Investors’ interest in cryptocurrency has certainly boomed over the past few years, and , in fact, rose to even greater heights of popularity globally as the US Securities and Exchange Commission (SEC) approved the first US-listed exchange traded funds (ETFs) to track cryptocurrency Bitcoin back in January 2024. This saw Bitcoin’s price hitting a new record high at US$73,700 recently; in Malaysia, the price of Bitcoin also surpassed its previous all-time high record and breached RM300,000 in early March 2024. This is despite there being a number of high-profile cases in 2022 and 2023, such as the collapse of crypto exchange FTX and Binance’s admission of guilt to anti-money laundering and US sanction violations.
Back on home shore, this interest translated accordingly to more sign-ups and transactions on crypto exchange platforms. Luno Malaysian, for instance, said that that it had been seeing more activity on the platform as more local investors looked to diversify their investment portfolio with digital asset. We’ve also seen the Securities Commission Malaysia (SC) admitting more players into the field, including a fifth digital asset exchange, Hata, and Malaysia’s first qualified digital asset custodian, co*keeps.
Given this trend of increased crypto investors, there may be some who aren’t sure whether their digital assets are subjected to any form of tax. With the publication of the Guidelines On Tax Treatment Of Digital Currency Transactions, the public now have better understanding regarding the tax treatment of crypto. Here, we’ll highlight some of the key points in the document that are most applicable to you as an investor.
Crypto & tax: What does LHDN say?
LHDN’s guideline defines digital currencies and tokens as “digital financial assets” that are “recorded on a distributed ledger whether cryptographically-secured or otherwise”. They also function as “a medium of exchange” and are “interchangeable with any money”. Of course, these include the various digital currencies that you’d be familiar with – such as Bitcoin, Ether, and Litecoin, just to name a few – as well as stablecoins.
In terms of tax treatment, the document said that crypto will only be taxed if it is used in business or trading transactions, where the business’ key activities and operations are performed in Malaysia, or if the business has a presence in Malaysia. It further included the following:
As Malaysia does not tax capital gain, only revenue gains arising from the disposal of digital currency is taxable.
A person who trade digital currencies actively may be viewed as generating revenue from the activity, thus gains from this digital currencies trading is taxable. On the other hand, gains derived by individual who trade occasionally may be viewed as capital gains and not taxable in Malaysia.
To clarify, capital gain refers to earnings that you obtain via investments. In other words, if you purchase crypto as a form of investment – holding on to it for a period of time the way you do with other investment instruments – then you will not be required to pay tax. However, if you use crypto as part of your business transactions or trade regularly to earn revenue or income, then it will be taxable.
This explanation echoes what the LHDN had already mentioned in early 2021, where it also mentioned that crypto traders and businesses must use Form B (for individuals with business income) to declare their earnings. Back then, however, the board did not specify the particulars of what would constitute trading and non-trading transactions. This time, LHDN has identified a total of eight “badges of trade” to help the public determine whether elements of trade exist for transactions involving digital currencies. You can read about them in a later section in this article.
OK but any specific examples?
Along with the explanation above, LHDN has also shared a list of specific transactions/circ*mstances to better illustrate the tax treatment that is applicable for each of them. Here’s a summary for your reference:
1) Taxable crypto transactions (business/trading transactions)
| Transaction | Details | Tax treatment |
| Active trading of crypto | Businesses/individuals that buy and sell digital currencies regularly as part of their business operations to obtain profit | – Taxed on the profit derived from the trading, similar to trading of stock – Expenses will be tax deductible, and losses can be set off against income |
| Crypto mining | Businesses/individuals who mine crypto for profit (e.g. to trade, or offer crypto mining services for a fee) | – Profit to be taxed if the miner meets the criteria of trading (see next section) – Expenses will be tax deductible, and losses can be set off against income |
| Business transactions conducted in crypto | Businesses/individuals that use crypto as a mode of payment | – Profit to be taxed in a manner similar to regular business transactions – Crypto payments and expenses should be recorded in ringgit |
| Salaries paid/received in crypto | – For employers, this will count as an expense – For employees, this will count as income | – Value of the salary or wage will be based on the employment contract and value of employment service performed |
| Crypto conversion | Converting one crypto to another crypto | Profit to be taxed (if the gain is revenue in nature) |
2) Non-taxable crypto transactions (non-business/trading transactions)
| Transaction | Details | Tax treatment |
| Crypto as an investment | – Businesses/individuals who buy crypto for long-term investments – Crypto acquisitions that are not continuous, systematic, or active, and does not carry financial risk or are not aimed at making a profit | Not taxed as Malaysia does not tax capital gains |
| Acquisition of crypto as currency to make payments | Individuals who purchase crypto to pay for goods and services (in part or full payment) | Not taxed |
| Crypto obtained via free distribution or splitting | – Crypto received for free as part of a promotion – Crypto received for free during splits, such as airdrops and hard forks | Not taxed, unless the recipient subsequently sells the tokens to obtain gains that are revenue in nature (active trading) |
| Crypto conversion | Converting one crypto to another crypto | Profit not taxed (if the gain is capital in nature) |
Elements of trade in crypto: Eight “badges of trade”
By now, you’d probably have noticed that the “element of trade” plays a decisive role in determining whether a crypto transaction is taxed or not. But how do we determine if a certain transaction has elements of trade?
