Many times in the past Israel’s financial regulators has made a surprising move to welcome Initial Coin Offerings (ICOs) and Cryptocrurrencies in general. But now Israel issues Taxation on ICOs, also provided guidelines to conduct ICO projects. Professor Shmuel Hauser, ex-chairman of the ISA in his speech in December at the Israeli Coporation Conference, talked about the main hurdles that the regulatory body still has to deal with;
“We will have to bring order to the market. Some countries decided to examine digital tokens on a case by case basis. A small number decided to ban them. We have decided to find out, with a team headed by the chief economist and the head of the corporations division, under which term is it, a security, coin or some hybrid I call a security-coin?
“I believe that the topic of digital currencies and their offerings must receive a favorable regulatory response, maybe even daring somewhat, to give a chance for the option to develop an International financial centre for security-coin from the type of ICOs”
Earlier Hauser also proposed to ban Bitcoin firms from stock exchange. Israel has always prided itself as the ‘Startup Nation’ as such it is only natural that it will want to encourage innovation and be a significant player in the blockchain space.
There is a draft circular from the Israel Tax Authority proposes imposing a value-added tax (VAT) on ICOs released yesterday, differentiating them into two types: service transactions and sales transactions. The draft appeared to indicate that goods or services offered to foreign residents would result in "a zero tax invoice" under current law.
This particular move by the regulators in Israel is worthy of note considering that the country has witnessed several start-ups raise significant funds through the ICO process – notable amongst them is Bancor that raised a little over $150 Million in June.
The amount of taxes owed can fluctuate if a company determines its dues at the end of a year – as opposed to during the year – with the text going on to explain:
"In cases where the tax liability is determined on a cash basis, at the end of the year, the buyer or recipient of a service is a resident of Israel or vice versa, it is possible that the tax rate for the transaction will change according to the provisions of the VAT Law."
Investors who sell the tokens they had already purchased from an ICO would be subject to taxation as well, the circular explained. However, groups which trade as a business would be "classified and registered as a financial institution" specifically for tax purposes, according to the draft.