Malta - Remittance Basis of Taxation as a Trader vs. Corporate Structure

[Definy99]

Hello,

I am currently thinking about moving to Malta (currently living in a high tax EU country). I am trading/staking cryptos and with the profits I am making I am considering moving to Malta this year before June to be able to stay more than 183 days in Malta to be taxable in Malta (my country has a double tax treaty with MT). I was wondering if I really needed a corporate structure or if I could just go for the remittance tax, pay the 5k to get the resident status and not remit anything to Malta.

What I was wondering is if those crypto trading and staking (DeFi) activities can be considered as "income arising outside of Malta and not being remitted to Malta" if I hold them in my softwallet. If I am non-dom, but resident in Malta can crypto assets which I hold/trade in my hotwallet be considered at "income arising outside of Malta"? Does someone have a clue what the definition of "income arising outside of Malta and not remitted to Malta" looks like?

An accountant adivsed me to create a corporate structure, but I was wondering if I would really need that structure. I guess no accountant would advise you just to pay the 5k and do nothing as they won't get you as a client by that, or at least they wouldn't make much out of you. Also when I asked the tax advisor about that the answer was a bit blur - he was talking about "badges of trade" and that those would be problem with that. I googled about those, but those "badges of trade" are just some factors to differ between capital gains and income - which isn't really the issue from my POV.

I guess one benefit of the corporate structure and paying the 5% tax would be to have a Tax Certificate which can proof the Source of your funds/profits with some piece of paper. But besides that - would one (from a legal point of view) really need a corporate structure when making profits by (crypto) trading/staking/yieldfarming (DeFi)?

And what means "remit to Malta"? If I trade crypto assets and the profits being realised into my hot wallet are they seen as remitted to Malta?
Or are they only seen as remitted to Malta, when I would remit them to a Malta Bank Account?
Can I avoid building a corporate structure?

Thanks in advance!

 

[Piano]

You could also consider Cyprus ...is Malta completely tax free in your case ?

 

[Definy99]

I wouldn't move to Cyprus, only Malta, it has personal reasons (not financial).

As I understood it, you just pay 5k minimum tax and that's it. I have read some post of @jackfrost that it wouldn't even be necessary to declare "income arising outside of Malta if it is not remitted to Malta" and practically that would be why they won't go after it. Maybe @jackfrost could share some of his valuable knowledge / expierence with us.

 

[BeardedNomad]

I wouldn't move to Cyprus, only Malta, it has personal reasons (not financial).

As I understood it, you just pay 5k minimum tax and that's it. I have read some post of @jackfrost that it wouldn't even be necessary to declare "income arising outside of Malta if it is not remitted to Malta" and practically that would be why they won't go after it. Maybe @jackfrost could share some of his valuable knowledge / expierence with us.

Hi,

I would certainly be interested in experienced views on this as relocating to Malta as a crypto trader with 5% tax would be ideal for me.

For reference, I posted my situation here;
Quitting day job to trade crypto - need advice as to what path to take from here

 

[khinkali]

@BeardedNomad I was also chasing the Malta idea today after reading one of the members here simplify it a little too much. It seemed too good to be true.

KPMG: Blockchain Tax Guidelines in Malta

Conversely, where the Coins are transferred as part of a coin exchange business or trade, profits realised from such business would be taxed at the standard Maltese corporate income tax rate of 35%. By the application of structuring options which are available under the Maltese full imputation system, the effective tax rate on such trading income could be reduced to between 5% and nil.

So it looks like Malta might work through a company but as far as you and I are concerned, crypto exchange availability is better as a natural person. And like so many other places, the "crypto is not locally sourced income" argument works for HODLrs, not traders.

Dubai or maybe Georgia can work as a natural person, but again it limits the available exchanges. Let's keep looking.

 

[Definy99]

@BeardedNomad I was also chasing the Malta idea today after reading one of the members here simplify it a little too much. It seemed too good to be true.

KPMG: Blockchain Tax Guidelines in Malta


So it looks like Malta might work through a company but as far as you and I are concerned, crypto exchange availability is better as a natural person. And like so many other places, the "crypto is not locally sourced income" argument works for HODLrs, not traders.

