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Archives for DLT

Taxation of DLT Assets

The Maltese Tax Authorities issued guidelines in connection with the income tax, VAT and duty on documents implications arising from transactions or arrangements involving DLT assets.

 

The following is a list of definitions included in the guidelines:

 

Taxation

The general income tax principles contained in the Income Tax Act apply to transactions involving DLT assets.  The guidelines serve to provide clarifications regarding the income tax treatment of a number of transactions or arrangements involving DLT assets.

The following is a summary of the tax treatment of transactions involving DLT Assets:

 

The following is a summary of the income tax treatment of transactions in coins:

 

Coins fall outside scope of Article 5 of the Income Tax Act and therefore they are not considered to give rise to any capital gain for income tax purposes.

 

The following summarises the tax treatment for the return on financial tokens:

 

The following outlines the tax treatment arising from the transfers of financial and utility tokens:

 

The distinction between trading income and non-trading income may not always be evident.  It may therefore be necessary to refer to the badges of trade to determine whether the income received falls within the definition of trading income or not.  Such determination is crucial to assess the tax treatment of transferred tokens.

The following portrays the tax treatment applicable for initial offerings:

 

Value Added Tax (VAT)

The general VAT principles applicable to taxable events also apply to transactions or arrangements involving DLT assets.  Maltese VAT rules apply only if the place of supply of a transaction or arrangement is deemed to be Malta.  Furthermore, the chargeable event would only arise where a supply of service is made for a consideration by a taxable person acting as such and there is a direct link between the consideration payable and the supply made and where there is reciprocal performance between the suppliers and the recipient of the service.

 

The following is a general overview of the VAT treatment of transactions involving DLT assets:

 

If a token contains features of both a financial and a utility token (also referred to as a hybrid token),  then the VAT treatment depends on the use of such token.  A hybrid token used as a utility token then it is to be treated as such, while if in another occasion the same token is used as a coin, then it needs to be treated as such.

 

When treated as a voucher, the consideration paid for a utility token shall be deemed to be gross of VAT due.  Another important issue to determine is when the token is subject to VAT:

 

The guidelines provide clarification as to whether initial offerings are subject to VAT or not:

 

In case of electronically supplied services rendered to non-taxable persons established in other Member States, the supplier may opt to register and account for VAT through the Mini-One-Stop-Shop system (MOSS) to facilitate the administration for the payment of the VAT within the EU.

 

Duty on Documents and Transfers Act (DDTA)

The following is a summary of the DDTA implications arising with respect to transactions involving DLT assets:

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VFA and ITAS Acts come into force

Through Legal Notices 306 and 307 of 2018 the Minister for the Digital Economy has established the 1 November 2018 as the date on which the provisions of the Innovative Technology Arrangements and Services (ITAS)  Act and of the Virtual Financial Assets (VFA) Act, respectively, shall be deemed to have come into force.

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MDIA Officially Set-Up

Following the approval by Maltese Parliament of the cryptocurrency related bills on the 4th July 2018, through Legal Notice 250 of 2018 the Minister for the Digital Economy has established the 15th July 2018 as the date on which the provisions of the Malta Digital Innovation Authority (MDIA) Act shall be deemed to have come into force and hence the MDIA is now officially set-up. The Authority shall now commence the process of staff on-boarding and regulatory functions in terms of the MDIA Act.

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Approval of DLT Bills

On 4 July 2018, the Maltese Parliament has unanimously approved a trio of cryptocurrency related bills as follows:

  1. The Malta Digital Innovation Authority Act which shall provide for the establishment of an authority to be known as the Malta Digital Innovation Authority.
  2. The Virtual Financial Assets Act which shall regulate the field of Initial Virtual Financial Asset Offerings, or as more commonly referred to Initial Coin Offerings, Virtual Financial Assets and cryptocurrency currency exchanges whilst outlining the licensing requirements, the application, granting and cancellation of such licenses and provide for other matters ancillary thereto or connected therewith.
  3. The Innovative Technology Arrangements and Services Act which shall mainly provide for the regulation of designated innovative technology arrangements as well as of designated innovative technology services.

Malta is one of the first jurisdictions worldwide having in place specific legislation regulating this technology thus making Malta, an EU Member State, attractive to blockchain based companies and Initial Coin Offering (ICO) issuers.   Indeed, Malta has already seen several large cryptocurrency exchanges moving operations whilst the crypto friendly legislation was progressing.

Through the certification of technology arrangements, registration of service providers and regulation of ICOs, Malta will provide legal certainty and integrity to the industry and protection to both companies and investors.

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Distributed Ledger Technology (DLT) Bills

The Maltese Government published the three bills which will be implementing a framework for DLT. These legislative initiatives will make Malta one of the first countries in the world regulating this technology thereby providing a level of certainty to the industry and attracting businesses to ‘The Blockchain Island’.

The Innovative Technology Arrangements and Service Bill shall provide for the regulation of designated innovative technology arrangements as well as of designated innovative technology services, and for the exercise by or on behalf of the Malta Digital Innovation Authority of regulatory functions in that regard.

The Virtual Financial Assets Bill shall regulate the field of Initial Virtual Financial Asset Offerings, or as more commonly referred to Initial Coin Offerings, Virtual Financial Assets and cryptocurrency currency exchanges. The Bill shall outline the licensing requirements, the application, granting and cancellation of such licenses and provide for other matters ancillary thereto or connected therewith.

The Malta Digital Innovation Authority Bill shall provide for the establishment of an Authority to be known as the Malta Digital Innovation Authority, to support the development and implementation of the guiding principles and to promote consistent principles for the development of visions, skills, and other qualities relating to technology innovation, and for the exercise by or on behalf of that Authority of regulatory functions regarding innovative technology arrangements including distributed or decentralised ledger technology, and related services and to make provision with respect to matters ancillary thereto or connected therewith.

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