Israel is known as the start-up nation. Several tech start-ups are located in the country and have their head quarters there. But some time ago, the Israeli government has decided to tax Initial Coin Offerings, organizers and investors. Now, Israel Tax Authority (ITA) announced that Bitcoin and cryptocurrencies would be treated and taxed as property and not as an asset.
Israel Taxes Bitcoin as Property
On February the 19th, the ITA declared through a professional circular that Bitcoin is an asset and not a currency for purposes of income tax. The circular reads as follows:
“For purposes of income tax… 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 for any business activity.”
The tax will be divided in two different categories. The first on is related to individuals who own virtual currencies in order to gain profits. The second one is related to individuals and businesses that engage in Bitcoin for business purposes.
The first category will have to pay 25% capital gains tax. Those in the second category will have to pay 17% as value added tax (VAT) and the 25% as capital gains. That means that business related to cryptocurrencies would have to pay 42% taxes.
The comments arise from different organizations. Manny Rosenfeld, Chairman of the Israeli Bitcoin Association, commented:
“The digital currency revolution is here to stay. The tax authority has made several amendments to their circular in accordance with the positions we presented.”
Clearly, this decision legitimizes cryptocurrencies and the entire ecosystem, but it also hurts the local investors that want to start a business in the sector. The start-up country may be taken a very hard measure for local businessman and enterprises.
Different countries are starting to take different measures in order to regulate the cryptocurrency market. During the rest of the year, more countries imposing taxes on cryptocurrencies will start to appear. The G-20 meeting will be an important place where to discuss crypto regulations and taxes.
An accountant from the United States, Gwen Wayne, said:
“Profit from Bitcoin and other altcoins should be taxed just as profit form other trades is. How is it any different? At the end of the day, capital gains is taxable and so is cryptocurrencies.”
Some specialist in the matter believe that Israel wants to discourage the use of cryptocurrencies. In this way, it certainly does, but it does not stop individuals to keep embracing blockchain technology.
Furthermore, it is not clear how the government is going to tax individuals and enterprises. Before, Israel has taxed Initial Coin Offerings with the excuse to search for “transparency” in the system.
“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,” explained the director of the Israeli Tax Authority, Moshe Ashe.