Malaysia boasts a robust 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 quite friendly, allowing approved crypto assets to be traded. However, cryptocurrency exchanges must comply with the regulations set by the Securities Commission (SC) of Malaysia and adhere to local laws.
In terms of policy trends, Malaysia aims to establish itself as a cryptocurrency hub in Asia, challenging the positions of Hong Kong and Singapore in the crypto field. Malaysia is steadily expanding its ecosystem for venture capital firms and web3 startups, with CoinGecko being a notable success story.
From a legal standpoint, Malaysia’s attractiveness in the crypto sector can be attributed to factors such as its common law court system, proficiency in English, and robust regulatory framework. These key advantages, including the absence of capital gains tax on cryptocurrencies and a highly educated workforce primarily using English, contribute to Malaysia’s overall appeal.
The development of cryptocurrency regulations in Malaysia
Cryptocurrencies are legal in Malaysia, and the government has established relevant laws and regulations to ensure stability and transparency in the cryptocurrency market. However, as an emerging market, regulatory authorities are still working to understand and keep up with the developments in cryptocurrencies, taking measures to protect investors from potential risks.
In Malaysia, cryptocurrencies are considered property. This is a fundamental legal issue as property can be owned by individuals and granted ownership rights enforceable worldwide. With the adoption of the English common law through the Civil Law Act 1956, discussing the stance of English courts is relevant. In October 2018, a Malaysian court heard a case related to cryptocurrencies and ruled that while cryptocurrencies are not legal tender in the country, cryptocurrency transactions are not illegal. Most importantly, the court classified cryptocurrencies as commodities since they are purchased with legal tender and their value is measured similarly to shares.
In 2019, Malaysia enacted the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, bringing cryptocurrencies (also known as digital currencies) under the regulatory purview. According to the order, all digital currencies and digital tokens meeting the criteria prescribed by the order are deemed securities as defined by the Malaysian securities laws. However, the Securities Commission of Malaysia (SC) explicitly stated that digital currencies and digital tokens are neither legal tender nor regulated payment instruments under the purview of BNM (Bank Negara Malaysia).
Following the enactment of the order in 2019, the Securities Commission of Malaysia published the Digital Assets Guidelines in 2020, which came into effect on October 28, 2020. The guidelines outline requirements for activities such as fundraising through the issuance of digital tokens, the operation of initial exchange offering platforms, and the custody, storage, holding, or brokering of digital assets for others. The 2020 guidelines allow the Securities Commission of Malaysia to grant exemptions to certain requirements of the guidelines upon application by relevant parties, providing some flexibility in regulation.
In January 2021, the Securities Commission of Malaysia revised the Recognized Markets Guidelines 2015 to implement new requirements for electronic platforms facilitating the trading of digital assets.
Tax policies on cryptocurrency transactions in Malaysia
In Malaysia, cryptocurrency transactions, including selling or using cryptocurrencies, are usually tax-exempt due to the absence of capital gains tax.
However, individuals engaging in active cryptocurrency trading or those classified as day traders may be subject to income tax ranging from 3% to 30%, depending on their income levels. To be classified as a day trader, certain criteria must be met, such as engaging in high-volume, short-term trades, frequent trading, actively seeking market liquidity, and having a commercial motive. Individuals must provide evidence to the Inland Revenue Board of Malaysia (LHDN) to prove that they are not traders but instead hold cryptocurrencies for investment purposes in order to avoid taxation.
Advice for future investors
The potential development and changes in Malaysia’s regulatory environment for cryptocurrencies remain uncertain. The Securities Commission of Malaysia (SCM) and the Central Bank of Malaysia (BNM) have yet to release official regulations regarding cryptocurrency trading and investment activities. Cryptocurrency exchanges are currently constrained by existing anti-money laundering and counter-terrorism financing laws, as well as voluntary codes of conduct established by industry organizations like ACCESS Malaysia.
As cryptocurrencies gain popularity globally, both the SCM and BNM may formulate formal regulatory policies within Malaysia. These developments could potentially restrict certain aspects of trading activities or impose new taxes on crypto transactions. However, the Malaysian government views cryptocurrencies and blockchain as having the potential to drive domestic economic development, with the Ministry of Finance stating, “The Ministry recognizes digital assets and their underlying blockchain technology as having the potential to drive innovation in new industries. Specifically, we see digital assets as an alternative fundraising avenue for entrepreneurs and new businesses, as well as an alternative asset class for investors.”
Therefore, the Malaysian government intends to maintain a friendly stance towards cryptocurrencies and blockchain in the long term and aims to establish itself as a cryptocurrency hub in Asia, challenging the positions of Hong Kong and Singapore in the crypto field.
