Malta has been rightfully recognized as one of the pioneering countries in the field of fintech and crypto business both in Europe, and globally. The Malta Financial Services Authority began issuing various advisory documents as early as 2017, and many relevant laws were passed in 2018. Because of these actions, Malta has been called ‘the blockchain island’, and a crowd of entrepreneurs from Europe and the whole world immediately rushed to register companies for crypto activities in Malta.
What is VFAA?
Crypto assets in most countries of the world are not legally defined. However, in some jurisdictions, this kind of assets are subjects to identification with the use of the existing legislation, due to which crypto assets are perceived as currencies or a digital form of investment. A mess and confusion, to be brief.
That was the reason why the Government of Malta established the VFAA - the Law on virtual financial assets. The Law has opened up great business opportunities for firms wishing to launch an ICO in Malta or establish a crypto exchange in the EU, as well as other interested parties.
Let's look at the categories of crypto assets in Malta:
- Product Tokens. In a broad sense, utility tokens fall into this category. These tokens have the properties of coupons that the holder can exchange for goods or services of the platform to which these tokens were issued. If you intend to issue a utility of tokens in Malta, you can do it freely, since such tokens do not require any special regulation.
- Virtual money. This category includes those tokens that electronically store cash value and can be used for payment transactions. If you intend to register a crypto company in Malta and start issuing electronic money, then it should be borne in mind that such crypto assets and related business are regulated by the Malta Financial Companies Act.
- Security Tokens. Again, in a broad sense, those tokens that have the properties of financial instruments, fall into this category. Security tokens issue is subject to regulation in Malta. It should be mentioned that the ICO with their participation has now separated into a separate niche, and is called STO - Security Token Offering.
- Virtual financial assets. These do not fall into any of the above categories. As a rule, they include traditional cryptocurrencies, for example, Bitcoin or Ethereum.
It is worth noting that in order to guarantee the correct definition of the crypto asset, when registering a Maltese company, you have to hire a special VFA agent, who will be actind as a sort of a bridge connecting you with MFSA.
Malta taxation of cryptocurrencies
The value of a crypto asset for Malta income tax purposes is determined based on the value of the asset at the time of the transaction. The cost is set by the relevant state authority.
There is no ICO taxation in Malta if the ICO itself is conducted to raise capital. If product tokens are simply issued, profits from them are subjects to taxation as ordinary income.
Taxation of mining in Malta is carried out according to the same rules as the profit from the security of tokens.
On the fight against money laundering and illegal activities
The independence of cryptocurrencies has become the reason for the formation of their negative image. They say that cryptocurrencies are used only by drug traders of all kinds of drugs that are in limited use, firearms, and in general are all illegal. In fact, this is true only to some extend. Aren't ordinary fiat money used with the same purposes?
Maltese authorities have implemented a programme to actively reduce the risks of illegal activities in which virtual assets issued or used in Malta may participate.
First of all, it should be said about the VFA agents already mentioned above. These individuals are a kind of appendage to the regulatory body, and must be licensed accordingly, and they are subjects to significant fines if they do not meet all the requirements.
A VFA agent is both a connecting link and a sort of a filter that divides all potential crypto assets issuers into those who will work with MFSA and those who will not.
The VFA agent analyzes the level of competence of the potential issuer and the viability of its business proposal; must not only understand the legal procedures, but also have a thorough examination of the firm’s business concept, must be able to evaluate all possible risks and give a summary on hoe stable the issuer is, as well as the risks of its possible fraudulent activity.
Furthermore, any company that has passed the agent’s checkup and intends to start issuing crypto assets in Malta needs to comply with the rules of user due diligence (KYC).
- The first includes the complete identification of the client, his verification using a passport, utility bills or bank statements.
- The second comprises various technical components like protection devices against the use of proxy servers, unverified IP addresses and much more.
Cryptoassets regulation at the EU level: no signs of harmonisation
Many regulations have long been harmonized between EU countries. What happens to the regulation of cryptoassets? Why not apply Malta's best practices in all countries? The answers to these questions worry many European entrepreneurs interested in establishing a crypto business in the EU.
The fact is that each member state treats crypto assets in its own way. Somewhere they maintain a benevolent attitude, and somewhere they try to ignore it, or show outright hostility.
This is precisely the main reason for the lack of harmonization. In addition, the lack of an international standardization body also affects its progress. As a result, each state develops its own rules and its taxonomy, in fact, as Malta did.
Comments and forecasts
Let's look at the dates right away. Bitcoin appeared in 2009. Malta started consultations on crypto activities only in 2017, and passed laws in 2018. Japan, in turn, recognized Bitcoin as legal tender in 2016. Switzerland has been considering bitcoin as a foreign currency since 2014.
In general, we can conclude that further the regulation of crypto assets in the European Union can be unified and harmonised if only these two key issues are resolved:
- Clarity on crypto assets that are already covered by existing regulations - MiFID II and the EU Electronic Money Directive;
- Adopting a clear position regarding crypto assets that are not regulated at the EU level.
Until these issues are resolved, there will be no progress in regulation. And, given that Malta is one of the EU's most crypto-friendly countries, it can be assumed that in terms of regulating crypto activities, the European Union lagged behind countries such as Switzerland or Japan by at least 5-7 years. All this is because of fear of losing control of the financial system, fears of an increase in cases of unlawful activity, money laundering, tax evasion, etc. - facts about which already represent one big open secret. In fairness, it is worth noting that all these fears are not groundless. But should this not be another reason for making strong-willed political decisions?
At the moment, Malta offers very comfortable conditions for doing business in the cryptosphere. If you have any questions regarding the establishment of a company for crypto activities in Malta, you can discuss them and find solutions together with IQ Decision UK experts during a legal consultation on crypto business in Europe.
It is also worth noting that the specialists of our company provide legal support for the registration of Maltese crypto companies. If you seek help to setup a crypto exchange in Malta or open a corporate bank account for a crypto company in Malta, we are ready to provide any legal assistance you may need.