Israel Confirms Cryptocurrency Will Be Taxed As Property, Not Currency

The Israeli Tax Authority (ITA) confirmed yesterday, Feb. 19, in a professional circular that the country will tax cryptocurrencies as property.

The tax authority had released a draft of today’s circular on Jan. 12, which referred to virtual currencies as “unit[s] used for barter [that] can be used for investment purposes.” Per this definition:

“these currencies will be considered as ‘assets’ and will be sold as a ‘sale’ and the proceeds from their sale will be classified as capital income.”

The final version of the circular writes that crypto will be taxed by the capital gains tax, which in Israel will be 25 percent for private investors, with a 47 percent marginal rate for businesses, according to Israeli news outlet Haaretz.

The US Internal Revenue Service (IRS) has been taxing cryptocurrencies as property since March 2014.

Israel’s general consumption value-added tax (VAT) will not be added for individual investors, as crypto is considered an “intangible asset” used “for investment purposes only”, but businesses will have to pay VAT, the circular notes. The document also states that miners will be classified as “dealer[s]” for VAT purposes.

Shahar Strauss, a lawyer at the Israeli law firm Ziv Sharon & Company, doesn’t agree with the new crypto property tax definition, Haaretz reports:

“The [agency’s] stance ignore economic realities. According to the Tax Authority, investing in the esoteric currency of some Pacific island that can’t be used in Israel and many other countries meets the definition of currency and is therefore entitled to a tax exemption, while investing in digital currency is not.”

In January, the Israeli tax authority had also released a draft circular considering the methods of taxing Initial Coin Offerings (ICO) with VAT. This week’s circular does not make any mention of decisions regarding ICOs taxation.

Israel’s government has been considering releasing their own cryptocurrency, a digital shekel since December 2017, as one possible means to limit black market transactions within the country.