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Bitcoin Will Be Taxed as an Asset: Israel Tax Authority

Last Updated March 4, 2021 5:04 PM
Samburaj Das
Last Updated March 4, 2021 5:04 PM

Israel’s official tax authority has confirmed that cryptocurrencies like bitcoin will be taxed as an asset with investors subject to capital gains tax.

In an updated circular  released on Monday, the Israel Tax Authority doubled down on its previous position of deeming cryptocurrencies as ‘assets’ rather than currencies. The authority first issued an early official draft to clarify tax guidelines for cryptocurrency adopters in January 2017 following repeated requests from the community to clarify the government’s stance on the taxation of cryptocurrencies.

With its updated circular and a final draft in place, the authority will now press ahead with taxation guidelines for assets wherein individual investors will be subject to the 25% capital gains tax for profits from their cryptocurrency holdings. In addition, businesses and exchanges trading cryptocurrencies will be liable to pay a 17% value-added tax (VAT). Notably, individual investors will be exempt from paying VAT as cryptocurrencies used for investment purposes are markedly seen as intangible assets. Individuals who are involved in mining or trading cryptocurrencies will be subjected to the VAT of 17%.

The Authority’s official stance on classifying cryptocurrencies as “assets” coincides with a similar approach taken by the country’s central bank. In a public speech in January, Bank of Israel (BOI) deputy governor Nadine Baudot-Trajtenberg stated the BOI’s position on cryptocurrencies “is that they should be viewed as a financial asset, with all that entails.”

The Tax Authority’s final draft on cryptocurrency taxation follows recent moves in January wherein tax officials published draft legislation to collect taxes from initial coin offerings (ICOs), part of its wider focused move to collect from the cryptocurrency sector.

“The Tax Authority is monitoring the technological developments and its working to provide an answer regarding the tax implications of virtual currency transactions and the issuance of digital tokens,” said the authority’s director Moshe Asher at the time. The draft suggested that an individual’s income could be classified as a business income when “the sale of tokens reaches the level of a business”, leading to taxation under applicable rates.

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