Crypto investments have their ups and downs. Sometimes people make profits, sometimes losses. But that is not the only challenge. If you make a profit, paying tax on crypto currency (e.g. bitcoin) profits isn’t easy.
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.
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 taxpayer must commit to paying the tax even if is not possible to remit the money from a foreign bank (presumably by cashing in Israeli real estate or other assets).
How will they check everything is legal?
First, the taxpayer must provide supporting documentation and a declaration that the source of money used to buy virtual currency was legal, and details of the virtual currency path or digital wallet used.
Comments:
The new ITA procedure is welcome but a number of questions remain. The ITA refers to virtual currency gains, but does not expressly mention gains from fungible tokens (NFTs). The new procedure relates to payment of capital gains tax – there is no discussion of business profits.
Wishing our readers a meaningful Passover. As always, consult experienced tax advisors in each country at an early stage in specific cases.