Malaysia

**Bank Negara Malaysia (BNM) Policy Document on Anti-Money Laundering, Counter-Terrorism Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS Policy Document):** This is the primary document.

Specifically, **Paragraph 10.1.2** states: "A reporting institution that conducts virtual asset transfers shall apply the obligations outlined in this policy document relating to funds or wire transfers to virtual assets." This explicitly extends the Travel Rule to virtual assets.

**Securities Commission Malaysia (SC) Guidelines on Digital Assets:** These guidelines govern Digital Asset Exchanges (DAX) and other entities dealing with digital assets. They mandate compliance with BNM's AML/CFT framework.

**Section 9 (Anti-Money Laundering and Counter-Terrorism Financing):** Requires registered Digital Asset Exchanges (DAX) to comply with the AMLA and BNM's AML/CFT and TFS Policy Document.

**Official URL (latest version):** Search for "SC Guidelines on Digital Assets" on www.sc.com.my.

**Cross-Border Transfers (both traditional and virtual assets):** All required originator and beneficiary information must be obtained and transmitted, **regardless of the amount**.

**Domestic Transfers (both traditional and virtual assets):**

For transfers **equal to or exceeding RM3,000 (or equivalent in foreign currency/virtual assets)**: All required originator and beneficiary information must be obtained and transmitted.

For transfers **below RM3,000 (or equivalent)**: Reporting institutions are permitted to omit certain information (e.g., originator's address or national identity number, beneficiary's address), provided they can produce this information within 3 working days if requested by authorities.

**Digital Asset Exchanges (DAX) registered with the Securities Commission Malaysia:** These are explicitly identified as VASPs and reporting institutions under the SC's guidelines and are thus fully covered.

**Other entities providing VASP services** (e.g., crypto custodians, issuers of certain virtual assets, brokers dealing in virtual assets) would be covered if their activities fall within the definitions of "financial institutions" or "reporting institutions" under the AMLA or are otherwise regulated by BNM or SC.

**Information Collection:** VASPs must collect the required originator (sender) and beneficiary (recipient) information, including names, account numbers (or wallet addresses), and physical addresses or national identity numbers/customer identification numbers.

**Information Holding:** This information must be securely stored and readily retrievable.

**Information Transmission:** The collected information must be transmitted to the beneficiary VASP during or before the virtual asset transfer.

**Sanctions Screening:** Both originator and beneficiary information must be screened against relevant sanctions lists.

**Record Keeping:** Records of all transactions and the associated Travel Rule data must be maintained for a prescribed period (typically at least 7 years under AMLA).

**Risk-Based Approach:** VASPs are expected to adopt a risk-based approach to assess and mitigate ML/TF risks, which includes enhanced due diligence where appropriate.

**Fines:** Significant monetary penalties, which can run into millions of Ringgit for entities.

**Imprisonment:** Individuals (e.g., directors, compliance officers) found responsible for non-compliance may face imprisonment.

**Revocation or Suspension of Licenses:** For regulated entities like DAXes, their licenses can be revoked or suspended by the SC or BNM.

**Reputational Damage:** Significant damage to the VASP's reputation.

**Enforcement Actions:** BNM and SC have the power to issue directives, impose administrative penalties, or take other enforcement actions.

**Business Income (Taxable):** If an individual or company engages in systematic, repetitive, and organized trading activities with the intention of profit, it will likely be treated as a "business" under Section 4(a) of the ITA 1967.

**Indicators of a "Business" (Adventure in the Nature of Trade):**

**Frequency and volume of transactions:** High frequency and volume suggest trading.

**System and organisation:** Use of sophisticated trading strategies, dedicated software, or a structured approach.

**Duration of ownership:** Short holding periods.

**Financing:** Use of borrowed funds for trading.

**Nature of the asset:** While crypto itself isn't productive, the intent behind its acquisition and disposal matters.

**Taxpayer's motive:** Clear intention to make a profit from buying and selling.

**Activities likely treated as business income:**

Active day trading or swing trading of cryptocurrencies.

