Security tokens are gaining mass adoption now and have the potential to ease up a number of processes on the financial market: dividend payments, vesting periods, distributions, shareholder voting, you name it. But the regulatory framework for STO can be a bit confusing. In this article, we want to help you understand taxation for STO in Malta.
On November 1, 2018, the Malta Commissioner for Revenue has issued three guidelines on the income tax, stamp duty and VAT treatment of transactions with DLT Assets. In the case of security token offering, we focus only on so-called financial tokens. Under these guidelines, financial tokens include DLT Assets exhibiting qualities that are similar to equities, debentures, units in collective investment schemes, or derivatives and Financial Instruments.
Income Tax of transactions or arrangements involving DLT assets
According to the Malta Commissioner for Revenue, the income tax treatment of DLT assets follows the rules of the Income Tax Act. There are three main things we have to point out:
- Returns derived from financial tokens, whether received in fiat or in cryptocurrency should be treated as income.
- Treatment of proceeds from the disposal of a financial token will depend on whether it is a transaction of trading or capital nature. Whilst trading profits are taxable, capital gains are only taxable if the token recognized as security in terms of the Income Tax Act.
- The market value of transactions involving DLT Asset should be determined based on the rate established by the relevant Maltese authority or the average price quoted on reputable exchanges.
The stamp duty treatment of transactions involving DLT assets
The stamp duty treatment of transactions involving DLT assets is determined in accordance with the Duty on Documents and Transfers Act. If the tokens have the same characteristics as “marketable securities” as defined in the Duty on Documents and Transfers Act, they shall be subject to stamp duty.
Guidelines for the VAT Treatment of transactions or arrangements involving DLT assets
The VAT guideline document establishes that in the case of financial tokens issued in order to raise capital (such as STO event), the issue would not give rise to any VAT implications as the raising of finance in itself should not be treated as a supply of goods or services for consideration.
Whilst the guidelines issued provide for clarity in the application of existing rules and regulations, each case must be treated separately to establish the income tax, VAT and stamp duty treatment of a transaction taking into account activities, the status of the parties involved in the transaction and other specifics of the particular case.
We hope that this article helped you understand the taxation of STO in Malta. If something is still unclear to you, feel free to address your question at [email protected] or in out Telegram chat, we are always happy to help.