Your taxes: Paying tax on bitcoin and other virtual currency profits

• Published date: 21 April 2024
• Author: LEON HARRIS
• Publication title: Jerusalem Post, The: Web Edition Articles (Israel)

The Israeli Tax Authority (ITA) generally only accepts Shekels from an Israeli bank. But Israeli banks typically refuse outright to accept money from crypto sources because they are worried about the risk of money laundering. The bad guys are thought to park ill-gotten gains in crypto

Why the tax? The Israeli Tax Authority's position is that virtual currencies such as bitcoins are taxable assets just like diamonds, for example. The tax on crypto profits will often be capital gains tax (up to 28% generally for individuals) but could be income tax at higher rates (up to 50%) if you are considered to be in business.

So the ITA has developed a new procedure for the good guys to pay tax on their virtual currency gains.

How to join the good guys:

The ITA launched the new procedure in a note dated December 31, 2023 (Ad Hoc Procedure For Receiving Tax Monies Regarding Profits On Means of Distributed Payments). The procedural note is initially valid for 6 months but the Israeli CPA Institute said on April 7 that the ITA may well extend it. And on April 3, the ITA published Tax Form 909 to enable taxpayers to invoke the new procedure.

The procedure paperwork is intended to facilitate payment of tax with money originating from virtual currency if the taxpayer has no other way of paying the tax due. This includes tax on illegal income. A key requirement is that the taxpayer can show at least one Israeli bank refused to accept virtual currency, or open an account to accept it. An Assessing Officer may then determine the tax due on virtual currency gains and reach a tax "assessment agreement" or the taxpayer may file a "self assessment". These do not necessarily preclude criminal proceedings.

The taxpayer must then remit in shekels the exact amount of tax from a foreign bank account, or a foreign virtual currency account, investment account or financial service provider account at a foreign bank. The account must be in the taxpayer's name or reasonably linked to the taxpayer in the Assessing Officer's opinion. Currency conversion charges to shekels must be borne by the taxpayer.

Conditions:

In brief, the tax is non-refundable, and no losses, deductions or credits involving other income are possible under this procedure. The taxpayer must waive confidentiality and allow the ITA to pass on details of the assessment agreement/self-assessment to other authorities, including the Anti Money Laundering Authority, Israeli Police and Bank of Israel. On Form 909 the...