Paying Tax On Bitcoin And Other Virtual Currency Profits

The Israeli Tax Authority has developed a new procedure for the good guys to pay tax on their gains from bitcoins and other virtual currencies.

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.

The Israeli Tax Authority (ITA) generally only accepts Shekels from an Israeli bank. But Israeli banks typically refuse outright to accept money from crypto sources because they are worried about the risk of money laundering.  The bad guys are thought to park ill-gotten gains in crypto.

Why the tax?

The Israeli Tax Authority’s position is that virtual currencies such as bitcoins are taxable assets just like diamonds, for example. The tax on crypto profits will often be capital gains tax (up to 28% generally for individuals) but could be income tax at higher rates (up to 50%) if you are considered to be in business.

So the ITA has developed a new procedure for the good guys to pay tax on their virtual currency gains.

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.

The taxpayer must then remit in shekels the exact amount of tax from a foreign bank account, or a foreign virtual currency account, investment account or financial service provider account at a foreign bank. The account must be in the taxpayer’s name or reasonably linked to the taxpayer in the Assessing Officer’s opinion. Currency conversion charges to shekels must be borne by the taxpayer.


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.

Second, the taxpayer must provide confirmation of the virtual currency consideration deposited at a foreign financial service provider, which must be regulated in Israel or abroad and not in “risky country” (not defined).

Third, checks will be carried by the ITA Deputy Director of Investigations and others to ensure the taxpayer is not blacklisted by the EU, OFAC (US Treasury  Office of Foreign Assets Control) or other information sources in the last 10 years.

Fourth, the taxpayer and related parties must be up to date with their Israeli tax filings.


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.

And there is no discussion of where the virtual currency gains arise. Is the virtual currency situated in Israel or abroad? Where is the relevant cloud or blockchain?

This is an issue for Olim still in their 10 year Israeli tax holiday for foreign income and gains. If they make Israeli source profits, they are taxable in Israel and may need to consider filing form 909. If they make foreign source profits, the opposite may apply – but from 2026 they must report exempt foreign source profits anyway.

Next Steps:

Please contact us to discuss any of the above matters further, or any other matter.

As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.

[email protected]

(c) Leon Harris 21.4.24

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