Israel Tax Authority: Bitcoin is Property, Not Currency

Israel Tax Authority issued a professional circular on February 19 (4 Adar 5768), clarifying the country’s tax policy on cryptocurrencies in general and bitcoin in particular. “Bitcoin and its like” are discussed in what’s referred to as a “final circular” on crypto and value-added tax (VAT) along with capital gains.

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Israel VAT Good News on Crypto

“The Tax Authority’s position, which was expressed in the past, is [bitcoin is] a property, not a currency,” the Israeli agency clarified upfront. Israel is the economic jewel of Southwest Asia, routinely ranking alongside countries many multiples its size in terms of innovation and output. Punching above its weight in cryptocurrency as well, the country has grappled with bitcoin since at least 2013 in one form or another. Openness to the decentralized currency idea extends all the way to its current Prime Minister. Its tax policy might be not only a regional trendsetter but a world model.

Going forward, “For purposes of income tax – in accordance with the circular, a distributed means of payment is an asset, and therefore a person whose activity as aforesaid does not reach a business is only entitled to capital gains tax and the person whose activity in the field reaches a business (trade in a distributed method of payment and / Such a measure), tax will be paid as any business activity,” the circular noted, suggesting it was speaking to the Israel Securities Authority (ISA) policy as well.

Value-added tax (VAT) in Israel is applied to most goods and services at the 17% mark, and electronic accounting for VAT is regulated by law in the country. As such, “a distributed means of payment is an intangible asset, and therefore anyone whose activity in the field is for investment purposes only, which does not reach a business, is not liable for VAT,” which leaves the average Israeli investor be, at least on that score.

“A dealer whose receipts are accepted by means of a distributed payment method will be paid VAT according to his business activity,” however, “regardless of the manner of receipt, so that as a rule, VAT will not be paid; A person whose activity in a distributed means of payment reaches a business (from such trade) shall be classified as a financial institution; And those whose activities are mining, will be classified as a dealer for VAT purposes,” the agency explained.

Because bitcoin is an asset, property, it is subject to Israeli capital gains, which range to a high of 25 percent. Miners, if the implications remain, seem to be stuck with the worst of it, as they’re not only to pay capital gains but also VAT, which could boost their tax bill to some 42%.

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