Israel has a very special place in the world of technology. The Startup Nation is unsurprisingly home to some of the best cryptocurrency startups, so it also becomes an important nation to study if one wants to understand the global regulatory scenario of cryptocurrencies. So in this article we’re going to do that. Let’s get stated:
Current Legal Status of Cryptocurrencies in Israel
Cryptocurrencies are legal in Israel for payments and trading both, but doing the former is not an easy job because country’s law doesn’t recognize them as ‘currencies’. Instead, Bitcoin and all other cryptos are treated as “assets” under Israeli law, which makes using them as means of payment more difficult. If any Israeli businesses receive payments in cryptocurrencies, they can’t report those transactions in their account books as ‘payment received’ transactions. Instead, those transaction will have to be reported as barter transactions, which would require extra paperwork.
Now as far as trading of cryptocurrencies is concerned, it’s permitted but with a steep price tag. Traders are required to pay 25% capital gains tax every time when they sell their crypto assets. Miners, businesses involved in cryptocurrency trading or individual traders who trade cryptocurrencies on a regular basis, on the other hand, are required to report profits and losses just like any normal business and pay Corporate Income Tax on their income. They also need to pay VAT at the rate of 17%.
Cryptocurrency Regulation in Israel: Recent Developments
Israeli cryptocurrency regulation story stared from December last year when country’s stock market regulator announced that it’s planning to de-list cryptocurrency companies from Tel Aviv Stock Exchange. Critical decisions related to cryptocurrency regulation followed the announcement in order given below:
- In January Bank of Israel (the central bank of country) announced that cryptocurrencies are assets, not currencies.
- Soon Israel’s tax authority also echoed the words of Central bank and confirmed that Bitcoin and other cryptocurrencies will be taxed as assetsinstead of currencies. Within five days country also started drafting the taxation rules for cryptocurrencies.
- In February Israeli Tax Authority (ITA) revealed about the taxation rules officially for the first time, reiterating the factthat cryptocurrencies will be taxed just like any other assets at capital gains tax rate of 25% while businesses would be subject to marginal rate of 47%. The authority also instructed investors to report their holdings within 30 days and arrange for prepayment of taxes.
- Finally, more clarification about the status of cryptocurrencies was provided by Israel Securities Authority (ISA) last month. ISA made it clearthat asset classification of cryptocurrencies doesn’t mean that they will be treated as securities. Instead, they’ll be considered “properties” unless they’re controlled by a centralized entity and are developed for the purpose of investment alone. Any cryptocurrency that is decentralized and has been developed for the purpose of consumption will not be considered a security, ISA said. Therefore, it became clear that according to Israeli law Bitcoin is a property instead of security.
Fortunately, Israeli legal authorities are also quite supportive of cryptocurrency companies as long as they don’t do anything illegal. In February country’s Supreme Court stopped Leumi Bank, one of the largest banks in Israel, from closing the account of a cryptocurrency exchange.
Future of Cryptocurrency Regulation in Israel
Since Israel has just announced its cryptocurrency taxation rules without any complicated regulatory mess, we can expect things to remain so in near future. In the long term they may also introduce a complete regulatory framework for cryptocurrencies as other countries are doing, but that will take some time. So for now Israeli regulatory climate is pretty stable and positive as long as you keep paying the hefty taxes.