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In Israel, virtual currencies, such as Bitcoin, will no longer be treated as currencies. They will now be taxed as property.

The confirmation regarding how cryptos will be taxed was announced Monday by the Israel Tax Authority. The move was not that much of a surprise, as it follows the Bank of Israel recently refusing to recognize cryptos as currencies. It’s labeling them as assets instead.

Value-added

In Israel, most goods and services, including those that are imported, are subject to what is called a value-added tax, or VAT. For VAT purposes, the circular published Monday clarifies how individuals and businesses will be subject to it.

The Monday announcement makes clear that crypto profits will be subject to the capital gains tax at rates between 20% and 25%. Those who mine or trade cryptos as it relates to any business they own will be subject to the country’s VAT, too.

The circular states that “a distributed means of payment is an intangible asset, and therefore anyone whose activity in the field is for investment purposes only, which does not reach a business, is not liable for VAT.”

It goes on to state:

  • A dealer whose receipts are accepted by means of a distributed payment method will be paid VAT according to his business activity, regardless of the manner of receipt, so that as a rule, VAT will not be paid.
  • A person whose activity in a distributed means of payment reaches a business (from such trade) shall be classified as a financial institution.
  • A person whose activities are mining will be classified as a dealer for VAT purposes.

Bitcoin investors are on their on

Last month, we told you about the Bank of Israel confirming its stance on Bitcoin and other cryptocurrencies, stating that it would not recognize them as actual currencies. The central bank also commented on how drawing up regulations to monitor the risks associated with digital currencies was a complicated process.

At that time, Israel’s Deputy Governor Nadine Baudot-Trajtenberg, said before the country’s parliamentary finance committee, that the government was not responsible for Bitcoin investors.

“The Bank of Israel’s position is that they [cryptocurrencies] should be viewed as a financial asset.”

Baudot-Trajtenberg pointed out that while the central bank was studying cryptocurrencies, there were few global precedents for how to regulate and monitor them since regulators worldwide had yet to draft rules for how central banks should tackle investors’ activity in the cryptocurrency space.

Israel’s move to tax cryptos as property mirrors U.S. tax policies.. The Internal Revenue Service treats cryptos as property, and subjects their gains to the capital gains tax.