Israel releases draft proposal for taxing ICOs

Issued by the Tax Authority, the draft circular proposes imposing VAT on initial coin offerings

What has happened?

The Israeli government has published a draft circular outlining potential approaches for taxing initial coin offering (ICO) profits.

What does this mean?

Issued by the Tax Authority, the draft circular proposes imposing VAT on ICOs, differentiating them into two types: service transactions and sales transactions.

The document specifies that, according to the current legislation, goods and services offered to foreign citizens will not be taxed.

Tax Authority Director Moshe Asher said:

"The Tax Authority is monitoring the technological developments and is working to provide an answer regarding the tax implications of virtual currency transactions and the issuance of digital tokens, thereby increasing the certainty and tax transparency of those operating in the field."

The draft circular outlines potential ways of taxing firms that launch token sales, but according to a report on the Tax Authority's website, cryptocurrencies are not directly affected.

The draft circular also details the classifications of blockchain companies, focusing on the types of goods and services offered, as well as the profit model used.

It also says that, in accordance with existing law, the subject of accounting regulation will be sales of tokens, the profit of which is more than 15 million new Israeli shekels (£3.2 million).

The amount of tax may fluctuate if the company determines its tax liabilities not during, but at the end of the year.

"In cases where the tax liability is determined on a cash basis, at the end of the year, the buyer or recipient of a service is a resident of Israel or vice versa, it is possible that the tax rate for the transaction will change according to the provisions of the VAT Law."

The draft circular stressed that it is not final, with the Tax Authority awaiting public comment.

Next steps

If you want to take advantage of blockchain's huge potential and disruptive impact, while avoiding falling foul of ever-developing regulatory and legal requirements, visit our Hogan Lovells Engage Blockchain Toolkit.

John Salmon


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