A pamphlet has just been released by the Israeli Tax Authority that covers their full stance on Bitcoin and other Cryptocurrencies. The pamphlet looks into the tax status from two different perspectives. One that covers individuals that invest in cryptocurrencies and one that covers individuals who trade cryptocurrencies as a business. That said, not every issue has been covered on the pamphlet. There is still no section that covers the topic of regulating Initial Coin Offerings.
Firstly, it has to be said that the Israeli Tax Authority isn’t viewing cryptocurrency as a legitimate currency, but as an asset. Ultimately, this means that an individual who holds cryptocurrency for capital gain, but doesn’t involve it with a business will be free of any VAT charges. That said, they still will need to pay a capital gains tax. That ranges between 20% to 25% for the average individual. People using cryptocurrencies from a business perspective will have to pay a capital gains tax along with the VAT charge.
Depending on the amount of activity they are pumping out, a business that mines cryptocurrency will be taxed as a factory. Any other groups that are chartered as businesses via a significant income they’ve garnered from cryptocurrency will be considered a financial institute and will be taxed likewise to banks and currency exchanges.
Much against what cryptocurrency stands for, the Israeli Tax Authority has demanded that every cryptocurrency transaction be documented for future audits. As a means of getting relevant evidence for an audit, a taxpayer will need documents detailing a trade. That said, there will be nothing anonymous about trading cryptocurrency. This is a move that will likely be met with backlash by those in the cryptocurrency community.
Surprisingly, the Israel Bitcoin Association is actually quite pleased with the move. For them it means that cryptocurrency is finally being recognized as something real and present. Here is a statement that was released by Manny Rosenfeld, the Chairman of the Israel Bitcoin Association, “The digital currency revolution is here to stay. In the past year we have been working hard with the Tax Authority to adapt the draft circular that was published to the reality on the ground and to allow digital coins – a huge growth engine of Israeli high-tech – to develop and blossom. We are pleased that the Tax Authority has made several amendments to the circular in accordance with the positions we presented.”