Back to top

Taxing Bitcoin and Other Cryptocurrencies in Israel

Earlier this week, the Israeli Tax Authority (ITA) announced that it plans on taxing Bitcoin and other cryptocurrencies as property and not as currencies.

The ITA defined Bitcoin et al as “unit[s] used for barter [that] can be used for investment purposes” and “will be considered as ‘assets’ and will be sold as a ‘sale’ and the proceeds from their sale will be classified as capital income.”

With this in mind, as reported by Haaretz, Israeli tax officials determined that “profits made on cryptocurrencies will be subject to the ordinary 25% capital gains tax for private investors to a 47% marginal rate for businesses” and ordered “investors to report on their holdings within 30 days and arrange prepayment of tax.”

Additionally, the ITA noted that only companies selling Bitcoin or other cryptocurrencies will have to pay the 17% value-added taxes, exempting individuals from any VAT obligations.

As more specifically detailed by Cryptovest, VAT obligations will break down as follows:

  • “A dealer whose receipts are accepted by means of a distributed payment method will be paid VAT according to his business activity, regardless of the manner of receipt, so that as a rule, VAT will not be paid;”
  • “A person whose activity in a distributed means of payment reaches a business (from such trade) shall be classified as a financial institution,” and;
  • “A person whose activities are mining will be classified as a dealer for VAT purposes.”

Taxing Bitcoin and Other Cryptocurrencies in Israel
Furthermore, as explained by Julia Sakovich for Coinspeaker, companies dealing with Bitcoin and other cryptocurrencies will have to follow the procedures delineated below:

  • “All cryptocurrency transactions should be documented for possible audit;”
  • “The taxpayer must prepare documents confirming the transaction in the decentralized means of payment, and consequently verify the existence of this transaction and its monetary volume, as well as data of the accounts through which the fund were transferred;”
  • “The seller must also present the evidence of the transaction attaching the pages of the bank accounts through which the funds were transferred or at least a computer screen capture demonstrating the sale and purchase and the date/time of the operation,” and;
  • “Companies whose value is based on the value of the Bitcoin shouldn’t be included in one of the Tel Aviv Stock Exchange (TASE) indices.”

The Israeli Bitcoin Association ultimately accepted this move by the ITA as it legitimizes cryptocurrencies as actual property.

However, both the Bank of Israel and the Israel Securities Authority remain skeptical and have not yet recognized Bitcoin et al as currencies.

Israeli Tax Experts Respond to New Bitcoin Classification

Reactions have varied from professionals in the field.

For instance, Shahar Strauss, a tax lawyer at Ziv Sharon & Company, criticized the ITA’s decision, saying it “ignore[s] economic realities.”

“According to the Tax Authority, investing in the esoteric currency of some Pacific island that can’t be used in Israel and many other countries meets the definition of currency and is therefore entitled to a tax exemption, while investing in digital currency is not,” Strauss told Haaretz.

Furthermore, Meori Ampeli of Ampeli Tax Law Offices says, The Tax Authority's position regarding the classification of a digital currency as an asset is not surprising in light of similar positions in the US and Britain; however, we expected to receive more clear outlines regarding the classification of business income in the cryptocurrency market.

As of now this is a complex issue that has not yet been discussed in the courts. The classification as a 'business activity' could result in 60% tax on income (including VAT). In this regard, authorities made a mountain out of a molehill when they determined mining cryptocurrencies as a business activity for Income Tax and VAT purposes. The lack of relief regarding the tax gain reporting requirements is disappointing as well,” concludes Ampeli.

What are your thoughts on Israel’s move to classify and tax cryptocurrencies as property rather than currency?