Operating a cryptocurrency mining farm commercially.

Providing services paid in cryptocurrency.

Earning income from staking, lending, or yield farming activities done systematically for profit.

Receiving cryptocurrency as a salary or remuneration for services rendered.

**Investment Income (Generally Not Taxable for Individuals):** If cryptocurrencies are acquired and held for long-term appreciation with no intention of frequent trading, and they are disposed of infrequently, the gains are generally considered capital gains, which are not taxed in Malaysia for individuals (see Capital Gains Tax section below).

**Activities likely treated as investment income:**

Holding a small portfolio of various cryptocurrencies for several years, with infrequent sales.

Buying and holding for a specific long-term goal (e.g., retirement).

**Trading Gains:** If determined to be a business, profits derived from buying and selling cryptocurrencies are taxable as business income.

**Mining:** If conducted commercially (i.e., with an intention to profit, involving significant investment and systematic activity), the profits from mining are taxable as business income.

**Staking/Lending Rewards:** Income received from staking (participating in proof-of-stake networks) or lending cryptocurrencies is generally taxable. The classification (business income vs. other income under Section 4(f) ITA 1967) depends on the scale, frequency, and intent. If it's part of a systematic activity for profit, it's likely business income.

**Airdrops/Forks:** The tax treatment can be complex. Generally, if an airdrop or hard fork results in the receipt of new tokens that have market value, this could be considered income at the time of receipt, particularly if it's related to existing taxable activities.

**Salaries/Wages Paid in Crypto:** If an employee receives cryptocurrency as part of their employment remuneration, it is considered taxable employment income and must be converted to its Ringgit Malaysia (RM) equivalent at the time of receipt.

**Goods/Services Paid in Crypto:** If a business receives cryptocurrency as payment for goods or services, the RM value of the crypto at the time of receipt is considered business income.

**Individuals:** Subject to progressive income tax rates ranging from 0% to 30% (for resident individuals), depending on their total chargeable income. Non-resident individuals are taxed at a flat rate of 30%.

**Companies:** Subject to corporate income tax rates.

SME (Paid-up capital up to RM2.5 million and gross income up to RM50 million): 17% on the first RM150,000 of chargeable income, and 24% on the subsequent chargeable income.

Non-SME: 24% on all chargeable income.

Internet and software subscriptions used for trading/mining.

Professional fees (e.g., for tax advice on crypto business).

**For Individuals:** Gains from the disposal of cryptocurrencies, when they are genuinely held as long-term investments and not part of an "adventure in the nature of trade," are generally considered capital gains and are **not subject to income tax**.

**For Companies:** While companies are generally subject to corporate income tax on profits, gains from the disposal of movable properties (including crypto) are typically treated as capital gains and are not taxed, *unless* the company's ordinary course of business involves dealing in such assets, in which case it would be treated as revenue income.

**Real Property Gains Tax (RPGT):** This is a specific tax on gains from the disposal of real property (land and buildings) and shares in real property companies. It is **not applicable** to cryptocurrencies.

**Sales Tax:** This is a single-stage tax on taxable goods manufactured in Malaysia or imported into Malaysia. **Cryptocurrency is not considered a 'good' for sales tax purposes.** Therefore, sales tax is not applicable to the buying or selling of cryptocurrency itself.

**Service Tax:** This is a tax on certain prescribed services provided by registered businesses in Malaysia.

**Cryptocurrency Transactions Themselves:** The direct buying and selling of cryptocurrency is generally **not subject to service tax**, as it is not a prescribed taxable service.

**Related Services:** However, services provided by Digital Asset Exchanges (DAXs) or other businesses related to cryptocurrency (e.g., transaction fees, platform fees, custodial services, advisory services) **may be subject to service tax (6%)** if the service provider is a registered person under the Service Tax Act 2018 and the service falls under a taxable category. For example, financial services are generally exempt, but certain related services might not be.

If income from cryptocurrency activities is deemed taxable (e.g., as business income or employment income), individuals are required to declare this income in their **Annual Income Tax Return (Form B or Form P)**.

