Cryptocurrency is property for tax purposes in Israel

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The government of Israel has confirmed this week that cryptocurrencies like legacy Bitcoin (BTC) and Bitcoin Cash are to be treated as a form of property, confirming the draft position that was circulated back in January.

The government, which has been seeking to shore up its approach to cryptocurrencies, has confirmed that the Tax Authority will consider cryptocurrenciesas “a property, not a currency,” which has significant implications for its taxation treatment.

As a form of property, cryptocurrencies will be liable for capital gains tax, payable between 20 and 25 percent at banded rates. Commercial cryptocurrency mining operations will also be subject to an additional 17 percent VAT rate, in addition to their liability under capital gains.

Importantly, this means that cryptocurrency transactions will be exempt from VAT, following a similar line of thinking amongst other regulators, including the European Court of Justice, which indicated in October 2015 that cryptocurrency transactions fall outside of the scope of applicable VAT.

The confirmation marks the conclusion of a process of investigation by the Israeli government, which began as early as 2013. As one of the most developed markets in respect of its cryptocurrency sector, the move could now influence how other regulators approach the same question in their own jurisdictions.

The announcement this week comes as no surprise to analysts and industry stakeholders, with the verdict following suit with the draft guidance issued earlier in the year. However, at present, officials at the Israeli Tax Authority continue to work on new proposals for cryptocurrency regulation, which could still have further significant impact on the sector.

In particular, they are also thought to be investigating ICOs, and examining methods for taxation of this emergent form of fundraising. A similar draft paper also released in January of this year discussed a number of possible approaches, such as setting a minimum revenue level for triggering a tax liability.

While there are no further indications on when the ICO proposals will be finalised, expectation is that the authorities could be looking to confirm their position sooner rather than later.

For the time being, investors and cryptocurrency businesses in Israel can only wait for further developments in the legal position.