Malta Tax Residence for Crypto Entrepreneurs

Since the inception of the first decentralized digital currency in 2009, cryptocurrencies have revolutionized the landscape of trades and investments, evolving into a thriving global market which rivals some of the world’s most prominent stock exchanges. As entrepreneurs continue to diversify their portfolios by incorporating crypto asset investments, jurisdictions grapple with the challenge of revising their tax frameworks to account for these novel concepts, while still upholding traditional tax principles.

In 2018, Malta issued guidelines on the income tax treatment of distributed ledger technology (DLT) assets. This ensured legislative certainty in light of the advancements and rising popularity of crypto assets, without requiring a major overhaul of its competitive tax regime. As a result, Malta remains a competitive option for crypto-entrepreneurs seeking relocation opportunities.

Tax residency in Malta is not linked any civil status such as citizenship, but can be acquired either through physical presence, or by intention. A crypto-entrepreneur who spends more than 183 days in any given year in Malta would be considered to be a tax resident for that particular year. Alternatively, Maltese tax residency may be acquired if a crypto-entrepreneur comes to Malta with the intention to establish his tax residency, even if they are not physically present for more than 183 days. While physical presence is considered as the bright line test to tax residency, acquiring residency based on intention requires establishing genuine connections to Malta. This involves demonstrating the crypto-entrepreneur’s personal, social, and economic ties to the country as evidence of their intent.

Malta boasts a number of immigration routes for EU and Non-EU crypto-entrepreneurs, all of which lead to acquiring Malta tax residency. These include:

• Malta Citizenship by Naturalization for Exceptional Services by Direct Investment (MCES)

• Malta Permanent Residence Program (MPRP)

• Malta Retirement Program (MRP)*

• The Residence Program (TRP)*

• The Global Residence Program (GRP)*

• Ordinary Residence based on the EU Freedom of Movement (OR)

* These immigration routes lead to acquiring a special tax status (STS) of 15%.

A crypto-entrepreneur who establishes tax residency in Malta may apply for a Tax Residency Certificate. This official document, issued by the Malta Commissioner for Tax and Customs (CfTC), confirms an individual's tax residency status. It is commonly used to verify residency to foreign tax authorities and to claim benefits under double taxation avoidance agreements.

Malta does not impose a direct tax on crypto assets, just as it does not directly tax capital. The Maltese tax framework applies direct taxation on income, which is generally charged at standard progressive tax rates depending on the tax residency status of an individual. While any profits classified as income under the Malta Income Tax Act are chargeable to tax, an important distinction is made between income and capital gains. Only an exhaustive list of capital gains are subject to tax, which are charged in the same manner as income.

Therefore, while crypto assets are not chargeable to any direct tax, the transfer or a transaction of a crypto asset may constitute a taxable event if the profits are considered as income or a chargeable capital gain under the Maltese Income Tax Act. The 2018 guidelines provide clarity on such, highlighting three categories of DLT assets for income tax purposes, and establishing a general approach to their tax treatment.

Each crypto asset transaction needs to be assessed on its merits against two tests, being the badges of trade test and the chargeable capital gains test. The badges of trade test assesses whether the characteristics of a crypto transaction are tantamount to a trading transaction, leading to the profits being considered as income for tax purposes. If a transaction is not deemed to constitute a trade, the chargeable gains test would be applied to determine whether it falls within the exhaustive list of capital gains which are taxable under the Malta Income Tax Act.

Malta’s clarity on the taxation of crypto assets combined with multiple routes to tax residency offers a highly attractive option for crypto-entrepreneurs seeking a tax-efficient and stable jurisdiction.

Chetcuti Cauchi’s tax and immigration lawyers specialize in guiding crypto-entrepreneurs through the process of acquiring tax residency in Malta. With extensive experience, they provide a holistic approach to navigating the intricacies of obtaining tax residency, while also advising on the tax treatment of crypto asset transactions.