Malta the best TAX jurisdiction for traditional financial investments, blockchain, crypto and bitcoin?
Since the 2008 crisis, global financial markets have been exhibiting a long super-cycle of growth, buoyed by massive money supply interventions by central banks and continued growth in spending by governments around the world.
Among the asset classes that have outperformed even the best global indices, BTC and cryptocurrencies have snatched the podium in an embarrassing way, consolidating their success as investment assets to protect against the debasement of fiat currencies, rather than as a currency and/or payment instrument (as regulations out of time and technology often continue to consider them).
Many investors, whether they have already made the choice to exit their investments or will do so shortly, will have to pay taxes on the realized capital gains.
We offer a sophisticated advisory solution, to compare the tax implications amongst different jurisdictions of these investments, considering the Intermidiaries involved in the transactions, the location of the Asset, the residence and citizenship of the Owner
The taxation of these assets income and capital gain depends on 3 factors:
- The profile of the asset holder
- The tax residence of the holder
- The physical residence where the asset is stored
Insiders and professionals know the history of cryptocurrencies and bitcoin since 2008, as well as how it operates technically, while it is more difficult to understand how to frame them legally and fiscally as the subject is new and constantly evolving.
What is a cryptocurrency or asset legally?
It is difficult to frame virtual currency from a legal point of view.
American government agencies interpret it in different ways, starting from considering it as a representative of financial investments or a commodity as an asset easily exchangeable on the market or as a property not equal to coins or even as coins.
U.S. tax agency considers bitcoins involved in economic transactions subject to taxation of earnings and taxes
Based on the EU Directives, then transposed by Italy and other EU countries, virtual currency is defined as:
“The digital representation of value, not issued or guaranteed by a central bank or public authority, not necessarily linked to a legal tender currency, used as a means of exchange for the purchase of goods and services or for investment purposes and transferred, stored and traded electronically”.
In Italy it is not considered legal tender but is however fiscally assimilated to foreign currencies and, therefore, virtual currency must be indicated in the RW framework of the income tax declaration and is taxed at the moment of conversion if capital gains are realized. (Declaration regime that does not exist in Malta)
For the Internal Revenue Service to individuals who during the year, for at least 7 consecutive days exceed the threshold of possession of Bitcoin or other cryptos for 51,000 Euro, the activity is considered speculative and is required to pay taxes on capital gains.
Those who want to turn their gains in cryptocurrencies or assets into cash for different reasons, to protect themselves from price drops, or to invest in traditional sectors, how can they do so in a tax-efficient manner?
Malta is considered an attractive jurisdiction for both traditional financial investments and crypto and bitcoin.
Malta, apart from being a beautiful island in the middle of the Mediterranean sea frequented by people from all over the world, can be an interesting jurisdiction from a fiscal point of view thanks to its
- its territorial taxation system for non-domiciled persons
- no wealth tax
- no declaratory regime
- no inheritance tax
- permit system with special schemes for EU and NON-EU with flat taxes at 15%
How does the territorial taxation system work in Malta?
There are two main worldwide taxation systems:
That of worldwide taxation and that of territoriality.
The tax system of “worldwide taxation”, is based on taxation on a worldwide basis according to which income produced anywhere in the world by a resident individual is subject to taxation and not only that produced in the territory of the State.
For example, an individual who is an Italian citizen resident in Italy (CH, USA and many others in the world) is subject to this tax system and must therefore pay taxes to the Italian Treasury on the basis of all income produced in Italy or in the world.
Different is the system of taxation on a “territorial” basis that applies to non-domiciled individuals who are required to pay taxes in the country of residence only on income produced there.
For example, an Italian citizen who has transferred his residence to Malta is subject to this tax system and is considered non-domiciled on the basis of certain conditions.
It is necessary to clarify the concept of domicile of Anglo-Saxon derivation and not to confuse it with the domicile provided by the Italian Civil Code as the place where the person “has established the principal seat of his affairs and interests”. (art 43 C.C.)
The concept of domicile for the Anglo-Saxon law and ‘one and’ that linked to the intention to reside permanently in a place for an indefinite time, where you have a house permanently and interconnections and’ that of origin that is normally acquired from parents with birth and very unlikely to change during life.
According to the Maltese law every person acquires the domicile at birth that is normally the domicile of the parents, regardless of the place of actual birth.
Only persons who transfer their residence to Malta and consider Malta as their permanent residence, understood as a “home” with a strong link to the country, are considered domiciled in Malta.
Therefore, a non-Maltese citizen, such as an Italian citizen who transfers residence to Malta, in accordance with the rules, without the aforementioned will to consider it as “home” permanently, acquires the status of non-domiciled resident also called NON DOM.
