Company Requirements

Before applying for and obtaining a cryptocurrency trading license, service providers must meet the following requirements.

• The applicant's minimum authorized capital should be EUR 730,000.

• The applicant company has a physical office in Malta.

• The company’s directors, senior executives, and KYC/AML officers must comply with the regulator’s requirements

• A corporation must have at least two persons serving as directors or members of the board of directors.

• An AML/KYC officer is required

Financial licenses are divided into four categories. Cryptocurrency falls under the fourth category, which covers all terms of VFA services and the control or storage of customer funds related to the provision of VFA services.

Application Fees

When applying for a Malta cryptocurrency license, companies will need to pay a fee of €24,000.

Requirements

Licensed cryptocurrency companies that hold client funds must appoint a custodian – a credit institution or bank. All assets must be held in fiat currency.

Protecting customer assets

Each VFA exchange must implement a management mechanism to protect its customers' assets. VFA exchanges must appoint an officer with sufficient skills and authority to be responsible for matters related to compliance and obligations to protect customer assets.

Taxation of Cryptocurrency Companies in Italy

Profits derived from crypto activities are considered profits of the company. Malta crypto companies are subject to a 35% corporate profit tax rate payable by the licensee to the relevant tax authorities on profits derived from services provided. It is important to note that in each specific case, a number of tax exemptions may apply, thereby reducing the corporate tax payable. Learn more about Cryptocurrency Taxation in Malta.

Reporting requirements

According to Article 50 (6) of the VFAA Act, cryptocurrency companies holding a license are required to provide an external audit report at least once a year. The fee for processing a system audit report in the MDIA is €3,000.

Annual license fee

In Malta, the cost of a cryptocurrency trading license also includes an annual regulatory fee. Companies holding a cryptocurrency license must pay an annual regulatory fee to the MFSA, the amount of which will depend on the revenue earned by the license holder, as follows:

• Up to €1,000,000 and an annual regulatory fee of €50,000.

• For profits exceeding EUR 1,000,000, an additional EUR 5,000 is added for every additional EUR 1,000,000 of profits.

To date, fewer than 20 companies have obtained a cryptocurrency license in Malta.

Current law in Malta

The VFA Act provides a framework for virtual financial assets, including ICOs, and entities that transact with them, such as virtual asset exchanges, investment advisors, wallet providers, brokers, and portfolio managers.

Malta has adopted a financial instrument test that anyone intending to launch an ICO in or from Malta must undertake to determine the type of asset being created and the laws applicable to the ICO and the tokens themselves. If the asset is defined as a “virtual financial asset” or “VFA” (defined as any form of digital medium of record used as a digital intermediary, unit of account or deposit, other than a financial instrument, virtual token or electronic money), it will be regulated by the VFA Act.

1. Financial Instruments – The definition of a financial instrument is in accordance with the EU Markets in Financial Services Directive (MiFID) and the Malta Investment Services Act, and activities related to financial instruments are regulated by the Investment Services Act;

2. A virtual token is a token whose utility, value or use is limited to obtaining goods or services or is limited to within or to the registered platform on which it is issued, or within a limited distributed platform network. Virtual tokens are typically service tokens whose only utility and value is to purchase goods or services on the DLT platform on which they are issued. Activities related to virtual tokens are not regulated; finally,

3. E-money – To be considered e-money, a DLT asset must be issued at a nominal value upon receipt of funds from the issuer and can only be redeemed at any time by the issuer. It should be used for payments and should be accepted as a means of payment by non-issuers.

If a DLT asset can be converted into another DLT, it will be considered the type of DLT asset that it can be converted into. Generally, most virtual assets are virtual financial assets.

The main difference compared to Hong Kong is that there is currently no specific legislation in Hong Kong for ICOs or virtual assets. However, this will change if, in November 2020, the FSTB proposes to issue licenses for virtual asset exchanges under Hong Kong's anti-money laundering legislation. In addition, in Hong Kong, there is no strict distinction between different types of tokens unless the tokens have the characteristics of securities. Otherwise, all tokens are considered virtual commodities.