LHDN’s guideline has also listed out eight criteria that it considers when determining whether elements of trade exist for transactions:
| Criteria / ”Badges of trade” | Details |
| Nature of the crypto (e.g. quantity) | Crypto bought or sold in large quantities could be flagged as possessing element of trade |
| Length of ownership | Crypto that are held only for a short period will be more likely regarded as having elements of trade |
| Frequency of transaction | High frequency of similar transactions of crypto points to the possibility of trading, as opposed to isolated transactions |
| Supplementary work | Crypto transactions with the following may be treated as possessing elements of trade: – Additional work done on crypto to make it more marketable – Extra effort made to find/attract purchasers |
| Circ*mstances of the realisation | Some circ*mstances are less likely to indicate trading, such as being forced to sell crypto due to urgent need of cash or threat of foreclosure (for companies) |
| Motive | Individual’s intention when purchasing crypto, such as whether he or she undertook the activities in a business-like manner (e.g. developing business plans, advertising digital currencies business, etc.) |
| Mode of financing | – Purchase of crypto that is financed with short-term financing is more indicative of trading than long-term financing – Company’s financial position and ability to hold on to the crypto will also be considered |
| Other relevant factors | Other factors include: – Whether any feasibility studies were conducted – Availability of documentation – Other evidence that indicates a business or individual’s intention |
As you can see, the list above is quite comprehensive. But with this, it will also be easier for us to recognise a taxable/non-taxable crypto transaction.
Calculating the valuation of your crypto transactions
For the purpose of tax calculation, LHDN noted that businesses (or individuals) should record all their acquisition and sale of crypto based on the market value, in ringgit (RM). This includes situations where transactions are agreed based on the number of crypto (e.g. one Bitcoin, or one Ether); the value of goods sold or purchased should be determined based on the crypto’s value at the point of the transaction.
Additionally, the acquisition cost of your crypto should be determined on the basis of the first-in-first-out principle, meaning assets purchased first are disposed of first. This is unless you are able to prove otherwise.
To better illustrate this, here’s an example from LHDN:
A company that trades digital currency as part of its business bought crypto A as per the following schedule:
| Date purchased | Number of units purchased | RM per unit | Total (RM) |
| 1 Sept 2022 | 500 units | 10,000 | 5,000,000 |
| 1 Oct 2022 | 300 units | 15,000 | 4,500,000 |
| 1 Nov 2022 | 700 units | 5,000 | 3,500,000 |
| Total | 1,500 units | – | 13,000,000 |
The company then sells 600 units of its crypto, at the value of RM20,000 per unit in January 2023. As such, the company’s calculation of its profit will be:
= (600 units x RM20,000) – [(500 units x RM10,000) + (100 units x RM15,000)]
= RM5,500,000 profit
However, if the company is able to prove that the sold units were among those purchased on 1 November 2022, then the calculation will be:
= (600 units x RM20,000) – (600 units x RM5,000)
= RM9,000,000 profit
If you are unable to determine the exact acquisition cost for any reasons, then the calculation of your crypto will be valued using fair value. This means you will use the rate that is in force on the day of your transactions, based on registered crypto exchanges (namely Luno, MX Global, SINEGY DAX, and Tokenize Technology).
Meanwhile, in the event that you receive payment for goods and services in crypto without published value (as it is not traded on any crypto exchanges), then its fair value will be equivalent to the price of the property or services offered for the crypto.
LHDN checks: Important records to keep!
As a rule of thumb, taxpayers are always advised to keep their tax documents – such as receipts and invoices – for at least seven years. As you can expect, this applies to your crypto transactions too!
Here are several crucial documents and details that you should keep or record in relation to crypto transactions:
- Records that determine the nature of your crypto transaction, including whitepaper
- Records to determine the value of crypto based on online exchange
- Date of transaction
- Name of the other party, i.e. crypto address
- Receipts of purchase/transfer of crypto
- Exchange records
- Other relevant records, including records of agents, wallet keys, and software used
- Bank statements
- Receipts/invoices of business expenses
A matter for concern: retrospective tax application
While the guideline is dated 26 August 2022, some tax consultants have highlighted that LHDN will impose retrospective or backdated tax on businesses or individuals trading crypto. The rationale for this is that LHDN is merely clarifying the law as it stands today; it has not implemented a new law, and is merely providing guidance on how crypto should be taxed. As such, LHDN is in its right to do so if it wish to.