As NON-DOM RESIDENT in Malta will pay taxes:
- on income in any form produced in Malta and on capital gains produced there
- on foreign source income only if transferred to Malta
As a NON-DOM RESIDENT in Malta you will NOT pay tax:
- on ”clean capital” remitted to Malta
- on ”capital gain” produced abroad and partially or totally transferred to Malta.
Depending on the residence and domicile of the individual, Maltese income tax liability arises:
- on a worldwide basis
- remittance basis
- on a territorial basis
Worldwide taxation applies to the income of persons who are ordinarily resident and domiciled in Malta.
Under worldwide taxation, all income and capital gains are subject to Maltese tax wherever produced and wherever received.
The remittance basis applies to persons who are not ordinarily domiciled or resident in Malta.
The remittance basis means that:
- all income generated in Malta is subject to tax, regardless of where it is received
- income earned outside Malta is subject to Maltese tax only if and to the extent that it is received in Malta
- capital gains arising outside Malta are not subject to taxation, even if received in Malta.
Persons who are not resident in Malta are subject to tax only on income earned in Malta or on a territorial basis.
Malta and crypto assets, cryptocurrencies and bitcoin
Malta was also one of the first jurisdictions to enact crypto-specific legislation by defining the different classes of Virtual Finance Assets, providing regulation for Innovative Technology Arrangements and Services (ITAS) and establishing a Digital Innovation Authority with jurisdiction over them.
VFA or Virtual Financial Assets is the framework law that enacted the regulations applicable to cryptocurrency exchanges, ICOs, brokers, wallet providers.
ITAS or Innovative Technology Arrangements and Services established the registration and accountability systems for blockchain service providers.
MDIA or Malta Digital Innovation Authority is the body for monitoring the technological development of blockchain and cryptocurrency.
Malta Financial Services Authority or MFSA remains Malta’s main regulator responsible for overseeing the licensing of companies in the digital space, be it blockchain, cryptocurrency and other innovative technologies.
CRYPTO TAXATION IN MALTA
(carried out outside of structured activities and businesses, to which we refer the relevant rules that apply in these cases that ideally involve corporate structures – https://www.maltaway.com/dividend-tax-in-europe-and-the-smart-corporate-tax-system-in-malta-with-full-imputation/)
Crypto assets have been qualified as a virtual financial asset distinct from other financial instruments and electronic money understood as “means of payment, medium of exchange or store of value”.
The tax treatment of transactions involving coins such as Bitcoin is identical to the tax treatment of transactions involving fiat or conventional currency. As such, coins fall outside the scope of income tax and taxes, and gains on isolated transfers will not be taxed in Malta.
In principle, they are classified as tokens divided into two categories: financial tokens or utility tokens.
Financial tokens are defined as similar to shares, bonds, units of collective investment schemes while utility tokens are classified as assets that can be used to acquire goods or services within a DLT platform.
The utility tokens are not in the list of capital goods therefore in case of transfer does not trigger the taxation of capital gains income.
In case of resident not dom in Malta,
the operations that have been carried out in Malta and the relative capital gains produced, received or not received in Malta, referring only to security tokens and not to utility tokens or electronic money, are therefore taxable.
Capital gains (not the assets generated income) generated outside Malta will not be subject to tax in Malta even if remitted to Malta, based on the above explanation of the territorial taxation and remittance basis in force in Malta.
Instead, income from the above transactions, if produced in Malta is subject to taxation regardless of where it is received, and if produced outside Malta is subject to Maltese tax only if and to the extent it is received in Malta.
Malta has introduced from 2019, in lieu of the full exemption for non-domiciled residents, a taxation of €5,000 for foreign income, i.e., not produced in Malta, if the same exceeds €35,000.
In addition, Malta has introduced since 2014 a scheme called Residence Programme for EU, EEA and Swiss citizens to grant the applicant a special tax status that allows him to pay taxes at 15% on foreign source income received in Malta, with a minimum annual tax of 15,000 and 2,500 for each dependent accompanying person.
The program requires in addition to the requirements necessary to obtain a residence permit, as additional requirements the purchase of a house with a minimum value of €275,000 and €220,000 if the property is located in South Malta or Gozo or alternatively rent at a minimum annual cost of €9,600 in Malta and €8,750 in Gozo or South Malta and the payment of administrative fees.
In a very similar way and with very similar conditions, in Malta there is The Global Residence Program entitles non-EU citizens to obtain a residence permit in Malta, through a minimum investment in property in Malta.
Applicants, once obtained the residence permit under this scheme, can live in Malta on a permanent basis and also have the right to travel to any country within the Schengen Area without the need for any additional visa.
And now finally Malta wants to launch a new residence scheme ”Malta Permanent Residence Program” to replace the previous Malta Residence and Visa Program, aimed at attracting foreign investors from outside Europe, looking for a visa that allows permanent residence in a European country.
Any person interested in applying for these programs is required to do so through an approved registered agent or accredited person.
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