Finally, we found one reason for the local blockchain industry to be happy about!

by Edmund Yong and Gan Ming Chiek

Relax, this is not click bait. We won’t patronize our nervous Malaysian readers with one of those “glass half full” prep talks.

Consider this:

  • Premise 1: All crypto tokens are now classified as securities in Malaysia.
  • Premise 2: There is generally no capital gains tax (CGT) on the profit arising from disposal of securities in Malaysia.
  • Therefore: Your income from crypto gains may likely not be taxable, if you invest long term!

Happy? 🙂

First of all, we should disclaim that this is merely an opinion for academic discussion and not intended to be professional advice. Things will likely change and we do not want to be faulted for giving the taxman any ideas!

For those who are wondering what the fuss is all about, this will bring you up to speed:

The Ministry of Finance prescribed an Order[1] earlier this week that essentially classifies digital currencies and digital tokens that contain certain general elements as ‘securities’.[2] Judging from the response, the industry seems to be blindsided by it. All coin offerings and exchange activities have now grounded to a halt. If not they will be liable for imprisonment and/or multi-million dollar fines. Further guidelines are not available until the end of March 2019.

At the outset, the Order is wide enough such that most digital currencies and digital tokens including Bitcoin (BTC) and Ether (ETH) will be considered as securities, a position that the US SEC (Securities Exchange Commission) has departed from.[3] Similarly, BTC and ETH are not considered as securities by Switzerland FINMA and Singapore MAS. There is also no taxonomy given under the Order to separate out conventional payment tokens or utility tokens from security tokens.

So this means that Ripple which is being piloted by CIMB, the second largest anchor bank in the country, as a settlement coin, may now be deemed a security.[4] NEM, the large blockchain platform which issues and processes its native token XEM, may be seen as “dealer in securities” and/or “acting as clearing house”, either of which activities requires a CMSL (Capital Market Services) license. If the budget airline AirAsia had tokenized its loyalty program, then Big Points would be securities.[5] So would the USD 500 million stablecoin issued by Ho Wah Genting, the travel and entertainment giant.[6] As would the proposed Horse Coin by real estate developer Country Heights – though as a billion-ringgit “asset-backed token”,[7] it is already within the ambit of “capital market products” under the Capital Markets and Services Act 2007.

The key implication of categorizing all such digital currencies and digital tokens as securities is that any person who intends to make available, offer for subscription or purchase, or issue an invitation to subscribe for or purchase the offering of such digital currencies or digital tokens requires authorization from the Securities Commission of Malaysia (SC) and register with SC a disclosure document (also known as prospectus or information memorandum) containing all information and particulars as may be prescribed by the SC.

Despite being digital tokens, the popular MOL Points that is used for recreational online gaming, may not be securities under the Order as it is “not recorded in a distributed ledger or cryptographically secured”. Central bank digital currencies (CBDC) are exempted too like the Venezuelan Petro or Swedish e-Krona, as well as tokenized instruments like those used in Project Inthanon (Thailand), Ubin Phase 1 and Phase 2 (Singapore), Jasper (Canada) and the local Castor (Malaysia).[8] Government issued ones like the Harapan Coin, used for political donations, is presumably safe as well.[9]

At closer reading, the elements that determine a digital token as ‘security’ in the Order is very similar to those crafted for interest schemes or better known as CIS (collective investment scheme) as prescribed under the Interest Schemes Act 2016. There are the usual suspects like expectation of return, pooling of funds, absence of management control – which one can also find in the oft-quoted Howey Test. Some regulators are moving towards the Hinman Test as a viable alternative,[10] because it is hard to fit square pegs into round holes i.e. using existing legal frameworks for securities to oversee digital assets that run on decentralized networks and consensus mechanisms.

Now for the crunch:

The definition given for “digital currency” in the Order by MOF synchronizes with the one set by central bank BNM (Bank Negara Malaysia) last year for its Sector 6 Digital Currencies guidelines. It is also very similar to the ones stipulated by FATF (Financial Action Task Force) which calls it “virtual asset”,[11] and EBA (European Banking Authority) which calls it “crypto-asset”.[12] G20 leaders in March 2018 have by consensus adopted the term “crypto-asset”. Although the FATF, G20’s FSB (Financial Stability Board) and IOSCO (International Organization of Securities Commissions) are all moving towards unified regulations, the respective national tax treatments still diverge.

Here in Malaysia: it looks like the word ‘currency’ is just a label as it is governed like a ‘security’. So the question is: will it be a ‘currency’ and taxed like ‘income’, or will it be taxed like a ‘security’ which is characteristically closer to an ‘asset’? Perhaps there will be less confusion if they just standardize and call it “digital asset” rather than “digital currency”.

Assuming that it is indeed a ‘security’ for purpose of taxation, there’s still a need to ascertain whether the “securities” are held for investment or trading purposes. Where the securities are regularly traded, the trading gains will likely be subject to income tax. However, where it can be demonstrated that the securities are held for long term investment, then arguably, any gains on the sale of the securities should be capital in nature and hence, not subject to income tax.

There are other potential avenues for tax however, now that there is SST (Sales & Service Tax). Some two weeks ago before the ruling, the SST-chargeable activities have been expanded to include securities brokerage and underwriting.[13] Taxing this at activity level may also be more practical as the Malaysian tax code is “source-based”, which makes it hard to capture borderless digital assets; unlike other regimes like USA which uses “worldwide income”. In addition, the Malaysian government had previously mentioned that the tax on digital economy in Malaysia will be the next big thing in the Malaysian tax arena. It takes time to revamp the tax code and the Malaysian government has indicated that a tax reform committee will be set up to review tax policies on a holistic manner to make taxation more progressive in Malaysia. Given the current circumstances, it would seem like the crypto industry can eke out a silver lining after all especially for the ‘hodlers’, even if the silver lining may be short lived.

Happy new year folks!



[2] Both digital currency and digital token which fall under the purview of the Order are ‘securities’, the only difference is that the former “functions as a medium of exchange and is interchangeable with any money”.






[8] Or “by any government or central body as may be specified by the Commission” as per Para 3(2)(f) CMS Order 2019.




[12] EBA Report, Report with Advice for the European Commission on Crypto Assets, 9 Jan 2019, section 1.4