The Taxman Catches Up with Cryptocurrency in Israel

The Israeli Tax Authority (ITA) released a circular on the 17th of February containing the final details of taxation of cryptocurrency transactions and cryptocurrency mining in the country. This follows the draft that it released one month ago.

The circular deals with distributed means of payment only - ICOs are still under discussion, and a final judgement is pending.

As the authority has represented in the past, it considers cryptocurrency to be property, not currency.

David Woliner, advocate at law firm Nir Porat & Co., said: "With regard to distributed means of payment, such as Bitcoin Bitcoin While some may still be wondering what is Bitcoin, who created Bitcoin, or how does Bitcoin work, one thing is certain: Bitcoin has changed the world.No one can remain indifferent to this revolutionary, decentralized, digital asset nor to its blockchain technology.In fact, we’ve gone a long way ever since a Florida resident Laszlo Hanyecz made BTC’s first official commercial transaction with a real company by trading 10,000 Bitcoins for 2 pizzas at his local Papa John’s.One could now argue that While some may still be wondering what is Bitcoin, who created Bitcoin, or how does Bitcoin work, one thing is certain: Bitcoin has changed the world.No one can remain indifferent to this revolutionary, decentralized, digital asset nor to its blockchain technology.In fact, we’ve gone a long way ever since a Florida resident Laszlo Hanyecz made BTC’s first official commercial transaction with a real company by trading 10,000 Bitcoins for 2 pizzas at his local Papa John’s.One could now argue that Read this Term, the ITA clarifies that such distributed means of Payments Payments One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl Read this Term, when used for the purpose of barter, are not to be considered as "currency" or "foreign currency" as these terms are defined in Israeli banking laws, and therefore cannot be taxed as such."

Tax will be paid on cryptocurrency as with any other transacted commodity.

Capital gains tax / income tax

The announcement states that capital gains tax will now be paid on all profits from traded cryptocurrency.

Cryptocurrency mining operations, nowadays seldom profitably conducted by individuals, are now considered a business like any other, and will thus be taxed at standard rates of income tax, calculated on a case-by-case basis.

VAT

In terms of VAT, because cryptocurrency is an intangible asset, no VAT will be owed by private investors. However, entities conducting transactions that reach the level of a business - for example in the case of an exchange - could be liable to pay VAT. Woliner explained: "In such a case, you will be classified as a financial institution and applicable VAT rates will be applied on you. Exact rates will depend on the circumstances of each case."

As businesses, cryptocurrency mining operations must now pay VAT: "In such a case, you will be classified as a practitioner and applicable VAT rates will be applied. Exact rates will depend on the circumstances of each case," said Woliner.

Finance Magnates spoke with the ITA, which confirmed that these rules are already effective. The spokesperson also confirmed that the subject of ICOs is yet to be finalised, as the subject requires more deliberation.

It will be interesting to see the decision made on this subject, as Israeli regulatory authorities have been struggling with how to define the fundraising method, and even considered banning it at one point.