Technical description content requirements

The DFA Act does not require issuers to obtain a license or register with the MFA, but they must publish technical documentation that complies with various requirements set out in the DFA Act. This requirement applies to any legal entity that intends to (i) offer virtual financial assets to the public in or from Malta or (ii) trade virtual financial assets on a DLT exchange. The definition of a VFA issuer only applies to legal entities established under Maltese law. Therefore, if an issuer wishes to host a VFA (i.e. an ICO), it must be registered in Malta. If the DLT asset is defined as a virtual token (not regulated by the VFA), no technical documentation is required. VAIOT announced in October 2020 that its technical documentation was successfully registered with the MFSA, becoming the first project regulated by the VFA Act.

Issuer Responsibilities

VFA issuers are obliged to comply with the issuer obligations, which in short relate to conducting business in a competent, prudent, careful and diligent manner; investor relations, conflicts of interest, investor protection, administrative mechanisms, security and compliance with POD/FT.

The issuer will be liable to any person for compensation if he or she suffers a loss as a result of purchasing a virtual financial asset (whether on the original VFA offer or on the basis of trading DLT on the issuer’s official documents or advertisements based on false information) of the virtual financial asset.

This is similar to the FCS's regulatory approach, whereby investor protection measures applicable only to traditional intermediaries are limited under the FCS Code of Conduct, as the FCS Code of Conduct does not apply to issuers of securities and therefore contains no obligations. Issuers are required to ensure the accuracy of the information presented in their marketing documents in a typical offering of securities tokens, as well as to assess the suitability of their tokens for potential buyers. However, issuers may be held liable for fraud, theft or misleading statements if they make false or misleading statements in their official documents.

VFA Agent Requirements

In Malta, issuers of ICOs must permanently appoint a VFA agent approved by the MFSA. Lawyers, accountants and corporate service providers can apply to become AFW agents. The VFA agent is responsible for providing advice and guidance on the responsibilities and obligations of the issuer under the VFA Act and the relevant rules and regulations. It should assume that the issuer has complied with all applicable regulatory requirements for the supply of virtual financial assets or the inclusion of them on an exchange (as applicable) and should deem the issuer fit and proper. The DFA agent acts as a liaison between the issuer and the MFA and must provide all documents required by the VFA Act and the relevant rules and regulations. In particular, it must submit a certificate of compliance to the IFSA every year confirming that the issuer complies with the regulatory requirements. The VFA agent needs to disclose any material information regarding non-compliance with the IFAS rules.

VFA Advertising Requirements

The VFA Act sets out advertising requirements for an initial VFA offer or VFA admission. Any advertisement must be clearly identified as an advertisement, the information contained must be accurate and not misleading, and must be consistent with the information in (or contained in) an official document. The announcement should contain a statement that an official document has been or is to be published, and the address and time at which the official document will be available to the public. Advertisements relating to VFA services may only be published by a VFA licensee or another person whose content has been verified and approved by the licensee's Management Committee.

VFA Service Provider

The provision of VFA services in or from Malta requires the provider to obtain an MFSA license. Examples of VFA services include portfolio management, notional custody services, investment advice in relation to virtual financial assets, virtual allocation of virtual financial assets, VFA exchange management, receiving and transferring orders, and order execution and trading in relation to virtual financial assets.

Malta Cryptocurrency License Application

An organization applying for a Virtual Financial Asset (VFA) license must appoint a registered VFA agent to make the application. The MFA may grant or refuse to grant a license which may be of a general nature or limited to the provision of certain services to VFAs. The granting of a license requires the MFSA to confirm the following on an ongoing basis:

1. The applicant (and its beneficial owners, eligible owners, members of the management committee or any other person who manages the applicant’s business) is suitable to provide appropriate VFA services and abides by and complies with the requirements of the VFA Act and other relevant regulations and rules;

