Israeli Tax Authorities Notify Cryptocurrency Owners to Disclose Their Holdings for Taxation Purposes

The revenue collector, the Israel Tax Authority (ITA) has reportedly sent notifications to dozens of Israelis who own digital currencies asking them to fully disclose their assets and be taxed accordingly. In addition to sending letters to local citizens, the tax body has also sent inquiries to cryptocurrency exchanges operating in Israel and those based outside the country.

Data Sharing

Reports of the notifications and inquiries being sent by the revenue collector were preceded by Israeli media speculation that tax assessors across the country were exerting “pressure on the digital currency market.” However, as Globes is now reporting, the ITA wants to “obtain information about Israelis trading in these currencies.” Before sending notices and inquiries to crypto exchanges, the Israeli revenue collector had been receiving “data about the Europe-based funds and accounts held by Israelis.”

Israel receives this data in line with the “EU Common Reporting Standards (CRS) regulations for the automatic exchange of financial account information.” Similarly, the Israeli tax collector is reported to have a different arrangement with its counterpart in the United States. The report explains:

Additional information comes through the FATCA agreement, which conveys the US Internal Revenue Service (IRS) data to Israel.

Meanwhile, the Globes report tries to tie the “renewed interest” in the taxation of cryptocurrencies “to the revival in digital currency, especially the leap in bitcoin, along with an intense need to fill state coffers.”

Capital Gains Tax

Still, prior to its latest interest in taxing cryptocurrency holders, the ITA had published its position on cryptocurrencies back in 2018. According to that published document, Israeli “investors in digital currencies are subject to a 25% capital gains tax, as long as their activity does not turn into a commercial enterprise.”

Nevertheless, in the event of this becoming a commercial activity, “proprietors will be charged a two-stage corporate tax, or a marginal tax according to the individual tax brackets.” In the meantime, according to the Globes report, the Israel Tax Authority’s letters to Israeli crypto holders are intended to encourage them voluntarily “report their income before the tax authority gets to them.”