Technical Guidelines on Tax Treatment of Digital Currency Transactions

The Inland Revenue Board (IRB) has issued Guidelines on Tax Treatment of Digital Currency Transactions (“Digital Currency Guidelines”), dated 26 August 2022.

Badges of Trade

There are currently no specific provisions in the Malaysian Income Tax Act dealing with the tax treatment for transactions relating to digital currencies. The Malaysian tax authorities apply the badges of trade to determine whether a gain or loss from the disposal of digital currencies is considered capital or revenue in nature.

Revenue vs. Capital Gains

In general, a person who actively trades in digital currencies may be viewed as generating revenue and thus taxable, whereas gains derived by a person who trades occasionally may be viewed as capital gains which are not taxable.

The salient points of the Digital Currency Guidelines are set out below:

Trading of digital currencies

Profits from a business of trading digital currencies are taxable. The tax treatment is similar to the trading of stocks, i.e., proceeds from the sale of digital currencies are taxable, while the expenses of the sale of digital currencies are deductible.

Mining of digital currencies

Profits derived from mining activities are taxable if the mining activities are carried out with a profit-seeking motive.

Business transactions using digital currencies

Businesses that accept digital currencies as a mode of payment should record the transactions in Ringgit Malaysia (RM), based on the open market value of the services or goods sold.

If the services or goods are quoted and invoiced using digital currencies, the value at the point of execution of the transactions will be used for income tax purposes.

Realisation of digital currencies from business transactions

For businesses transacting in digital currency, the tax treatment on the gain or loss arising from the subsequent disposal of the digital currency depends on the capital/revenue character of the subsequent disposal.

The Malaysian tax authorities recognise that the nature of the transaction (i.e., revenue or capital) of the gain from the subsequent disposal of digital currencies obtained from an earlier business transaction is to be evaluated before determination of the tax treatment.

Salaries and wages in digital currencies

Salaries and wages paid in digital currencies are taxable in the hands of the employee and deductible to the employer based on the value stated in the employment contract.