The idea that Bitcoin and its ilk create uncontrollable and un-taxable instruments no government can control has been dealt a blow in Israel, where the local Tax Authority has ruled cryptocurrencies are boring old property.
In a circular distributed by the authority dated February 19, the organisation said cryptocurrencies can't be considered a form of money. The document confirms a draft first published on January 12, 2017.
Taxation will therefore apply "according to the nature of activity" in a virtual currency, the circular said.
Someone handling cryptocurrencies at a purely individual level - in other words, buy, hold, and sell at a profit later - will be liable to between 20 and 25 per cent capital gains tax.
That rate will also apply to businesses mining and trading cryptocurrencies, and there's an extra slug: value-added tax will be levied at 17 per cent.
VAT doesn't apply to an individual whose sole activity is for investment purposes, because "a distributed means of payment is an intangible asset", the circular said.
Someone whose activity meets the definition of business will also be classified as a financial institution, the circular said. That classification means another layer of regulation in addition to taxation. Israel reformed its financial services regime in 2016 with the passage of the "Financial Services Supervision Law (Regulated Financial Services) - 2016", which among things imposes fair conduct, disclosure, permits, and enforcement on all non-bank financial institutions.
The circular is linked from this announcement (both in Hebrew and shoved through online translate-o-tronic services by Reg operatives for this story). ®
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