Israel Tax Authority Deems Bitcoin a Taxable Asset

The Israeli Tax Authority has issued an official draft circular to clarify the tax guidelines that apply to bitcoin adopters.

In an announcement last week, the Israel Tax Authority released its draft [PDF] on the proposed taxation of virtual currencies which are considered “assets”. Pointedly, the announcement also cites the Bank of Israel – the country’s central bank – which does not see bitcoin or virtual currencies as foreign currencies and will, therefore, be taxed according to existing fixed tax rates.

An excerpt from the announcement reads:

[Bitcoin] will be considered in accordance with the Income Tax Ordinance as “assets” and their sale will be taxed as a sale of “property.” Income from their sale will be classified as capital income and capital gains will be taxed according to fixed tax rates.

Further, the income of individuals working in bitcoin trading or mining will be taxed in business tax rates.

According to a report in Finance Magnates, translated details of the draft reveal key findings including significant tax numbers. Broadly speaking, the draft proposes policies that could ultimately prove a hindrance toward bitcoin adoption and usage among individuals and businesses in Israel.

For instance, individual users will be required to pay the country’s capital gains tax of 25% every time they sell bitcoin. Exchanges and businesses trading virtual currencies will be required to charge a 17% VAT upon their clients.

Besides the tax disadvantages, companies will be discouraged from receiving bitcoin payments as settlements for services. AS the report reveals, bitcoin’s lack of status as a ‘currency’ means that companies receiving payments with the cryptocurrency will be required to classify it as a ‘barter’ rather than a payment before dealing with the necessary paperwork.

The draft is a result of repeated queries from the cryptocurrency community in Israel about its taxation status, the authority added. There is currently no timeline if or when the draft’s proposed tax guidelines could be implemented by the government.

Israel’s tax guidelines for bitcoin users in the country is in contrast to the stance increasingly taken by other countries around the world. For instance, Japan will end its 8% consumption tax rate imposed on bitcoin buyers in the country. The Australian Government is currently debating if bitcoin can be treated as “money” as the country looks to kill the goods and services tax (GST) with bitcoin transactions that saw a ‘double taxation’ levied on digital currencies in the country.