The Israeli government’s tax department has turned up the heat with an official draft announcement (Hebrew) clarifying the tax guidelines that could apply to bitcoin adopters if it’s passed.
And it’s not pretty. Israeli cryptocurrency users may have to pay a 25 per cent capital gains tax and bitcoin exchanges and miners will have to charge 17 per cent VAT.
“… 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.”
[The] Tax Authority begins by explaining that, according to their interpretation of the relevant laws, cryptocurrency is not currency but rather an asset. It adds that it is also not a financial security (like a stock). This determination has a number of legal repercussions in terms of using cryptocurrency in Israel.
First, if a company is paid in bitcoin its accountants can’t write down the transaction as receiving payment. Instead, this needs to be classified as a barter and dealt with accordingly. Needless to say this can cause a lot of extra paperwork for companies that are open to accepting cryptocurrencies as a payment method.
If this draft paper gets passed, everytime someone sells bitcoin they will have to pay a 25 percent capital gains tax and exchanges as well as businesses that use bitcoin will have to charge 17 per cent VAT for every buy/sell transaction.