Cryptocurrencies Will Be Taxed As Assets In Israel

News, Regulation | February 20, 2018 By:

The Israeli Tax Authority (ITA) has issued new guidelines on the taxation of cryptocurrency transactions and cryptocurrency mining in the country.

According to the guidelines, cryptocurrencies are assets rather than currencies, and will be taxed accordingly. The ITA’s position on cryptocurrencies was first detailed in a draft circular issued last month.

The regulator explains that investors in cryptcurrencies will have to pay a capital gains tax on its value, at rates ranging from 20% to 25%. But individuals who trade in these cryptocurrencies for business purposes will pay a value added tax (VAT) of 17%, on top of the capital gains tax. Local cryptocurrency mining firms will be taxed in the same way as a factory.

Shahar Strauss, a tax lawyer with the Tel Aviv firm Ziv Sharon & Company, said he had clients who had invested small sums in bitcoin years ago and today their holdings are worth tens of millions of shekels, after the big run-up in the cryptocurrency’s value. They are now liable for taxes in the millions of shekels.

“The agency’s stance ignore economic realities,” Strauss said. “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.”

The new guidelines only deals with distributed means of payment. The Tax Authority is reportedly working on initiatives that could continue to impact the industry at-large. An ITA spokesperson said that the subject of initial coin offerings (ICO) is yet to be finalized, as the subject requires more deliberation.

Last month, the Tax Authority outlined potential ways in which the government could tax ICOs. Under the proposal, companies or projects, through ICOs, who raise in excess of 15 million ILS ($4.2M USD) in revenue will fall under existing accounting regulations.