s Fourth Anti-Money Laundering Directive into national legislation at the end of last year, the Malta Financial Services Authority on April 24 shut down Pilatus Bank.
The bank had been prominently featured in the Panama Papers. And its chairman, Ali Sadr Hashemi Nejad, was arrested in the United States on charges of money laundering and evading U.S. sanctions. He has denied all charges and pleaded not guilty.
Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.