Israel to tax cryptocurrencies as property

The Israeli Tax Authorityhas confirmed that cryptocurrencies will be considered "as a property, not a currency" for tax purposes

What has happened?

Israel has confirmed that cryptocurrencies will not be considered as a "currency" for tax purposes.

What does this mean?

In a circular, the Israeli Tax Authority (ITA) has revealed that cryptocurrencies such as bitcoin will be taxed as property.

The circular confirms previous indications that cryptocurrencies will be regarded "as a property, not a currency", meaning it will therefore be taxed as such.

The ITA first outlined its position in a draft circular in January, which stated:

“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 states that cryptocurrencies will be subject to capital gains tax, which in Israel is taxed at varying rates.

Individual investors will not have to pay VAT of 17%, as cryptocurrencies are an classified as “intangible asset” when used “for investment purposes only”.

However, business will have to pay VAT and so will people mining or trading cryptocurrencies in connection with business, who will be classified as "dealers" for VAT purposes.

Israel started exploring the possibility of taxing cryptocurrencies in 2013.

The government has also been considering releasing its own cryptocurrency, a digital shekel since December 2017, as one potential way to curb black market transactions within the country.

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.

Contacts
John Salmon
Partner
London

 

© 2020 Hogan Lovells. All rights reserved. "Hogan Lovells" or the “firm” refers to the international legal practice that comprises Hogan Lovells International LLP,Hogan Lovells US LLP and their affiliated businesses, each of which is a separate legal entity. Attorney advertising. Prior results do not guarantee a similar outcome.