2. If the applicant is a natural person, that person is resident in Malta;

3. If the applicant is a legal person, it is either established under Maltese law or complies with the laws of Malta or a recognised jurisdiction and has a branch in Malta. Its aims or purposes should be limited to the activities of the licensee and the performance of ancillary or secondary activities and should not include aims or purposes that are incompatible with the VFA services of the licensee. Incompatible aims or facilities include any activity that requires MFA authorisation under any Maltese law other than the VFA Law; and

4. Its actual activities are compatible and relevant to the VFA services.

A licence is granted subject to any conditions the MFA deems appropriate and may subsequently be revoked or have conditions imposed. The Ministry of Foreign Affairs’ decision to grant or refuse a licence will be based on its objectives of protecting investors and the public, protecting Malta’s reputation, promoting innovation and competition and safeguarding the reputation of the applicant and related parties.

Other reasons for the Ministry of Foreign Affairs to refuse to grant a licence include if it considers that the applicant lacks sound and reasonable management, reliable management mechanisms and adequate internal controls or security mechanisms, or that the applicant has any relationship with any person or persons that would prevent it from effectively supervising the applicant, or if granting a licence to the applicant may pose a risk to investors, the public, Malta's reputation and the promotion of innovation or competition.

The MFSA may suspend or revoke a licence for reasons including, but not limited to:

1. The license holder must not provide services to the WFA for 12 months from the date of the license issuance;

2. If the Licensee is declared bankrupt, liquidated or makes a composition with its creditors or is otherwise liquidated. or

3. A written request from another authority that issues the license.

Licence Holder Responsibilities

The VFA Act sets out the code of conduct for licensees, including requiring them to act fairly, impartially and professionally; comply with the VFA Act and any related rules and regulations; and have a fiduciary duty to their clients. Licensees must maintain high standards of secure access systems and protocols.

Market Abuse Prevention

The VFA Act criminalizes insider trading, market manipulation and unlawful disclosure of inside information in relation to virtual financial assets permitted to be traded on the VFA, whether committed in Malta or abroad:

1. Insider Trading – It is illegal to intentionally recommend or encourage another person to engage in insider trading. Insider trading occurs when a person possesses inside information and uses that information, whether in his or her own name or in the name of a third party, to directly or indirectly operate with respect to a virtual financial asset to which that information relates. Insider trading also occurs when a person possesses inside information and, based on that information, recommends or induces another person to acquire or dispose of a virtual financial asset to which that information relates, or when another person cancels or modifies an order for a virtual financial asset to which that information relates.

2. Unlawful disclosure of inside information – when a person possesses inside information and discloses that information to any other person unless the disclosure is permitted under the VFA Act and the regulations or the regulations or rules made under the VFA Act. It is also an offence to incite, aid and abet this offence.

3. Market manipulation is defined as the manipulation or attempted manipulation of a virtual financial asset or benchmark through abusive strategies.

VFA exchanges must have effective systems, procedures and mechanisms to monitor and detect market abuse and must report any suspicion of market abuse to the MFSA.

Licensee Audit

Licensees will be required to appoint an auditor who must report to the MFSA any facts or decisions that may lead to a significant qualification or rejection of the audit report of the licensee’s accounts, or that may constitute a material breach of applicable legislative or regulatory requirements, or that may restrict the licensee’s ability to continue to operate. Any person who has a close relationship with such a licensee must also be reported to the MFSA by the auditor. If the auditor is not aware of a valid reason not to do so, he must also inform the licensee’s board of directors of the information. The auditor must also report to the MFSA annually on the licensee’s security systems and protocols.

It is an offence to induce or attempt to induce another person to enter into a VFA agreement by intentionally misleading, false or misleading representations. Anyone who intentionally prevents another person from exercising their rights under the VFA Act will also commit an offence. Offences under the VFA Act are punishable by a fine of up to €15 million, a fine of up to three times the profit or loss caused by the offence, imprisonment for up to six years, or both. The VFA Act also imposes an obligation to report suspicions of money laundering and terrorist financing. If an officer or employee of a VFA issuer, VFA agent or licensee believes that a transaction may be related to money laundering or terrorist financing.