The income should be converted to its Ringgit Malaysia (RM) equivalent at the time of the taxable event (e.g., when received, when sold for profit).

**Record-keeping:** Individuals must keep detailed records of all cryptocurrency transactions, including:

Date of acquisition and disposal.

Companies or businesses engaging in taxable cryptocurrency activities must declare this income and any deductible expenses in their **Annual Income Tax Return (Form C)**.

Financial statements should reflect the cryptocurrency assets and related transactions appropriately.

**Record-keeping:** Businesses must maintain comprehensive records similar to individuals, but also including:

Full accounting records in compliance with accounting standards.

Audit trails for all crypto transactions.

Policies and procedures related to virtual asset management.

**Compliance with Regulatory Bodies:** Businesses operating Digital Asset Exchanges (DAXs) or offering digital assets must comply with reporting requirements set by the Securities Commission Malaysia (SC) and Bank Negara Malaysia (BNM) for Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT). This includes reporting suspicious transactions.

**Securities Commission Malaysia (SC):** Regulates digital asset exchanges (DAXs), initial coin offerings (ICOs), and the offering of digital assets that are deemed securities. The SC aims to protect investors and maintain market integrity.

*Reference:* **Securities Commission Malaysia's Guidelines on Digital Assets.** https://www.sc.com.my/regulation/guidelines/digital-assets

**Bank Negara Malaysia (BNM):** Focuses on the financial stability implications of digital assets and plays a key role in developing regulatory frameworks for anti-money laundering and counter-financing of terrorism (AML/CFT) related to virtual assets.

*Reference:* **Bank Negara Malaysia's Policy Document on Anti-Money Laundering, Counter-Terrorism Financing and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs).** While not crypto-specific, it includes virtual asset service providers (VASPs) under its scope. https://www.bnm.gov.my/documents/20124/960529/PD_AML_CFT.pdf (Check BNM's official website for the latest version).

**Inland Revenue Board of Malaysia (LHDN / IRBM):**

**Guidelines on Digital Assets:** https://www.sc.com.my/regulation/guidelines/digital-assets (Crucial for understanding the regulatory framework, even if not directly tax-related).

**As E-Money/Payment Token (Regulated by Bank Negara Malaysia - BNM):**

**Criteria:** If a stablecoin functions as a widely accepted medium of exchange, stores value, and is used for payment purposes, it is likely to be classified as **e-money** under the **Payment Systems Act 2003 (PSA)** and the **Financial Services Act 2013 (FSA)**.

**Key Consideration:** BNM's **Guidelines on E-Money (BNM/RH/GL 002-7)** define e-money as monetary value represented by a claim on the issuer, stored electronically, issued on receipt of funds, and accepted as a means of payment by persons other than the issuer.

**Payment Systems Act 2003:** https://www.bnm.gov.my/documents/20124/960537/Payment+Systems+Act+2003.pdf

**Financial Services Act 2013:** https://www.bnm.gov.my/documents/20124/960537/Financial+Services+Act+2013.pdf

**Guidelines on E-Money (updated 2021):** https://www.bnm.gov.my/documents/20124/938096/Guidelines+on+E-Money.pdf

**As Securities/Digital Token (Regulated by Securities Commission Malaysia - SC):**

**Criteria:** If a stablecoin is structured to represent an interest in a company, debt, or an asset, or is offered as an investment product where buyers expect a return, it may be classified as a **security token** or **digital token** under the **Capital Markets and Services Act 2007 (CMSA)**.

**Key Consideration:** The SC's **Guidelines on Digital Assets** define "digital assets" and "digital tokens" and outline the circumstances under which they are considered "securities." The crucial test is whether the token falls within the definition of "securities" in the CMSA, which includes shares, debentures, units in a collective investment scheme, and derivatives.

