Tax payments for crypto investors

ITA approves direct tax payments for crypto investors

The Israel Tax Authorities (the "ITA") published, as part of a temporary directive, a procedure allowing taxpayers who gained profits from the realization of cryptocurrency, and were declined from opening a bank account in Israel by the Israeli banking system, to pay the taxes owed from the realization of such cryptocurrencies directly to the bank account of the ITA (the "Procedure").

The Procedure governs the workflow and requirements necessary to enable the ITA, on the one hand, to receive and collect the tax resulting from the activities of these taxpayers in cryptocurrencies, and on the other hand, to prevent money laundering through the payment of the taxes, due to the inherent risks of money laundering associated with crypto currency activities.

The application to the ITA would include, among others, the following information and declarations:

1. A breakdown of the taxpayer activity in cryptocurrency, including the cost and proceeds from the realization of cryptocurrency, taxable income, and tax liability, a worksheet would be attached to the application.
2. The taxpayer must furnish an explanation and supporting documentation regarding the source of the funds used for purchasing cryptocurrency, names of exchanges, trading platforms, and public exchanges involved in the activity, public wallet addresses, and the movement of currency throughout the holding period.
3. Information on foreign accounts/entities from which the tax payment is requested to be transferred
4. Confirmation from an Israeli commercial bank regarding the refusal to transfer tax funds to an Israeli bank account or refusal to open an account in Israel. 
5. Commitment to pay the tax owed regardless of the approval of the request to transfer funds from a foreign bank account to the ITA's account.
6. Waiver of confidentiality allowing the ITA to share relevant information with the Israel Money Laundering and Terror Financing Prohibition Authority, Israel Police, and Bank of Israel. 
7. Irrevocable agreement that the tax payment made under the procedure, whether through assessment agreement or self-assessment, will not be refunded to the taxpayer, even if credited in subsequent tax years due to losses, deductions, or credits not reflected in the assessment. Additionally, the tax payment made under the Procedure will not be credited to the taxpayer's account for other taxable income, except for income subject to this Procedure.
8. Confirmation that paying the tax obligations according to the procedure would not diminish criminal liability under any law. 
9. Statement affirming that the source of funds used to purchase the cryptocurrency generating income was legal. Tax Alert: ITA approves direct tax payments for crypto investors 
10. Declaration that the taxpayer and/or their spouse are the sole owners of the cryptocurrency in question.
11. Confirmation that the tax payment will be made solely from income derived from the realization of cryptocurrency.
12. For taxpayers with an additional citizenship (other than Israeli), attachment to the application a photocopy of the foreign passport.
13. The ITA may request additional documentation as deemed necessary to verify the accuracy of the taxpayer's statements and to establish the assessment. Detailed instructions regarding the Procedure are included in the publications of the ITA. This Procedure is valid until the end of June 2024. We will keep you informed of any development with respect to the Procedure. Grant Thornton Israel Tax department has vast experience in supporting clients in dealing with the ITA, including vast experience with tax aspects of investing in Crypto Currencies. Please do not hesitate to contact us for more information and to set a confidential meeting to discuss your personal situation.