Dubai or maybe Georgia can work as a natural person, but again it limits the available exchanges. Let's keep looking.

The link you posted I have already read some days ago.
If you read it carefully, it is just stating that most crypto profits are seen as "income" from a legal pov. But that's not the question I was asking in this thread. There is not a word about the remittance basis of taxation. It is a legal paper on the matter of how crypto profits are taxed (income/capital gains), but not on where those profits arise. Otherwise they would have differentiated between domicile and non-dom, but resident, and explained whether and how those crypto profits fall under this regime.

In general (apart from crypto) Malta taxes someone who isn't domicile but resident in Malta this way:

• "all income arising in Malta is subject to tax, regardless of where it is received
• income arising outside Malta is subject to Maltese tax only if and to the extent that it is received in Malta
• capital gains arising outside Malta are not subject to tax, even if they are received in Malta"

To be eligble to the remittance taxation system you need to pay a minimum tax of 5.000€ per year (foreign income has to be > 35k€).

You can read in the attached document, which is a doc from the MT gov afair and see what the terms "remitted", "arising in Malta" mean, etc.

To sum it up and simplify: the question of my thread was if someone has expierence if crypto assets that are in a wallet are seen as "located in Malta" - as they are in a Blockchain and in DeFi, I guess the term "located in" isn't the best to describe that.

Also I would like to know if it (practically ) is like @jackfrost says - you pay the 5k minimum tax and then they don't go after you and that's basically it, if you fulfill all other rules you have to be eligble for the remiitance tax.

Hi,

I would certainly be interested in experienced views on this as relocating to Malta as a crypto trader with 5% tax would be ideal for me.

For reference, I posted my situation here;
Quitting day job to trade crypto - need advice as to what path to take from here

My question was exactly the opposite; it was not about the 5% tax system as you need a corporate structure for it and I am not really sure if it is needed in case of crypto trading.
If you are looking for information on this solution, there is a lot in this thread, you would have to read it fully or search for malta on each page : Recommendation Malta or Cyprus?

 

[Definy99]

Here is the link to the document I mentioned: https://cfr.gov.mt/en/inlandrevenue... for Individuals under the Income Tax Act.pdf

 

[khinkali]

but not on where those profits arise

Isn't this the real point though?

If we were talking non-crypto for UK non-dom, Thailand or Georgia then the whole point is that offshore capital gains are not taxed but business activity is. The same asset class could be classed as income or capital gains, depending on some quite woolly interpretations. The simple answer is that passive income doesn't arise locally, but trading income does if the work was done locally. The complex problem is whether it was trading income or capital gain. Thailand cleared it up by claiming that al crypto are local (ugh), Georgia seems to have decided that all crypto is foreign (but are we 100% sure?), and UK have decided that the location follows the location of the owner (even if in a transparent fund...which is nonsensical).

I do not know how these things are interpreted for crypto in Cyprus or Malta; I am intrigued. Right now I am skeptical that active trading in Malta causes profits to arise outside of Malta. The KPMG doc seems to imply the opposite but Google doesn't seem to provide a lot of trustworthy references for this question.

If you can really trade unlimited amounts of crypto from Malta as a natural person on offshore exchanges with any frequency and have it deemed offshore by the Commission For Revenue, then book me a flight right now. I love Malta!

 

[Silvio]

Isn't this the real point though?

If we were talking non-crypto for UK non-dom, Thailand or Georgia then the whole point is that offshore capital gains are not taxed but business activity is. The same asset class could be classed as income or capital gains, depending on some quite woolly interpretations. The simple answer is that passive income doesn't arise locally, but trading income does if the work was done locally. The complex problem is whether it was trading income or capital gain. Thailand cleared it up by claiming that al crypto are local (ugh), Georgia seems to have decided that all crypto is foreign (but are we 100% sure?), and UK have decided that the location follows the location of the owner (even if in a transparent fund...which is nonsensical).

I do not know how these things are interpreted for crypto in Cyprus or Malta; I am intrigued. Right now I am skeptical that active trading in Malta causes profits to arise outside of Malta. The KPMG doc seems to imply the opposite but Google doesn't seem to provide a lot of trustworthy references for this question.

