Cryptocurrency Industry in Malta

The island of Malta is one of the few jurisdictions in the European Union to have a clear regulatory framework for crypto-asset transactions. In 2018, the Maltese government passed a number of laws to regulate companies operating in the cryptocurrency industry in the context of innovative technology development. Let’s look at the legal framework for the cryptocurrency sector in Malta and legislative peculiarities for businesses and individuals. 

Legal Framework 

The basic principles of crypto sector regulation and innovative technology development in Malta are outlined in four laws. 

1. An Act establishing the Malta Digital Innovation Authority, or the MDIA, was passed in July 2018. The MDIA promotes the development and application of innovative technologies, aligns national legal policy with international laws, and protects Malta’s reputation in the field of innovative technologies. 
2. The Innovative Technology Arrangements and Services Act, or the ITAS. This Act was also passed in 2018, describing the principles of registration of innovative service providers and specifying the functionality of service providers that aren’t Maltese residents.
3. The Virtual Financial Assets Act, or the VFA. This Act came into force in the second half of 2018. The VFA provides a classification of cryptocurrency assets and rules for companies offering services in the crypto industry. 
4. The Prevention of Money Laundering Act dated September 23, 1994 (the PML) and the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT policy), which took effect in February 2018, form the general principles of the State of Malta regarding transparency and protection of crypto-asset transactions. 

Cryptocurrency for Legal Entities

Most crypto companies registered in Malta have the legal form of Ltd, a limited liability company. The following are the basic steps required to obtain legal entity status and set up a cryptocurrency company.

Registration in the Malta Business Registry

A cryptocurrency company can be registered by a shareholder or authorized representatives, such as a lawyer or an accountant. The registration process is performed with the Malta Business Registry (MBR). Shareholders need to come up with a unique company name. The legal documents should end with initials according to the legal form chosen, e.g., Ltd for Limited Liability Company. Before submitting the registration form, it’s also necessary to open a bank account, transfer the amount of the share capital under the terms of the chosen license of the virtual financial asset provider, and pay the registration fee. In addition, the following documents need to be prepared for the MBR: 

• articles of association and the company’s memorandum;
• a completed BO1 form containing details of the company’s beneficiaries;
• a document confirming the registration address of the head office;
• proof of the bank deposit or other proof of transfer of the company’s share capital;
• copies of passports of all shareholders, certified by a notary.

Once the documents have been prepared, the registration form must be filled out with the following information:

• the number of investors, not exceeding 50 people;
• the amount of the share capital;
• the registered address of the company’s head office; 
• names of the director, the secretary, and the compliance officer;
• name of the AML/CFT compliance officer and the risk manager.

It’s worth noting that the company secretary and some other executives may not be residents of Malta. 

Getting a Service Provider License from Virtual Financial Assets

The company must be licensed to provide services relating to virtual financial assets. There are four classes of licenses, which differ in terms of the minimum amount of share capital and the list of services available:

• from €25,000 — providing financial and investment advice and receiving and transmitting orders related to virtual financial assets (VFA);
• from €125,000 — peer-to-peer exchange, provision of cryptocurrencies, and investment portfolio management;
• from €730,000 — execution of OTC transactions, creation of markets, excluding digital asset exchanges;
• from €730,000 — exchange of any type of digital assets and control of user assets. 

To obtain one of the four license classes, the registration fee must be paid. Despite the same share capital threshold for the third and fourth classes, the registration fee for the third class is €7,000 and for the fourth, it is €12,000. Companies must also pay an annual supervision fee, ranging from €2,750 to €25,000, depending on the license. 

A VFA license can be granted through an agent, who must be the company’s official employee. The agent must fill out the online application form on the website. 

Notably, the process of obtaining a VFA license in Malta is quite time-consuming. It includes a meeting with a representative of the Ministry of Foreign Affairs, the preparation of the necessary documents, and compliance with the post-license requirements discussed on a case-by-case basis. 

Tax Registration with the Commissioner for Revenue

Cryptocurrency companies registered on the island of Malta are required to file annual tax returns. Local auditors can conduct audits in accordance with the International Standards on Auditing, or the ISA. The Commissioner for Revenue has set the following tax rates:

• stamp duty — 2 to 5%;
• corporate income tax — 35%;
• value added tax — 18%.

The VFA Act states that the tax guidelines applicable to crypto companies depend on the asset’s purpose. To this end, digital assets are classified as follows:

• digital coins created to conduct payments, investments, and exchanges;
• financial tokens, as the equivalent of stocks and shares in investment schemes and bond transactions;
• utility tokens whose benefit, value, or use are limited solely to acquiring goods or services. 

Having double taxation agreements with more than 70 jurisdictions and a number of tax incentives, Malta is an attractive jurisdiction for cryptocurrency businesses. The island already hosts the headquarters of Binance, Zebpay, BitPay, and other exchanges.

Cryptocurrency for Individuals

After the VFA was passed, cryptocurrency became a functional tool for ordinary citizens. Locals and guests of the island can pay for services and goods with crypto-assets. Holding and using cryptocurrency is a completely legal process.

Maltese officials approved a blockchain technology strategy back in 2017. Former Maltese Prime Minister, Joseph Muscat, said in one of his speeches that digital coins would be the “inevitable future of money.”

Digital coins aren’t subject to income tax for individuals residing in Malta. In the case of transactions of exchange or trade of cryptocurrency assets as part of a certain business model, a standard income tax rate of 35% is imposed.

Maltese Banks & Their Views on Cryptocurrency

In July 2018, the developers of the Maltese startup, Moon Zebra, installed the first two-way crypto ATM on the island. In other words, users could exchange money for cryptocurrencies through their crypto wallets and vice versa. So far, the ATM only works with Bitcoin. Leon Siegmund, the head of the startup, says that preparing the ATM to work was difficult because local banks weren’t very willing to cooperate, but the project still managed to launch. Leon is confident that the island has great potential for applying crypto in citizens’ lives.

Despite the loyalty of Maltese laws regarding cryptocurrencies, users still complain about the conservatism of some banks. For example, there are difficulties in opening accounts for the further withdrawal of digital funds. In particular, the local bank may block a crypto transaction or send a notice warning of the possible closure of the customer’s account.

Cryptocurrency and Blockchain in Everyday Life 

Cryptocurrency in Malta appears in legal proceedings and can be the subject of inheritance. In May 2018, the Maltese government partnered with the Omnitude blockchain project to optimize public transport logistics and better inform citizens. 

In June 2019, the registration of rental contracts in Malta was completely moved to blockchain to ensure the safety and security of citizens’ personal data.

Moreover, the island’s government has been working on a pilot program for students to access educational materials using blockchain technology. In the future, there are plans to use blockchain to protect personal health data and organize the voting process during elections via mobile devices. 

Therefore, the loyalty and transparency of laws concerning blockchain and digital assets have made Malta a good place for creating and developing cryptocurrency companies and laying the foundations for applying cryptocurrencies and distributed ledger technology in daily life. At the same time, the conservatism and mistrust of the banking sector in Malta still create some difficulties in the implementation of crypto transactions. Malta can’t yet be called a crypto enthusiast’s paradise, however, this small island country is stubbornly striving for that status.