Malta Emerges as World's Cryptocurrency Hub Despite EU's TAX3 Investigation: Expert Take

At the workshop Professor Robby Houben presented the legal context of virtual currencies and blockchain and mapped the implications for financial crime, money laundering and tax evasion, including against the backdrop of the newly adopted EU Anti-money laundering legislation.

Accordingly, TAX3 was established by the European Parliament on March 1, 2018 in response to continued revelations over the last five years via LuxLeaks, the Panama Papers and the Paradise Papers which shed light on the rampant tax evasion, money laundering and corruption at EU Member States, that have independent citizenship programs, tax and policies.

At the end of this period, it will submit a report with findings and recommendations to do more to fight tax crimes, tax evasion and tax avoidance in EU to set the stage for fairness in tax competition with many EU Member States.

Many exchanges from Asia and EU after shopping around for the most tax and regulatory lenient crypto jurisdiction have set up shop in Malta.

As a result, according to a study conducted by Morgan Stanley, Malta now accounts for the largest share of cryptocurrency trading volume in the world.

Muscat ties Malta's success to becoming a member of EU's Blockchain Partnership; it's three new cryptocurrency bills adopted by parliament on April 24; as well as it's favorable crypto tax policy.

In explaining Malta's tax policy, three MEPs, David Casa, Roberta Metsola and Francis Zammit Dimech said "We will never allow the EU to decide on behalf of the Maltese people on how to run our tax systems. That was, still is, and must remain, the competence of the respective governments."

"Maltese has no tax legislation regulating cryptocurrencies as a medium of exchange. Only if the sale of cryptocurrency is done on a habitual basis and/or the length of ownership is very short, the consideration of the sale may be considered as being income and therefore subject to income tax at 5 percent" said Dr. Mariella Baldacchino B.A, LL.D of E&S Consultancy.

"The Maltese Value Added Tax Department follows the European Court of Justice judgment in Hedqvist. Therefore, transactions to exchange fiat currencies for units of cryptocurrency and vice versa are exempt from VAT as well" added Baldacchino.

The US customers/investors of Maltese crypto-exchanges/crypto-funds should keep in mind their US tax obligations, including Foreign Account Tax Compliance Act and Report of Foreign Bank and Financial Accounts tax reporting requirements as reiterated by the AICPA in its second letter to the IRS.Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD..