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So how exactly do you join the Bitcoin celebration?

Many players in the virtual currency market are not aware that the State of Israel treats Bitcoin not as a "currency" but as an "asset."

Institutional bodies still do not know how to digest it, which requires you to know some important rules before you start trading

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• Bitcoin

Adv. Uri Goldman

Sunday, 03 January 2021, 15:38

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In the midst of a period in which the value of bitcoin continues to break records and shatter glass ceilings, more and more Israelis are looking for the fast track to join the celebration, and enjoy the rapid increase in virtual currency value - which this week crossed the $ 30,000 threshold and reached $ 34,000 today.

What new players in the virtual currency market ('crypto market') are not always aware of, is the fact that although in the business world and the virtual arena it is customary to refer to Bitcoin and the like as currencies for all intents and purposes, for Israel Bitcoin is not considered a currency. Other than foreign currency. In terms of tax law, it is considered an "asset." As such, it is subject to rules that anyone interested in trading Bitcoin must be familiar with.

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For the State of Israel, Bitcoin is not a currency at all

The main consequence of the fact that Bitcoin is not considered a currency for the Tax Authority - which has even received a reinforcement from a court - is that the tax to be paid in Israel on the profits from its sale is the same capital gains tax to be paid on each property realization.

Unless it is a business then it is a business income.

That is, if you bought Bitcoin at a certain price, and later sold it at a profit - you will have to pay tax of 25% of the difference between the sale price and the purchase price.

However, while similar action you would with the dollar, for example, that as part of the business, you did not have to pay any tax due to the tax exemption on the implementation currency exchange.

In certain situations, the fact that this is a property tax authority's perspective can also work in favor of those invested in bitcoin. Thus, in the event of a decline in the currency and selling the loss, the seller may offset his loss against capital gains on investments and other capital committed, and reduce the rate of tax he has to pay the same year.

In order to avoid complications that may result from the long arm of the tax Authority, should report For every transaction in Bitcoin (its sale, purchase of services or products through it, receipt of payment through it, etc.) as part of the annual income tax report.

These days, there are increasing reports of inquiries made by the Tax Authority to those who did not report that they made such transactions, which of course could lead to fines and additional penalties.

Another important implication, which stems from the fact that Bitcoin is not considered a currency in Israel, concerns the lack of applicability of the Cash Use Reduction Law to it.

The law that came into our lives about two years ago and seeks to eradicate the phenomenon of black capital in Israel, stipulates that you can pay in cash for transactions that are made with a business only up to a ceiling of NIS 11,000, and in the case of transactions not with a business up to NIS 50,000.

However, since Bitcoin is not considered "cash" from the point of view of the tax authority, which is also responsible for law enforcement, transactions for the sale or purchase of goods using Bitcoin can continue to take place without any restriction.

Beyond all this, it is also important to pay attention to the traditional rigidity of the banks in Israel that refuse to allow their customers to use the money they have saved for the purpose of buying or realizing virtual currencies.

The banks' reluctance to purchase and realize funds originating from Bitcoin and cryptocurrencies, even though these are considered completely legal in Israel, is ostensibly related to the strict rules that apply to them under the Anti-Money Laundering Law.

At the end of the day, banks are also afraid of competition, as the crypto market is conducted outside the bank except at the entry and exit points of the money (crypto / fiat).

Adv. Uri Goldman (Photo: Amit Shaal)

All in all, anyone who wants to take advantage of the opportunities brought by the crypto market in general and Bitcoin in particular, should take into account that this is a hybrid production that institutional bodies in Israel still do not know how to digest to the end, and be aware of all non-trivial rules. Wants its tax, and on the other hand, the banks make it difficult to transfer funds originating in crypto, even for the purpose of paying the tax to the tax authority.

The author is from the firm of Goldman & Co., an expert in taxation and anti-money laundering and chairman (co-chair) of the Anti-Money Laundering Committee of the Bar Association

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