If you can really trade unlimited amounts of crypto from Malta as a natural person on offshore exchanges with any frequency and have it deemed offshore by the Commission For Revenue, then book me a flight right now. I love Malta!

That is exactly the case and I know several people that do exactly that for years. You can do anything in Malta as a natural person on any frequency, trading\investing\crypto etc as long as the accounts are outside of Malta the Commissioner doesn't care about it.

 

[khinkali]

Thanks @maxmmm it is interesting to hear the experiences of people you know. It is worrying when it's hard to find official sources and claims like this are made from a Big4 accounting firm, that agree with the intuition for capital gain vs active trading profits in other places (and I believe, Fx is treated this way in MT):

coins fall outside the scope of income tax and duty, and gains on isolated transfers will not be taxed in Malta. Conversely, where the Coins are transferred as part of a coin exchange business or trade, profits realised from such business would be taxed at the standard Maltese corporate income tax rate of 35%

KPMG: Blockchain Tax Guidelines in Malta

 

[Silvio]

Thanks @maxmmm it is interesting to hear the experiences of people you know. It is worrying when it's hard to find official sources and claims like this are made from a Big4 accounting firm, that agree with the intuition for capital gain vs active trading profits in other places (and I believe, Fx is treated this way in MT):

KPMG: Blockchain Tax Guidelines in Malta

I have never heard ever of someone being taxed a corporate income tax on a crypto transaction being done outside of Malta on a personal account. As long as money is not remitted to Malta there is no tax, this is 100% clear. This link you mentioned doesn't talk at all about remittance, non-residents or any of that and I would take it with a grain of salt. Of course if you want to be paranoid you're welcome to pay more tax, I'm sure they will be happy...

Or rather just call 2-3 accountants and ask them, interesting to see what replies you will get.

 

[khinkali]

@maxmmm You were doing quite well until "if you want to be paranoid". Who has ever wanted to be paranoid?

Honestly I can't tell whether you have found a genuine, scalable solution or if you're just saying that "some people got away with it in the past". I would like to find out that it's the former. If so I'll be delighted. I mean it. Tell me where to send you a case of Krug as a thank you (I'm not joking). If the latter then OK fine that's good for some folk, but not for everyone.

Right now I am thinking about "Advance Revenue Ruling" in Malta. Georgia has similar. I think Cyprus too. That might be more cost effective than meeting 5 different tax lawyers and getting 6 different answers.

 

[glengoolie]

i haven't look into malta but i have in other places, since i do stocks and they are treated essentially the same as crypto. the problem is that plenty of jurisdictions will have 0% CGT but trading(actively buying and selling a security) is considered personal income and CGT does not apply. the problem is that there usually is no definition of what investing and what trading is. some jurisdictions will have it defined in their tax law, like the time between purchase and sale of the security/crypto must be XYZ day and what specific securities it concerns, but most don't. so from what i hear here, if you keep profits outside, you should be fine, but that counts only for CG and if you will trade the crypto, it is work, and subject of income tax. also this remitting of profits sounds a bit like conditional territorial tax scheme which usually is not as straight forward as it sounds. so i would recommend to read the specific laws, if you can.

from my research so far, UAE cannot be beat. Cyprus is an alternative but it is not as simple and you discarded it right away so... good luck.

 

[Silvio]

@maxmmm You were doing quite well until "if you want to be paranoid". Who has ever wanted to be paranoid?

Honestly I can't tell whether you have found a genuine, scalable solution or if you're just saying that "some people got away with it in the past". I would like to find out that it's the former. If so I'll be delighted. I mean it. Tell me where to send you a case of Krug as a thank you (I'm not joking). If the latter then OK fine that's good for some folk, but not for everyone.

Right now I am thinking about "Advance Revenue Ruling" in Malta. Georgia has similar. I think Cyprus too. That might be more cost effective than meeting 5 different tax lawyers and getting 6 different answers.

I think you are over-complicating things. Many of these rulings and online articles do not mention non-doms which is the whole point.

