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Crypto Taxation in Israel

A stylized graphic of a Bitcoin symbol centered within a complex network of interconnected lines and dots, representing the digital and decentralized nature of blockchain technology. The background is a soft gradient, enhancing the focus on the Bitcoin and its connected elements, symbolizing the intricate connections within the cryptocurrency system.

Many crypto investors are experts in analyzing market dynamics and are familiar with the world of technology as well as the realm of decentralized cryptocurrencies (crypto). However, to comply with Israeli tax laws, they must be aware of the Israel Tax Authority's (ITA) stance on transactions conducted in cryptocurrencies, such as Bitcoin.


According to the ITA, every Israeli resident must report gains and losses from any transaction involving Bitcoin or any other cryptocurrency (including conversions between currencies). The ITA treats Bitcoin and other cryptocurrencies as assets, not as currency. Thus, although Bitcoin is known as a decentralized currency, for tax purposes in Israel, it is considered an asset, similar to real estate.


As per the Tax Authority's stance, if you sold or converted Bitcoin, you are obliged to report the transaction to the income tax authorities and calculate your tax liability based on the profit generated from that transaction. The Tax Authority has repeatedly emphasized the need to report trades, investments, or any activity involving virtual currencies (such as Bitcoin, Ethereum, Solana, and other cryptographic currencies) as taxable.


Regarding crypto taxation in Israel, for example with Bitcoin, the Tax Authority expressed that selling or converting the currency is more akin to selling a valuable art collection than a foreign currency exchange transaction. Therefore, transactions in cryptocurrencies (including conversions from one to another) are subject to the same tax rules as asset transactions, which include a reporting requirement. The imposed tax is capital gains tax, which stands at 25% for individuals in Israel.


It's important to remember that the tax on the sale of cryptocurrencies, like Bitcoin, is only levied on the profit from the sale, not on the total amount. The Income Tax Ordinance defines the sale of an asset as an event where the asset "leaves the possession of a person," so any action of selling or converting crypto (such as Bitcoin) is subject to capital gains tax and thus requires reporting.


This means that even converting Bitcoin in exchange for a service, product, or other asset (such as another cryptocurrency) is considered a sale by the ITA and therefore is subject to reporting and taxation. For example, if you transfer Bitcoin to someone in exchange for a gift card or a new laptop, a barter transaction (conversion) occurs where the Bitcoin is sold in exchange for a product or service. Hence, any payment made in Bitcoin is considered a sale of that Bitcoin.


The price at which you sold the Bitcoin will be the value of the consideration received – if it's a new laptop, the sale price will be the value of the laptop you received. It's important to know that tax events must be reported even if no money is withdrawn back to your bank account.


As mentioned, reporting and paying tax is also required in the case of conversion between one cryptocurrency and another. For example, if one Bitcoin is exchanged for 10 Ethereum coins, the profit or loss is calculated as the difference between the purchase price of the Bitcoin in shekels and the value of the Ethereum coins.


If you bought one Bitcoin for 50,000 shekels and at the time of conversion to Ethereum, the Ethereum rate was 6,000 shekels, the profit from converting the Bitcoin to 10 Ethereum coins would be 10,000 shekels, and the derived tax would be 2,500 shekels (25% of the profit).


It's also important to pay attention to the reporting dates and especially to the method of calculating the tax, but above all, it's important to note - the reporting obligation applies to every Israeli resident on all transactions conducted anywhere in the world, and it doesn't matter how the trade was carried out. Also, note that each tax year must be reported separately.


The tax system works both ways. Just as transactions that are conducted are taxable, in the case of losses, investors can benefit from tax shields by offsetting losses which will reduce the tax liabilities of the investor and even receive tax refunds (money to your bank account from the income tax authority).


For example, the year 2018, which ended with Bitcoin price declines, allowed investors who chose to realize their investments to register losses. Losses from Bitcoin investment can be offset against capital gains from other capital investments. For example, a loss incurred in Bitcoin can be offset against a profit from a real estate investment or a stock market investment, and of course, against profits from other cryptocurrencies accumulated in later years.


Note that to recognize these losses or profits, a sale or conversion of the cryptocurrency must be conducted. Our office is ready to assist with tax calculations and submitting various reports to the Israel Tax Authority.

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We strive to ensure that each article is informative and relevant, but remember that every situation is unique and that the articles are accurate as of their date of writing. Therefore, the contents of these articles should not be seen as recommendations or advice.

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