Cryptocurrency regulation

Cryptocurrency Regulations in Malaysia

Written by: Qadir AK

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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Jun 21, 2020

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Malaysia is a multi-ethnic, multi-religious country with only half of the population consisting of the Malaysians and the rest, the minorities all over the world. Malaysia has the best economy in Asia with approximately 6.5% G.D.P every year. 

The country has no intention of accepting cryptocurrency as a legal tender in the country due to various limitations associated with Bitcoin and other crypto-like price swings and cyber threats, the Deputy Finance Minister said in parliament. 

Malaysia Crypto Regulations

28-03-2022: Malaysia Announces the country will not accept Bitcoin as legal tender.

Malaysian Deputy Finance Minister blamed the price volatility and Bitcoin’s susceptibility to cyber-attacks as the main reasons behind its unsuitability as a legal tender. The deputy minister explains further that cryptocurrencies like Bitcoin are not suitable for use as payment due to various limitations.

22-03-2022: Malaysia may legalize Cryptos and NFTs soon to expand the participation of youth in cryptocurrencies. 

Malaysia may soon legalize the NFTs and join the host of countries that have regulated crypto NFTs. The country’s communications ministry proposes to legalize NFTs. Malaysia appears on the verge of becoming the latest country to regulate cryptocurrencies and NFTs. Legalizing crypto will increase the support of young people interested in the crypto industry.

Government on Cryptocurrency

The Malaysian Central Bank has announced new rules for cryptocurrency exchanges with respect to anti-money launder and counter FInancing of terrorism policy for Virtual currencies. 

The rule applies on crypto activities such as exchanging digital currency for money, money for digital currency or, exchanging digital currency from one another includes out of country exchanges also.

Cryptocurrencies are not considered as ‘legal’ in the country but that does not mean they are illegal. However, recently in Jan 2020, the Malaysian Government has made it clear by announcing that cryptocurrencies will not be banned but regulated. 

The Finance Minister of Malaysia, Johari Abdul Ghani said, “No plans to ban cryptocurrencies in Malaysia, since doing the same shall curb creativity and innovation in the financial sector” as per the officials, the government is in the process to ease out a little while forming regulations so that the corporates can avail the most for the future business opportunities. While the governor of the Malaysian Central bank, Muhammad Ibrahim, believes in a more transparent process in the crypto business.  

He said,“Basically, we will let the cryptocurrency promoters including Bitcoin, Ethereum, and Ripple be more transparent, the methods to be more transparent, and people behind the scene to be more transparent too. By doing so, the public can decide on its own if they want to invest in cryptocurrencies,” 

Malaysia’s Securities Commission (SC) has now framed more strict and direct regulations on cryptocurrencies. The regulation classifies digital currencies, tokens, and crypto-assets as Securities placing them under the Securities Commission’s authority.

The exchanges are required to apply for a license from the regulator to operate in the country. The exchange will be granted a license only in compliance with the regulatory rules. The exchange needs to:-

  • Submit investment documentation of $1.2 million paid-up capital to the Central Bank of Malaysia (Bank Negara) for approval.
  • Record and maintain the details of the participants and the transactions within the regulatory framework.
  • Comply with the AML-CTF rules and also the approach applied to ensure the monetary safety of the customers.
  • A work plan to collect data about their customers, their activities, etc.

The exchanges which fail to comply with the above requirements will not be issued a license and the exchanges which are operational will be subjected to closure.

Malaysian Laws require local exchanges to register with the SC and later comply with the license requirements mentioned above. They will be provided 9 months’ time to do so.

Crypto Taxation in Malaysia

Malaysia does not consider cryptocurrency as a capital asset, and the government of Malaysia does not accept crypto as a legal tender hence cryptocurrency in Malaysia is tax-free. The IRBM Inland Revenue Board of Malaysia has not yet issued any definitive guidelines on cryptocurrency transactions to tax. IRB has however cited section 3 of the Income Tax Act 1967(“ITA”) and can be applied on active cryptocurrency traders.  

The tax-free system of the country comes with a twist such as it is considered under tax-free service only if it is not a regular or repetitive income which means that the tax will be shooted on the day trading crypto in Malaysia. 

