Israel is considering granting an exemption from capital gains taxes on the sale of digital currencies to foreign residents. A bill proposing the exemption and other tax benefits for digital asset holders passed its preliminary reading in the Israeli parliament, the Knesset, on June 5. The bill, sponsored by Knesset member Dan Ilouz and enjoying the support of ruling coalition parties, aims to enhance the appeal of Israeli companies in the digital currency industry and reduce the regulatory gap.
The bill suggests exempting foreign residents from capital gains tax on the sale of digital currencies from Israeli-based companies. This move aims to attract global investors and bolster Israel’s regulatory framework for the digital currency industry. The exemption is expected to broaden regulatory openness and endorse the use of cryptocurrencies in the country.
Additionally, the bill seeks to align tax treatment for crypto bonuses with stock options for employees by reducing the current 50% tax rate on crypto bonuses to 25%. This adjustment aims to provide parity and incentivize the use of digital assets as employee compensation.
The bill proposes using the term “digital currency” separately from “security” in the regulatory framework. This differentiation comes after concerns arose when the Israeli Securities Authority (ISA) included digital assets under the “security” category in its proposed regulatory framework at the beginning of 2023. The bill aims to address these concerns and provide clarity on the classification of digital currencies.
According to Nir Hirshman and Shauli Rejwan, co-founders of the Israeli Crypto Companies Forum (ICBW3), the passing of this bill signals Israel’s endorsement of cryptocurrencies and its intent to attract global investors and businesses. They see it as a broadening of regulatory openness in the country, similar to actions taken by other nations, such as the United Kingdom. The bill reflects the government’s commitment to supporting and invigorating the local cryptocurrency sector.
In April, the Bank of Israel revealed its interest in exploring a central bank digital currency (CBDC) project. Although no formal decision had been made at the time, the bank’s special committee outlined potential scenarios for the development and deployment of a digital shekel.
Israel’s proposed bill, which includes a capital gains tax exemption for foreign residents selling digital currencies, reflects the country’s efforts to enhance its appeal to global investors and businesses in the digital asset industry. By providing tax benefits and addressing regulatory gaps, Israel aims to foster growth and innovation in the sector. The bill’s passing demonstrates the government’s endorsement of cryptocurrencies and its commitment to creating a conducive environment for the industry to thrive.
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