Israel Tax Authority issued a professional circular on the 19th of February (4 Adar 5768), clarifying the tax policy of the country on blockchain and cryptocurrencies in general and Bitcoin in particular. “Bitcoin and its like” are discussed in what is referred to as a “final circular” on crypto, as well as value-added tax (VAT) along with capital gains.

The Israeli agency clarified upfront:

The Tax Authority’s position that was expressed in the past, is (bitcoin is) a property, not a currency.

Israel is the economic jewel of Southwest Asia, routinely ranking alongside countries many multiples its size regarding innovation, as well as output. Punching above the weight in cryptocurrency, the country has grappled with bitcoin since at least 2013 in one form or another.

Openness to the decentralized currency idea still extends all the way to its current Prime Minister. Its tax policy may also not be only a regional trendsetter but a world model.

Going forward, “For income bitcoin tax – in accordance to the circular, a distributed means of payment is an asset, and because of that a person whose activity as it is said, does not reach a business is only entitled to capital gains tax and the person whose activity in the field reaches a business, tax will be paid for any business activity,” the circular noted, suggesting that it was speaking to the Israel Structures Authority (ISA) policy too.

Value-added tax (VAT) in Israel is also applied to most goods and services at the 17% mark, and electronic accounting for VAT is regulated by law in the country.

As such, “a distributed means of payment is an intangible asset and because of that anyone whose activity with Bitcoin trading in the field is for investment purposes only, which does not reach a business, is not liable for VAT,” which also leaves the average Israeli investor be, at least on that score.

The agency explained:

A dealer whose receipts are accepted by means of a distributed payment method will be paid VAT according to his business activity,” however, “regardless of the manner of receipt, so that as a rule, VAT is not going to be paid; A person whose activity in a distributed means of payment which will reach a business, shall be classified as a financial institution; And those that have mining activities are going to be classified as a dealer for VAT purposes.

As bitcoin is an asset, property, it is a subject to Israeli capital gains, which range to a high of 25%. Miners, if the implications remain, seem to be stuck with the worst of it, as they are not just to pay capital gains but also VAT, which could bolster their tax bill to some 42%.

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