The government of Israel has just released a draft on the potential ways that it will be regulating and viewing the concept of initial coin offerings. The government will also reveal possible methods of taxation for it.
The regulators of Israel have published the information on Wednesday. The information released by their Israeli Tax Authority notes that it may look into implementing a (VAT) on the new fundraising vehicles known as ICO’s. A VAT or a value-added tax, according to Investopedia, is a type of consumption tax that is placed on a product whenever the value is added at a stage of production and at the point of retail sale. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that has already been taxed.
The Israeli tax authority clarified that there would be two forms of taxation on Initial Coin Offerings; the former will be classified as service transactions while other is sales transactions. This sticks to the traditional definition of VATs, where taxes are added to instances where the value is added at the stage of production or at the point of retail sale. The information released goes on to show that offerings to people who reside in other countries would have a negligible tax invoice.
The initial version of the released framework has commented on how the taxation authority would take action on incorporated companies who are deploying their token generation events, but there’s caution. The document remains somewhat opaque on the matter of cryptocurrencies.
The initial framework revealed that there would be several ways to label blockchain based business entities who are having token generation events. The labels would apply in segmenting the varied the services or products that could be provided by these business entities. The framework did also note the sort of business models that could be taken on by the potential corporation.
Those token generation events that take more than fifteen million Israeli new shekels in investment will have to abide by ledger regulations.
Taxes that a company will have to hand over can change depending on when the company assesses its tax liability. If the company determines the tax liability at the end of the fiscal year, it may see something different; if it does so in the middle of the fiscal year, it may see another number.
Investors don’t escape taxation
According to the text, those investors who snap up the tokens and then sell them will also have a tax liability.
But these tax plans are not set in stone, as noted above, they are an initial draft, and as an initial draft, they have to undergo various changes, public input and more before it is finally passed.