Legal Updates

Bitcoin is not a currency exempt from evaluation taxation but an asset taxable upon sale

May 19, 2019

A purchaser of Bitcoin sold it about two years later at a profit of approximately ILS 8M. The tax authority imposed capital gains tax on the profit.
The Court rejected the appeal and held that under the definition of “Foreign Currency” in the Bank of Israel Law, a Bitcoin is an asset and not a currency and, as such, is taxable as such. Currency evaluation is tax-exempt, as opposed to the sale of an asset, which is subject to capital gains tax. Israeli law defines currency as a physical-tangible asset and requires that certain countries accept it as consideration for repayment of debt. Bitcoin units are computer records, lacking any physical-tangible aspect, and. as such, do not meet the definition of “Foreign Currency.” Also, Bitcoin units are not recognized in a certain country as something that must be accepted toward repayment of debt, are not backed by a central bank involved in their trading in order to prevent excessive exchange rate fluctuation and do not serve as a means of exchange for transferring commodities. They do not accrue value and do not serve as units for calculating value. Although the Bitcoin may someday become a “currency”, it is not currently recognized in Israel as a “foreign currency” and, as such, will be taxed as an asset upon sale.