The rise of digital currencies has generated widespread public attention and interest as to their proper tax treatment. Recently, the IRB has published its updated Guidelines on 26.8.2022,1 which:
- Supplements the earlier Guidelines of 13.5.2019;2
- Provide further guidance on the taxability for transactions involving digital assets: digital currencies or digital tokens, such as Bitcoin and Ethereum; and
- Applies to any person or company that buys/sells or is in the business of trading of digital assets.
In short, gains from investments would be treated as capital gains, whilst gains from trading transactions would be taxable. The same test for determining the taxability of gains from real property apply: the badges of trade.3
Further details of the Guidelines will be explained below.
What are digital currencies and digital tokens?
Digital currencies / digital tokens refer to digital financial assets that are based on distributed ledger technology (DLT) and cryptographically secured digital representations of value or contractual rights that can be electronically transferred, stored or traded. Specifically, digital currencies function as a medium of exchange and are interchangeable with any money, including the crediting or debiting of an account.
Examples of digital currencies / digital tokens include Bitcoin and Ethereum (Ether).
Application of the Guidelines
The Guidelines apply to any person (including a company) that: -
- Acquires or disposes of digital currencies; or
- Is involved in the business of digital currencies (e.g., trading, mining and exchange of digital currencies).
General Tax Treatment of Acquisitions and Disposals of Digital Currencies
Many countries such as the United Kingdom, Australia, and Canada subject gains from such transactions to capital gains. Malaysia however does not have a capital gains regime, except for disposals of real properties and shares in real property companies (RPCs).
To view the full article please click here.
1 Guidelines on Tax Treatment of Digital Currency Transactions, which can be accessed here:
2 Guidelines on Taxation of E-commerce Transactions (e-CT)
3 Page 3 & 4 of this Alert
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.