Just call a few local accountants, most of them (esp the small-middle ones) will be happy to help without charging you anything. Let me know how it goes and I will let you know the address for the Krug

 

[Silvio]

i haven't look into malta but i have in other places, since i do stocks and they are treated essentially the same as crypto. the problem is that plenty of jurisdictions will have 0% CGT but trading(actively buying and selling a security) is considered personal income and CGT does not apply. the problem is that there usually is no definition of what investing and what trading is. some jurisdictions will have it defined in their tax law, like the time between purchase and sale of the security/crypto must be XYZ day and what specific securities it concerns, but most don't. so from what i hear here, if you keep profits outside, you should be fine, but that counts only for CG and if you will trade the crypto, it is work, and subject of income tax. also this remitting of profits sounds a bit like conditional territorial tax scheme which usually is not as straight forward as it sounds. so i would recommend to read the specific laws, if you can.

from my research so far, UAE cannot be beat. Cyprus is an alternative but it is not as simple and you discarded it right away so... good luck.

You too are over-complicating things.

Read the guide written by the Maltese Inland Revenue themselves:
https://cfr.gov.mt/en/inlandrevenue... for Individuals under the Income Tax Act.pdf
1.5. Under the remittance basis of taxation -
- all income arising in Malta is subject to tax, regardless of where it is received
- income arising outside Malta is subject to Maltese tax only if and to the extent that it is
received in Malta
- capital gains arising outside Malta are not subject to tax, even if they are received in
Malta
1.6. Persons who are not resident in Malta are subject to tax only on income arising in Malta
(territorial basis).

Super clear. I don't see how this can be confusing.

 

[glengoolie]

I am trading/staking cryptos and...

What I was wondering is if those crypto trading and staking (DeFi) activities can be considered as "income arising outside of Malta...

no. as i have said above. i know nothing about malta, no matter what max says, i doubt they would be the only country in the entire world that would work differently than all other countries. if i am wrong, i am moving there tomorrow.

 

[glengoolie]

max, this is on the website you linked:

The general basis of personal taxation in Malta is that if, you are domiciled and ordinarily resident in Malta you should declare all your income (including that of your spouse and dependent children) from whatever source. If you are either not domiciled or not ordinarily resident in Malta you should declare all income accruing to you in Malta or derived from Malta (including that of your spouse and dependent children), as well as any income which was remitted to Malta.

so i think this is the source of confusion. if you just go to malta for tax residency and you won't earn money in there, yes, you pay nothing, obviously. but your home country will claim your worldwide income sans malta. that is how residency works. that's why you have to move away from your home country for good, not just visit another country for tax residency.

it is like with usa's citizenship based taxation. but normal countries work on residency taxation principle so you are taxed on worldwide income in the country of your residence. if you go away and become tax resident elsewhere, you will be taxed there only on local source of income but the worldwide source of income is still subject of taxation in your country of residence.

so you have to move to malta to live there and to have residency there in order for your previous "home" country leave you alone. but even then in malta you would pay normal income tax from trading as i have described above. hence why only UAE is real option.

again, correct me if i am wrong. i too am seeking solutions for the same problems.

 

[Silvio]

max, this is on the website you linked:


so i think this is the source of confusion. if you just go to malta for tax residency and you won't earn money in there, yes, you pay nothing, obviosuly. but your home country will claim your worldwide income sans malta. that is how residency works. that's why you have to move away from your home country for good, not just visit another country for tax residency.

What are you talking about, did I ever mention "just visiting for tax residency" in any of my posts? Thank you for explaining how residency works, I'm well aware of that...

 

[glengoolie]

i was responding to definy while mentioning information from website you posted.

 

[Almouk]

What I was wondering is if those crypto trading and staking (DeFi) activities can be considered as "income arising outside of Malta and not being remitted to Malta" if I hold them in my softwallet. If I am non-dom, but resident in Malta can crypto assets which I hold/trade in my hotwallet be considered at "income arising outside of Malta"? Does someone have a clue what the definition of "income arising outside of Malta and not remitted to Malta" looks like?

This is what Malta Inland Revenue Department considers:

“Any trading income that is made while one is residing physically in Malta is considered as income arising in Malta and taxable in Malta.”