Posts

Bitcoin is Property Under Israeli Tax Law | Cryptocurrency Tax Lawyer

On February 19, 2018, the Israel Tax Authority (“ITA”) stated in a circular to tax professionals that cryptocurrencies, such as bitcoin, are property under Israeli tax law. This view brings the Israeli tax law very much in line with the IRS position in the United States.

Cryptocurrency is Property under Israeli Tax Law and Subject to Israeli Taxation

After years of vacillation, the ITA took the hard stance and stated that virtual currencies should be treated as intangible assets. This is a position very similar to the IRS in the United States, which declared in March of 2014 that it will consider and tax cryptocurrencies as property.

The ITA position leads to the logical conclusion that any income generated by these assets (including from the sale of cryptocurrencies) will be subject to Israeli taxation. The exact level of taxation will depend on whether a taxpayer is engaged in a business activity.

Cryptocurrency as a Non-Business Property under Israeli Tax Law

If a taxpayer’s activities do not rise to the level where a taxpayer would be considered as carrying on a business, he will not be subject to the Value Added Tax (“VAT”). This individual, however, will still have to pay the Capital Gains Tax (“CGT”) on any gains from the sale of bitcoins and other cryptocurrencies. The current CGT rate in Israel for individuals is 25%.

On the other hand, it appears that capital losses incurred by investors in crytocurrencies (a topic of special relevance today in light of the recent huge drop in the value of bitcoins) can be used to offset any capital gains. Furthermore, these losses can be carried forward to future tax years.

Cryptocurrency as a Business Property under Israeli Tax Law

It gets a lot worse for businesses. First of all, the “mining” of virtual currencies (this is process of solving algorithms to create a new unit of a virtual currency) will be generally subject to 17% VAT. The VAT is imposed only on the mining itself; it appears that the trades thereafter will not be subject to VAT.

Second, any taxpayer engaged in the business of trading virtual currencies will be classified as a financial institution for the VAT purposes.

Finally, businesses that conduct transactions with virtual currencies should report them on their business tax returns. Any capital gains generated by cryptocurrencies will generally require businesses to pay the CGT up to the maximum rate of 47%.

ITA Circular on Cryptocurrencies as Property Under Israeli Tax Law Can Be Challenged in Court

It should be kept in mind that the circular issued by the ITA represents only the ITA’s position on cryptocurrencies as property under Israeli tax law. This circular is not the final law and it can be challenged in courts.

Contact Sherayzen Law Office for Help with US Tax Planning and Tax Compliance Concerning Ownership of Cryptocurrencies

If you are a US taxpayer who owns or deals with cryptocurrencies, you may have a significant exposure to US taxation.   If you would like to find out more about US taxation of cryptocurrencies, contact Sherayzen Law Office to schedule a confidential consultation.

South Korean Cryptocurrency Taxation of Exchanges | IRS Tax Lawyer

In January of 2018, South Korea announced that it will start taxing cryptocurrency exchanges. This is a highly important development in international tax law concerning cryptocurrencies, because South Korea is a major hub for cryptocurrency trading. Let’s delve a bit deeper into South Korean cryptocurrency taxation.

South Korean Cryptocurrency Taxation of Exchanges

The first important point to make is that the new law affects only South Korean cryptocurrency exchanges, such as Bithumb and Coinone.

South Korean Cryptocurrency Taxation Starts With Tax Year 2017

The new South Korean cryptocurrency taxation will apply retroactively to any income derived from digital currency in the calendar year 2017. In other words, any profits the exchanges realized in 2017 on the trading of cryptocurrencies will be subject to the South Korean corporate taxation.

South Korean Cryptocurrency Taxation Rates

There is no new special tax rate created for cryptocurrency exchanges. Rather, the current corporate income tax rates will apply. In other words, the cryptocurrency exchanges are likely to pay a 22 percent tax rate for corporate profits exceeding an annual threshold of KRW 20 billion and an additional 2.2 percent local income tax (which constitutes 10 percent of the corporate income tax rate).

South Korean Cryptocurrency Taxation Deadlines

The deadline to pay the corporate income tax for the tax year 2017 will be March 31, 2018. The deadline to pay the 2017 local income tax will be April 30, 2018.

South Korean Cryptocurrency Taxation is Part of the South Korean Overhaul of the Cryptocurrency Market

The extension of corporate taxation to cryptocurrency exchanges is part of a major overhaul of the entire South Korean cryptocurrency market.  In fact, the South Korean government has instituted a number of non-tax measures to address concerns about money laundering and tax evasion.  For example, South Korea recently prohibited the opening of new virtual accounts for cryptocurrency investors while the cryptocurrency traders are required to change the names of their accounts to make them identifiable.

Cryptocurrency Trading is Taxable in the United States

Sherayzen Law Office reminds US taxpayers cryptocurrency exchanges are taxable in the United States as capital gains. Contact Sherayzen Law Office to schedule a consultation to learn more about US taxation of cryptocurrencies.