With tax season approaching in various countries, some cryptocurrency holders in such territories are either wondering how their digital assets will be taxed, or if they will even be taxed at all (which many hope is the case, even if it does not sound that realistic).
However, the citizens of Israel do not have to wonder anymore, as the Israel Tax Authority has finally declared that it will be taxing cryptocurrencies as “assets,” where their holders will be subject to capital gains tax.
In a recent advisory that was published through its website, the Israel Tax Authority clarified that despite their widely known name of “cryptocurrencies”, the digital instruments cannot actually be termed or taxed as “currencies” due to the way that they function in the financial markets, and will thus be taxed as the segment that they come the closest to, in terms of functionality and purpose.
These views are similar to the comments that authorities have shared previously through a first draft of the updated advisory, which went along the same lines of terming cryptocurrencies as assets for the tax season.
Details on the taxes
This final advisory that has now been published will allow the tax authorities to move forward with levying taxes properly according to the shared guidelines.
25 percent capital gains tax will be levied for individual holders of cryptocurrencies for profits gained from these financial assets.
Businesses and exchanges that hold these assets for their day to day operations will be subject to a 17 percent value-added tax (VAT).
The same VAT will apply to individual holders that are involved in mining activities or frequent trading with their cryptocurrencies. However, individual holders that only obtained cryptocurrencies as a form of investment will not be subject to VAT.
How is this going to affect the local cryptocurrency community?
This is just one of a series of moves taken by the government to ensure that it does not turn a blind eye to a money making sector that is a very viable market to obtain taxes, provided that proper guidelines and classifications are set in place.
Therefore, seeing the gains that the cryptocurrency community obtained in 2017, especially in the last two months of the year, it was inevitable to see proper classifications of tax segments by the government only so the process of taxes could be put into place without any further delay.
What further took the element of surprise away from this classification and the government’s intentions to collect taxes from the cryptocurrency community was the draft legislation that was put in place last month to levy taxes on initial coin offerings (ICOs).
With more and more cryptocurrency based financial products in talks all over the world, it will be interesting to see how tax authorities handle them in the next few years and how their model of levying taxes on them deems different from conventional financial products or services that are derived from the fiat sector.