The Israel Tax Authority announced a landmark initiative today (Monday) aimed at streamlining cryptocurrency trading in Israel. A draft regulation released for public comment represents a significant step forward in easing restrictions. This development particularly benefits Bitcoin holders with assets valued up to 400,000 shekels ($112,800).
The new draft proposes exempting traders from annual reporting requirements when their profits come from digital asset trading through supervised entities that handle tax deductions. In practical terms, this means cryptocurrency traders using regulated platforms with proper licensing will still pay taxes, but the process will be simplified. The licensed entity – whether a bank or investment house – will handle tax deductions directly, eliminating the need for separate tax filings for those whose only additional income is their salary.
This reform carries dual significance. First, it incentivizes cryptocurrency trading through regulated and authorized platforms by removing the burden of intrusive tax reporting – a first for the Tax Authority. Second, it marks a shift in the authority's approach to public relations, emphasizing minimal friction with citizens.
The practical impact is substantial: previously, anyone profiting from cryptocurrency, including regular salaried employees, faced mandatory tax return filings and the associated costs of hiring accountants. Under the new framework outlined in these draft regulations, a salaried employee holding cryptocurrency worth up to 400,000 shekels ($112,800) only needs to trade through a supervised entity that manages tax deductions, significantly simplifying the process.
The regulations, developed collaboratively by the Tax Authority, the Chief Economist Division, and the State Revenue Administration, align with Government Decision No. 204 of February 24, 2023, on "Promoting the Regulation of Digital Asset Activity." They also build upon the Chief Economist at the Ministry of Finance's comprehensive report on digital asset sector regulation.
