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For the First Time: An Arrangement for Attracting Crypto Profits in Israel - Walla! money

2024-01-01T06:44:12.395Z

Highlights: For the First Time: An Arrangement for Attracting Crypto Profits in Israel - Walla! money. Today, a route bypassing banks came into effect that allows you to withdraw crypto profits and pay tax on them – this is a temporary solution that will be valid for only six months. The Tax Authority's solution proposes bypassing the banking system and opening a narrow window of opportunity of six months for paying tax on these profits. In the following lines I will try to put the issue in order and offer a better solution than that of the Tax Authority.


Today, a route bypassing banks came into effect that allows you to withdraw crypto profits and pay tax on them – this is a temporary solution that will be valid for only six months


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The difficult economic situation in which the State of Israel finds itself is causing the Tax Authority to think of creative solutions to fill the gap in the state coffers. One of the latest ideas concerns crypto profits, which the state finds difficult to tax, mainly due to banks' unwillingness to cooperate on the issue due to the Prohibition on Money Laundering Law.

The Tax Authority's solution proposes bypassing the banking system and opening a narrow window of opportunity of six months for paying tax on these profits. In the following lines I will try to put the issue in order and offer a better solution than that of the Tax Authority.

Bitcoin Wallet/ShutterStock

Is a person who profits from digital currencies liable to pay tax?
According to the Income Tax Ordinance in Israel, a person who gets rich and earns as a result of the realization of digital currency is liable to income tax, whether it is capital gain or income from business activity. Accordingly, tax rates can reach up to fifty percent.

Is it possible to pay tax by converting funds originating in digital currency?
The banking system in Israel does not allow receiving funds originating in digital currency. Due to regulation and the Prohibition on Money Laundering Law, which require knowing the source of money, it has become difficult to prove legality and compliance with money laundering conditions in the world of digital currencies.

As a result, a person who made money in crypto, and wanted to pay tax by redeeming the digital currency to shekels, cannot currently pay tax due to the inability to prove the legality of the source of the money. This causes a huge loss of state tax revenues.

Here, in effect, a distortion is created, when the State of Israel, on the practical level, does not provide an accessible, systemic and appropriate solution that will make it possible to pay the tax as is customary in various countries, but on the other hand demands payment of this tax.

What solution does the Tax Authority offer?
The Tax Authority has recently published a procedure that will allow a person to pay tax by redeeming digital currency, as long as it is proven to the Tax Authority that the person contacted at least one bank in Israel that refused him in this regard. The Authority published a detailed procedure that includes the possibility of depositing money in shekels into the Tax Authority's bank account only from a foreign bank account supervised in Israel, among other conditions. This is a window of opportunity that opens in January 2024 and lasts only six months.

As part of the procedure, the citizen contacts his local tax assessor, details his business activities, profits and the tax required to pay. The tax assessor will determine the tax liability within the framework of a signed assessment agreement between the reporter and the income tax. The main innovation is that after signing the agreement, the tax amount payable will be deposited in shekels only, directly in the Tax Authority's bank account, where the source of payment can be a foreign bank account, including an account of a crypto trading exchange, investment house or any other foreign financial service provider, which was not possible until now.

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Does the solution also include a solution for criminal exposure, if any?
Until now, many traders in the crypto arena have not reported their profits to the tax authorities, which has caused a tax offense of non-reporting and non-payment of tax in cases where the tax has also not been paid.

The procedure clarifies that signing an assessment agreement will not affect criminal proceedings, meaning that tax reporters still have criminal exposure if they did not report and/or did not pay tax. At the same time, it seems that the procedure can help these people find a solution and a new way of dealing with tax offenses, if they were committed, in order to reach a settlement under the law.

What is the criticism of the move?
One problem with the proposed solution is that six months is a very short period when it comes to special tax arrangements. The main criticism is that the state does not really solve the entire problem, but only on a specific basis, and simply puts itself in the shoes of the bank and bypasses the established banks, only for the specific purpose of raising tax collection.

A more correct and professional solution is to enable this response on a permanent basis, and also to allow international banks specializing in crypto trading to open branches in Israel in order to lawfully tax crypto profits obtained abroad in Israel, and also to meet the main obstacle of the Prohibition on Money Laundering Law.

The problem of paying tax has existed for years, but it seems that in recent years its intensity has increased and the scope of tax losses in Israel has increased. Against the background of the war and the budget deficit and the possibility of crypto players realizing funds abroad, it seems that the Tax Authority is looking for new ways to solve the issue and increase tax collection.

The Authority can be complimented for its creativity and for the fact that, as far as it is concerned, it is trying to make it easier for those crypto players, just for the purpose of tax collection. However, it seems that this is an interim solution and Israel is still far from leading countries in the crypto field such as Albania and Malta, which attracts many investors thanks to its advanced services in the crypto industry, and a regulatory and banking and tax response, which attracts traders in the field to come to the country.

The writer is Managing Partner of the Taxation Department at Auren Israel

  • More on the subject:
  • Crypto
  • Bitcoin
  • Taxes
  • Taxation
  • Tax Authority

Source: walla

All business articles on 2024-01-01

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