Israel Imposes Capital Gains Property Tax On Cryptocurrencies

The government of Israel has now announced that it will tax Bitcoin and various other cryptocurrencies in the same manner as other properties and assets.

The government has issued a notice confirming that Israel’s Central Tax Authority will treat cryptocurrencies as property and not as a currency, which makes digital currencies a taxable asset under the country’s prevailing taxation regime.

The notice highlights that any profits that are produced by cryptocurrency related trade are subject to taxation under capital gains ranging between 20 and 25 percent. Furthermore, people engaged in mining or trading of digital currencies through businesses will be levied an additional 17 percent value-added tax or VAT.

This taxation rule is in sync with the continuing trend of the Israeli government against cryptocurrencies, especially since the beginning of 2017 when the price of bitcoin started skyrocketing. Even as early as 2013, the government of Israel was looking at potential taxation options for cryptocurrencies.

The announcement today was not unexpected based on a draft by the Tax Authority. Officials at the Tax Authority are still identifying taxation regimes and regulations that could significantly affect the cryptocurrency industry in totality.

The new announcement by the Israeli government follows another recently issued circular detailing the possible approaches which the government could apply to tax ICOs. The potential ways include determining a minimum token sale limit which would trigger a tax structure for ICOs.

Virtual Currencies as Assets

The Tax Authority is treating Cryptocurrencies akin to assets for the purposes of taxation. The government highlights that the Bank of Israel which is the nation’s central bank does not perceive Bitcoin and various other digital currencies as foreign currencies. Hence, Cryptocurrencies taxation will be based on the existing fixed taxation rates.    

The Israeli Tax Authority has specifically stated that digital currencies like bitcoin would be viewed as assets under the Income Tax Ordinance. If these alt coins are sold in the market, the sale will be taxed similar to the sale of a property. On top of this, the income generated from selling Bitcoin and other digital currencies will be considered as “capital income.”

Discouraging Bitcoin Adoption

The Israeli government appears to be endorsing taxation policies that are aimed at discouraging the use and adoption of bitcoin and other virtual currencies among businesses and the common people in Israel.

With significant taxation costs, businesses will be deterred from accepting bitcoin as payment for their products or services. With digital currencies such as bitcoin not being officially acknowledged as a currency (but as an asset), companies accepting payments in digital currencies will need to account for bitcoin sale as “barter” and not as payment for services or goods prior to completion of requisite formalities.

This government announcement comes in the wake of repeated questions from the digital currency community in Israel regarding its intended taxation regime for cryptocurrencies.

These taxation guidelines in Israel are clearly divergent from the positive and supportive tax structure for cryptocurrencies being adopted by many countries globally. For example, Japan is slated to lift the 8 percent consumption tax rate on the purchase of bitcoin across the nation.

Similarly, the government of Australia is presently exploring whether bitcoin should be treated as money because the country wants to eliminate its goods and service tax or GST for digital currency transactions which has created “double taxation” on cryptocurrencies in the nation.

Banning Bitcoin Companies on Israeli Stock Exchange

Israel’s government plans to create regulations to stop companies dealing in bitcoin and other cryptocurrencies from being listed on the Tel Aviv Stock Exchange. The Chairman of the Israel Securities Authority (ISA), Shmuel Hauser, has stated recently that he will propose this ban to the ISA soon at the Calcalist business convention.

If the ban is approved, the bylaws of the Tel Aviv Stock Exchange will need to be modified. Hauser has said that they would not allow businesses that are dealing in cryptocurrencies to list on the exchange, and such companies will be de-listed if they are already being traded on the exchange.

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