Bitcoin isn’t a currency and people buying and selling the cryptocurrency will be subject to tax, the Israel Tax Authority said Monday in an updated circular.
As a result, profits made on cryptocurrencies will be subject to the ordinary 25% capital gains tax for private investors to a 47% marginal rate for businesses, the authority said, instructing investors to report on their holdings within 30 days and arrange prepayment of tax.
The decision came after the authority issued its draft circular on bitcoin taxation, which similarly discounted claims that bitcoin and its peers are currencies, no different from the shekel or dollar, whose profits are not taxed.
In addition, the tax authority had never issued a final ruling on whether the sellers of cryptocurrencies were liable for the 17% value-added tax. On Monday it clarified that only businesses would be liable for the tax, not individuals, because, as the circular explained, bitcoin is an intangible asset used for investment purposes only.
Shahar Strauss, a tax lawyer with the Tel Aviv firm Ziv Sharon & Company, said he had clients who had invested small sums in bitcoin years ago and today their holdings are worth tens of millions of shekels, after the big run-up in the cryptocurrency’s value. They are now liable for taxes in the millions of shekels, he said.
“The [agency’s] stance ignore economic realities,” he said. “According to the Tax Authority, investing in the esoteric currency of some Pacific island that can’t be used in Israel and many other countries meets the definition of currency and is therefore entitled to a tax exemption, while investing in digital currency is not.”