Israel Tax Authority Unveils Taxation of Digital Currency Profits

The Israeli Tax Authority recently introduced a new procedure that will facilitate the payment of tax by owners of digital currencies, on their profits from these currencies. This move primarily addresses the challenge posed by the refusal of many banks in Israel to accept deposits from digital currency transactions, a concern often linked to fears of money laundering and terrorism financing. As of now, this procedure has not been published or presented to the public.

The Authority has stated that this procedure is set to be implemented at the beginning of 2024 as a six-month pilot program. It will allow holders of cryptographic assets to pay their taxes directly to the Tax Authority after declaring their profits and providing evidence of a local bank’s refusal to accept their funds. These currency owners will be able to deposit their tax payments into the Tax Authority’s account, either from a foreign bank account in countries not identified as higher risk or through a digital currency trading company.

Relatedly, this past October, the Israeli Supreme Court decided that Israeli banking laws allow banks to engage in digital currency trading. This decision came in response to a petition by Bits of Gold, a digital currency trading company, and the Israeli Bitcoin Association. The Supreme Court justices held that the legislature intended to include digital currency assets within the operational scope of banks, recognizing them as assets in the financial sector. The Court concluded that banks are indeed permitted to engage in activities related to digital currencies, in line with the literal and purposive interpretation of the Banking Law. The Court emphasized that the Bank of Israel (Israel’s central bank) and the entire banking system must seriously focus on regulating the supervisory aspects of the integration of digital currencies in the banking sector.