As we enter 2024, two significant regulatory procedures concerning cryptocurrencies are anticipated to be released. The first is a regulation framework for accepting tax payments derived from cryptocurrencies and virtual currencies. This aims to resolve existing challenges faced by banks when processing tax payments sourced from virtual currencies. The second initiative is a voluntary disclosure procedure for income generated through cryptocurrencies. This procedure encourages individuals to proactively declare their cryptocurrency earnings and pay the corresponding taxes for previous years.
We will review both of these anticipated procedures in this article. It is important to emphasize from the start – the voluntary disclosure procedure may be aggressive, and it is advisable to report the income within the framework of tax liability regulation even before its enforcement begins.
Cryptocurrency Income Reporting Procedure – Tax Payments from Cryptocurrency
Income from the sale of cryptocurrencies and additional virtual currencies is subject to capital gains tax in Israel. For more details about cryptocurrency taxation and income classification, click here. The Israeli Tax Authority has prepared a draft of a new procedure for reporting on cryptocurrencies starting from the year 2023. This procedure is expected to enrich the state treasury by millions of shekels.
The procedure will enable the reporting of current income. Additionally, it is designed to address the refusal or difficulties posed by banks in accepting money related to cryptocurrencies, due to fears that it might be challenging to prove that they are not associated with money laundering or terrorism financing. The purpose of the procedure is to regulate the process and inspections that will enable the acceptance and collection of tax money derived from virtual currency activities into the bank account of the Israeli Tax Authority.
The procedure applies only to those who have proven that they previously attempted to transfer funds to a bank. The reporting according to this new procedure will include, among other things: details of the taxable income, the due tax, and bank documentation on the refusal to accept the funds. The tax assessor will determine the tax liability. Unlike the voluntary disclosure procedure, this specific procedure for cryptocurrencies does not provide protection from criminal liability due to the reporting of cryptocurrency incomes. For further details about the procedure, click here.
Cryptocurrency Voluntary Disclosure Procedure
The Israeli Tax Authority has also prepared a draft voluntary disclosure procedure pertaining to cryptocurrency income. Those who have not reported income or who have evaded taxes until now, will be able, under this procedure, to report for previous years and regulate their tax payments. The goal is to allow residents to proactively approach the Tax Authority to regulate the reporting of unreported cryptocurrency assets and income.
To avoid the stringent conditions of the new voluntary disclosure procedure and its sanctions, it is recommended to approach a tax expert office before the official procedure takes effect, to regulate the tax liability. Our office, in a structured accompaniment process of our clients, classifies the income optimally and most suitably to the circumstances, and will determine the correct method of reporting – whether reaching a tax assessment agreement or submitting reports for previous years. In certain situations, it is advised to obtain a legal opinion from a tax office about the source of the funds and the classification of the income, and the absence of money laundering. Such a tax opinion may also assist in transferring the funds to a bank account.
Ultimately, regulating the tax liability arising from cryptocurrency and virtual currency income will allow for the use and enjoyment of the funds without criminal risk.
For information about the general voluntary disclosure procedure, click here.
An initial consultation with our office can be held free of charge, so you can understand if further treatment is needed and the level of urgency.