Businesses are unfortunately imposed by an income tax or any profits generated from crypto for the profits in the form of fiat currency and crypto as well.

Mining Cryptocurrencies in Malaysia

Cryptocurrency in Malaysia is not considered legal tender and authorities have not given any clarity about the legalization of virtual currency in the country.  Illegal Cryptocurrency mining in Malaysia hits all-time in the academic year of 2021, in comparison with 2020, In 2021 mining equipment worth around $13 million was confiscated in comparison of $301K worth seizure of 2020. 

In connection with illegal crypto mining in 2021, the Chief noted about 570 investigation papers opened and 528 arrests relating to illegal crypto mining. whereas in 2020 only 20 papers were opened and 26 people arrested. Further electricity theft has been the big blast by recording 7209 cases being opened from 2018 to 2021.

However crypto mining is still considered legal in Malaysia; interested companies and individuals have to submit their applications to TNB, according to the national electricity board. 

Htten Land, a Malaysian mall operator and property developer said it would install and run 1,000 crypto rigs on its Malaysian properties. 

The Realtor signed an agreement with Singapore-based Frontier Digital Asset Management to carry out the operations and initially, the rigs will mine Bitcoin and will also include alternative coins in the future. Further Hatten Land is also undertaking solar energy-based green crypto mining and is looking to include tokens and non-fungible tokens (NFTs) and other digital initiatives.  

Historical Events & Announcements

28-12-2021: Malaysia’s Security commission announced more than MYR16 billion (USD3.85 billion) in digital assets and cryptocurrencies traded between August 2020 and 2021 of September. The Internet has also experienced several advances with crypto and blockchain technology leading at the same time. 

04-04-2020:– Malaysia based cryptocurrency platform, Tokenize Malaysia obtained the license from the regulatory bodies to operate legally in Malaysia.

28-03-2020:– Binance announced its own debit card and also said the initial testing will be carried out in Malaysia.

19-01-2020:- The Securities Commission Malaysia publishes guidelines on digital assets.

17-01-2020:- Malaysian Securities Commission published a regulatory framework declaring the Initial Coin Offerings(ICOs) as illegal and the Initial Exchange Offerings (IEOs) as the only legal means of conducting the token sales.

23-12-2019:- At a summit attended by the Muslim Countries, the Iranian president proposed in the creation of a Muslim Cryptocurrency to cut the dependence on the US Dollar. Malaysian Prime Minister Mahathir Mohamad is open to the idea of a unified Muslim Cryptocurrency.

06-11-2019:- Major bank HSBC has announced the enactment of a letter of credit (LC) on blockchain in Malaysia.

15-01-2019:- Malaysian’s Securities Commission announced new digital currency and digital token regulatory rules. The SC also mentioned working with the Central Bank to develop a regulatory framework for digital assets.

22-03-2018:- According to a report Published, by the deputy Governor of the Central Bank of Malaysia, Jessica Chew Cheng Lian in a speech discussed the country’s desire to implement the Fintech and Blockchain technologies in the banking sector. She also said, nine banks have collaborated to develop blockchain applications for trade finance.

06-11-2017:– The Chairman of the Securities Commission at a finance conference said that the commission is working closely with the Central bank, Bank Negara Malaysia to work on the regulations and guidelines on digital assets and cryptocurrencies. The chairman also said that they are working on a pilot program to research distributed ledger technology.

02-01-2014:- Central Bank of Malaysia announced that cryptocurrencies are not recognized as a legal tender and it does not regulate their operations. It also cautioned the public about the risks involved in dealing with cryptocurrencies.

Conclusion

After the financial crisis of the Covid pandemic which led to losses in monetary reserves, people started stepping towards a secure replacement of cryptocurrencies seen as an alternative. Over the last twelve years, cryptocurrencies have consciously grown in value and recognition as a digital currency. 

The Malaysian Government has a warm approach to cryptocurrency and its business in the country. No doubt they have implemented the necessary regulations, but still, the taxation policy on them is unclear. The future of cryptocurrencies in the country would be still brighter when firm rigid regulations and laws are implemented. 

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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