In a statement released this week, the Israel Tax Authority (ITA) announced that it has decided to treat digital currencies like Bitcoin as assets rather than as foreign currencies for the purpose of taxation. That announcement has come more than three years after Israel’s government first began talking about the possibility of taxing profits from Bitcoin trading.
This decision means that profits realized from the sale of those cryptocurrencies will be taxed using the nation’s current capital gains tax rate, which starts at 25%. In addition to the capital gains tax on those profits, the ITA announcement also indicates that commercial sales and trading transactions may also be subject to the Value-Added Tax, or VAT.
The lengthy delay in the decision-making process was no doubt due to the government’s initial uncertainty about how to treat Bitcoin and other cryptocurrencies. The Globes reported in September, 2013 that there were some questions about which tax model to use, given that Bitcoin was not recognized as an “official currency.” Still, some form of taxation was inevitable, as one source from the ITA noted at the time:
"We cannot ignore this phenomenon which one way or another involves financial transactions and therefore we are examining its importance."
With this most recent decision, Israel has apparently settled on the same approach to cryptocurrency taxation that the U.S. Internal Revenue Service adopted almost three years ago when it too decided to treat digital currencies as property rather than actual currencies.