By KTA News Team |

The draft Economic Arrangements Bill for 2023-2024 in Israel includes a provision that could impact taxation of new immigrants and returning residents on profits from digital assets. The relevant section empowers the Minister of Finance to determine the “location of a digital asset” according to the “residence of the owner” and “the connection of the asset to Israel.” If digital assets are located in Israel, income from these assets would be considered as income arising in Israel and subject to taxation, thereby circumventing the current law which entitles new immigrants and returning residents to a ten-year exemption from taxation on their overseas assets.

Currently, many new immigrants dealing in cryptocurrency use their overseas assets to take advantage of their legal exemption. The possible change in legislation regarding cryptocurrency could lead to immigrants to reconsider if to move to Israel.

Although the current Economic Arrangements Bill does not attempt to cancel the reporting exemption for overseas income and assets, the Israel Tax Authority has found a way around the exemption, stating that assets bought after immigration or return to Israel are liable to tax. The Authority’s position on the taxation of assets managed overseas has caused concern, particularly for those who actively trade in cryptocurrency.

The Israel Tax Authority responded by stating that the Chief Economist’s Department recommends primary legislation that would classify digital assets according to the residence of the owner. This would enable new immigrants and returning residents to claim a tax exemption on capital gains from the sale of digital assets bought before their return to Israel, subject to the Income Tax Ordinance’s provisions. However, digital assets reflecting the value of an asset or service in Israel would not qualify for the exemption.

Overall, the proposed legislation may negatively impact the taxation of cryptocurrency profits for new immigrants and returning residents in Israel, making it necessary for such individuals to obtain legal advice on their tax obligations.