Neither LHDN nor its document have specifically highlighted this possibility, but there have been some examples of LHDN applying even new tax laws retrospectively before. As such, it may be a good idea to take some time to compile any existing documents or records that you still have of your previous crypto transactions – just to be safe.
***
With the tax season already here for 2024, we hope that this article clarifies some of your questions regarding how to declare your crypto earnings! You can also check out our main income tax guide for 2023 (YA 2022), as well as other income tax-related articles.
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- TAGS:
- Crypto Tax
- Cryptocurrency
- DAX
- Digital Asset Exchanges (DAX)
- Inland Revenue Board
- Lembaga Hasil Dalam Negeri
- LHDN
- LHDN Borang B
- Longform
About THE AUTHOR
Alex Cheong Pui Yin
Alex Cheong Pui Yin
Previously covered recruitment-related stories and had a short stint as a copywriter for the property industry. She subsequently developed an interest in investment and robo-advisors.
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Ronnie Abdullah
1 year ago
Hi, I invested in crypto since 2014 when I worked overseas. I was retired since 18months ago and have been cashing out portion of these crypto in to fiat currency as part of my household expense. May I know if this is subject to tax?
15
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Seeker
6 months ago
Please check on this.
Reply
Pang Tun Yau
6 months ago
Reply to Seeker
CGT does not apply to individuals (for now). Under existing tax laws, you are required to disclose capital gains only if the IRB considers the frequency of your investments as akin to a full-time trader.
3
Reply
Mikey
2 months ago
Reply to Pang Tun Yau
May I know are there any specified rules on how many buy/sell within specific time range(let say within a year) are considered frequent trading? For instance, if let say an investor is buying in bit by bit on different pricing (dollar cost averaging), and hold it for let say 6-9 months, is this consider long term or short term? using the words “frequent” or “long term” is too general and subject to different interpretation by different officers… As such, any guidelines on this?
1
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Pang Tun Yau
2 months ago
Reply to Mikey
Unfortunately no. It is entirely dependent on the interpretation by IRB. Note that this description is more designed towards identifying full-time traders rather than investors. That said your example (DCA + hold for 6-9 months) does not constitute “frequent trading” (my opinion only, of course).
1
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Ms. Chan
1 month ago
Hi, recently when i made my first withdrawal from one of the crypto platforms, i was asked to deposit a 17% income tax in USD to the company & they will do a tax file on behalf of me & submit it to LHDN Malaysia I suppose. Individuals are not allowed to file the tax on their own & it is a violation, I was informed. Do you know if this is correct? In addition, i was also informed that i have to pay a processing fee to the Company for verifying my withdrawal due to a large sum. According…Read more »
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ssenik
1 month ago
Reply to Ms. Chan
What you’re describing doesn’t sound quite right. In Malaysia, you usually file your own taxes directly with LHDN, and it’s uncommon to deposit tax money with a third party. Paying a processing fee upfront for withdrawals is also unusual—legitimate platforms usually deduct fees from your withdrawal.
I’d suggest verifying the platform’s legitimacy and maybe consulting with a financial advisor or LHDN directly.
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Wayne
17 days ago
Reply to Ms. Chan
Ms Chan, this procedure is a typical scam process, please check the platform if it’s legit (which I believe most likely is not). I hope you didnt deposit the extra 17% to them.
Reply
ssenik
16 days ago
Reply to Wayne
To make sure everything’s legit, it might be a good idea to check out the platform through official sources or talk to a financial advisor.
Reply
Ashwath
1 month ago
Hi Alex, My name is Ashwath from India. I would like to know that if I trade crypto on Indian Exchanges from Malaysia. Do i need to pay tax on the profits in Malaysia. Pls advise.
Reply
ssenik
1 month ago
Reply to Ashwath
Hey Ashwath,
If you’re trading crypto on Indian exchanges while in Malaysia, you’ll likely need to pay tax on your profits in Malaysia. It’s a good idea to chat with a tax pro to get the best advice for your situation and make sure you’re on top of both Malaysian and Indian tax rules.
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Johnny
17 days ago
What about staking ETH and leave it alone for a year and then sell it all? Is the staking profits taxable in Malaysia?
Reply
ssenik
16 days ago
Reply to Johnny
Staking ETH can lead to taxable income in Malaysia. The rewards you earn from staking are usually considered income and need to be reported. Plus, when you sell your ETH, any profit from that could also be subject to tax.
For the best advice on how to handle this, it’s a good idea to chat with a local tax advisor.
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