Bitcoin investment – Will LHDN tax you?


Each year around the time of March, Malaysians will be fulfilling their obligations to fill up their annual tax assessments with LHDN (Lembaga Hasil Dalam Negara). In other words, it is INCOME TAX time!

No difference in money markets

Like every other form of investment that you might be into, any form of gain is considered as an income and hence it has to be reported. However, the grey areas of cryptocurrency are still something that is up for debate. There have been reports that until a clear basis of this investment comes about, BTC holders might not be taxed. The value of BTC has been extremely volatile in the first quarter of 2021 with holders almost tripling their earnings.

Filling up the Income Tax Form

Prior to this, there has been a lot of talk about where cryptocurrencies fall under when it comes to the income tax form. One reliable source stated that it could be under the ‘other income’ category. However, it is still too wide to be defined as such. Digital currency or token however falls under the scope of e-commerce transactions, and that are under the guidelines provided by LHDN. In other words, activities like buying and selling cryptocurrencies could well be under this umbrella. Again, the situation is way too broad as LHDN does not state how the taxes will be calculated.

A report was published in 2020 that stated that Malaysia, together with Switzerland, Singapore, Belarus, Portugal and Malta has yet to imposed aby tax on digital assets. With the recognition of Luno, Tokenize and SYNERGY as authorized digital asset exchanged (DAXs) in Malaysia, this is expected to change.

What does LHDN say?

The latest statement from LHDN has cited Section 3 of the Income Tax Act 1967 where cryptocurrency traders will have to declare any gains made from such investments. This will be done and treated as income generated from businesses. It also stated that this only applies to those who are actively trading cryptos. If it is a passive income or non-systematic or is a capital gain, then the trade is not taxable. Hence, they will be looking at this on a case-by-case basis.

Individuals who are trading cryptos actively or using a systematic and planned approach will be considered as a profession and would be required to fill up Form B for those who are conducting business. This means that expenses related to carrying out the activities can be taken into consideration for tax deductions.

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