After years of uncertainty regarding reporting cryptocurrency transactions and holdings on their tax statements, Israelis have finally received an official statement from the authorities. Unfortunately, the policy seems to be very strict and prohibitive to users.
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A new draft paper circulated by the Israel Tax Authority (link to PDF in Hebrew) today sets to clarify the taxing of "Bitcoin , Litecoin and other virtual currencies" activities in the country. The authorities explain they are doing so after receiving repeated questions from the cryptocurrency users community in Israel.
The Tax Authority begins by explaining that, according to their interpretation of the relevant laws, cryptocurrency is not currency but rather an asset. It adds that it is also not a financial security (like a stock). This determination has a number of legal repercussions in terms of using cryptocurrency in Israel.
First, if a company is paid in bitcoin its accountants can't write down the transaction as receiving payment. Instead, this needs to be classified as a barter and dealt with accordingly. Needless to say this can cause a lot of extra paperwork for companies that are open to accepting Cryptocurrencies as a payment method.
Second, individual users will have to pay the Israeli capital gains tax, currently at 25%, every time they sell bitcoin.
Lastly, anyone working at trading, marketing or mining bitcoin will be taxed as a business, which beyond just paying the corporate income tax, will have to charge their clients 17% value added tax (VAT).
The Israel Tax Authority understands that providing a record of cryptocurrency trading could be difficult. Therefore, to prove such transactions it demands a letter of clarification, bank statements about the purchases and screenshots of the computer when a transaction takes place.