**Capital Markets and Services Act 2007:** https://www.sc.com.my/api/documentms/download.ashx?id=e74c7e3f-671c-4235-8663-e387c932a39a

**Guidelines on Digital Assets (Revised 2020):** https://www.sc.com.my/api/documentms/download.ashx?id=80a0669e-d716-43b8-80f2-e6e23259e8f0

**Framework for Digital Assets:** https://www.sc.com.my/regulation/guidance/guidance-note-on-digital-assets

While not explicitly termed "reserve requirements" for stablecoins, e-money issuers are subject to stringent safeguarding requirements under the Guidelines on E-Money. These include:

**Segregation of Funds:** Funds received for the issuance of e-money must be safeguarded and clearly separated from the issuer's own funds.

**Placement in Trust Accounts:** These funds typically need to be placed in trust accounts with licensed financial institutions, ensuring their availability for redemption.

**Capital Adequacy:** E-money issuers must meet minimum capital funds requirements, usually RM 5 million (for non-bank entities).

These measures ensure that the value of e-money (and thus a stablecoin classified as e-money) is fully backed and can be redeemed at par value.

**For Security Token Stablecoins (SC):**

There are no specific "reserve requirements" for the tokens themselves similar to e-money. However, the issuer of a security token would be subject to:

**Disclosure Requirements:** Comprehensive disclosure of the underlying assets, risks, and terms of the security.

**Issuance Rules:** Compliance with all capital market rules for offering and issuing securities, including potentially prospectus requirements, depending on the nature of the offer.

**Capital Requirements:** Entities involved in capital market activities (e.g., Digital Asset Exchanges, fund managers managing such assets) are subject to capital adequacy requirements set by the SC.

Any entity wishing to issue a stablecoin classified as e-money must obtain an **e-money issuer license** from Bank Negara Malaysia under the PSA. This process involves thorough due diligence, assessment of financial soundness, risk management capabilities, and compliance with all relevant guidelines.

**Issuance:** If a stablecoin is deemed a security, its issuance would fall under the CMSA. This may require SC approval for public offers, or adherence to specific exemptions.

**Trading:** Operators of platforms facilitating the trading of such stablecoins (if classified as securities) must be registered and licensed as **Digital Asset Exchanges (DAX)** by the SC. As of now, these are restricted to trading only specific types of digital assets approved by the SC.

Users of e-money (and thus stablecoins classified as such) have a statutory right to redeem their e-money for fiat currency (Ringgit Malaysia) at par value upon demand, subject to any prescribed terms and conditions related to minimum redemption amounts or processing fees. This right is fundamental to the e-money framework.

Redemption rights would depend entirely on the specific terms and conditions stipulated in the whitepaper, offering document, or smart contract of the security token itself. If it represents a debt, redemption would be governed by the debt instrument's terms. If it represents an equity interest, redemption might not be applicable in the same way.

Malaysia has **no specific rules or guidelines** addressing algorithmic stablecoins.

Given the "substance over form" approach, algorithmic stablecoins would likely face significant regulatory hurdles:

They would **not qualify as e-money** due to the lack of stable, fiat-backed reserves, making it difficult to guarantee par value redemption.

They might be considered **securities** if offered as an investment opportunity with an expectation of profit, but their inherent volatility and complex stability mechanisms could pose significant investor protection concerns for the SC.

Generally, regulators are highly skeptical of algorithmic stablecoins due to their inherent risks and past failures, making approval or classification under existing frameworks very challenging.

**Coexistence/Complementarity:** Well-regulated, fiat-backed stablecoins could potentially coexist with a CBDC, serving specific niches (e.g., cross-border payments, specific industry use cases) that a CBDC might not fully address immediately.

**Competition/Substitution:** A retail CBDC could potentially reduce the demand for private stablecoins if it offers similar benefits (efficiency, accessibility) with the added trust of central bank issuance.

**Regulatory Alignment:** BNM's research into CBDC will likely inform future policy directions for private digital currencies, including stablecoins, aiming for a consistent and robust digital payment ecosystem.

BNM's statements on CBDC exploration (search for "BNM CBDC" on their official website): https://www.bnm.gov.my/publications/digital-currencies