Israel to Tax Cryptocurrency, Publishes Draft of Legislation

The public has 14 days to comment on the draft, after which time it will be finalised.

The Israeli Tax Authority today published a circular detailing a draft of new legislation that clarifies the status of cryptocurrency tokens as assets and the taxation obligations of companies that raise money through ICOs.

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The public are invited to comment at this stage in the process. According to a spokesperson, the draft will be open for comment for 14 days, after which it will be finalized.

The authority has decided that as a virtual currency is a possession belonging to the individual holding it, it meets the definition of an asset, and thus the sale of this asset becomes a taxable event (capital gains tax).

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Businesses that buy and sell cryptocurrency should be required to report profits and losses, as they would be with any other asset, according to the draft: “A person whose income from the sale of tokens reaches the level of a business, his income will be classified as a business income and it will be subject to tax rates under sections 121 or 126 of the ordinance.”

The circular states that transactions paid for in Bitcoin will be classified as barter transactions, and be measured according to the value of the assets exchanged. It also clarifies the taxable status of companies that are selling tokens through an ICO and the people that buy the tokens.

It should be noted that the draft deals only with tokens used as utilities. Tokens as securities were dealt with in a different circular published in January of 2017.

Moshe Asher, head of the Tax Authority, said: “The Tax Authority is monitoring the technological developments and is working to provide an answer regarding the tax implications of virtual currency activity and the issue of digital tokens, thereby increasing the certainty and tax transparency of those operating in the field.”

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