Regulation of cryptocurrencies using the example of Israel

Today, the volume of the Israeli “black market” of cryptocurrencies is about 22% of GDP. Illegal transactions in this sector result in the state treasury, according to the Israeli Ministry of Finance, annually losing about 50 million shekels ($15 million) in uncollected taxes, which is equivalent to the country's education budget for 2017.

For the first time, information that a tax could be introduced on Bitcoin in Israel appeared back in 2013. Then the Israel Tax Service announced its intentions to introduce new methods of taxation of transactions carried out with digital currency.

The first attempts to introduce cryptocurrencies into the legislative field were carried out in this country in April 2014. But then the Israel Tax Authority was unable to give any specific recommendations, and only pointed out that due to the high anonymity of cryptocurrencies, transactions with them cannot be controlled, and therefore taxed. But, as a state financial regulator, it officially warned about the riskiness of such operations.

As a result, the decision was postponed until “better times”, which have now arrived. However, cryptocurrency users are unlikely to like it: the new taxation regime looks quite harsh and will require significant expenses from law-abiding citizens.

After several years of uncertainty, the Israeli Tax Service has published an official circular defining the procedure and rules for taxation of transactions carried out with cryptocurrencies.

The fact is that the Central Bank of Israel has not recognized Bitcoin as a currency or legal tender in general. This means that there are only two options left - to consider it a security or a commodity. The first option is impossible due to the absence of a single issuer that can guarantee the security and repurchase of the asset. Therefore, tax authorities decided to treat cryptocurrencies as a product. This means that transactions with them are difficult and a number of taxes are imposed on them.

So, if a company receives payment in bitcoins, it cannot process it as a payment - the transaction must be formalized as barter, which gives accountants a huge headache.  Assigning the status of a commodity to cryptocurrency forces many companies working with various types of cryptocurrencies to change their accounting. 

The Israeli Tax Authority has taken a rather simple position, since digital currency is also property, then, like everything else, it falls under the definition of assets and becomes taxable.. Based on the new bill, every company that buys or sells digital currency will have to report its income and losses to the government, just as it reports on any other assets. And if the income from cryptocurrencies of an individual reaches the enterprise level, he, like the enterprise, will be required to pay taxes.

Another problem is that if the owner decides to sell his assets in digital currency, then in order to pay the 25% tax on the gain, he will need to establish and prove to the tax authorities the original price of the assets. Otherwise, you will have to pay tax on the full amount of the sale. And you can only confirm the amount for which this “good” was purchased with an official bank statement.

Cryptocurrency exchangers with miners did not bypass the new rules; they must pay 17% VAT. It is worth noting that the document does not contain additional clarification regarding cryptocurrency mining. At the same time, according to HashFlare, interest in mining, including cloud mining, is growing. Thus, at the beginning of 2017, the company received over 10,000 new clients.

All this information is contained in a document published by the Israeli Tax Service. Service employees explained that the new version of the document was prepared in connection with repeated requests from people using digital currency.

Israeli tax authorities recognize all the difficulties that cryptocurrency users will encounter, but cannot deviate from the letter of the law. This means that difficult times are coming for Israeli Bitcoiners, who previously enjoyed complete freedom.

The introduction of a tax does not seem so strange against the backdrop of the rapid growth of the Israeli cryptocurrency market. The growing interest of ordinary users and large investors is confirmed by the multimillion-dollar investments made in Israeli startups in the field of cryptocurrency. 

According to http://finglobal.ru