Is Crypto Reportable to the Israeli Tax Authority?

Crypto and Tax Reporting – The Question We Hear Frequently

In recent years, an increasing number of freelancers, business owners, and companies in Israel have become interested in crypto – whether as a personal investment or as part of their business. The immediate question that arises is: Do I have to report this to the Income Tax Authority? The answer is yes, typically. However, it depends on exactly what you are doing with crypto and how you are classified by the tax authorities.

Ben Or Cook Certified Public Accountants handles crypto reporting for many clients – freelancers who hold Bitcoin as savings, business owners who receive payment in crypto, and companies that operate in the blockchain field. Our experience shows that many people do not know exactly what needs to be reported, how to calculate taxes, and what happens if they don't report. This guide explains the rules in simple language.

What is important to remember from the start: the Israeli Tax Authority treats crypto as an asset – not as official currency. This means that profits from crypto can be subject to capital gains tax, or part of business income, depending on the circumstances. There is no way around it. As long as you have a digital wallet and have conducted transactions, there is a chance you are required to report.

Who Must Report Crypto?

This sounds like a simple question, but the answer depends on several factors. In short: anyone who made a crypto transaction – sale, exchange, or receipt of crypto as payment – must report it. This includes:

• Self-employed individuals and business owners – If you received crypto as payment or conducted crypto transactions as part of your business, this is business income and must be reported.
• Employees – If you conducted crypto transactions in your spare time and made a profit, this may be subject to capital gains tax and must be reported in your tax return.
• Company owners – If your company holds or receives crypto, it is part of the company's assets and reporting is mandatory.
• New immigrants and foreign residents – If you have crypto abroad and also in Israel, there are special rules for reporting foreign assets.

If you hold crypto but have not made any transactions (only purchase and holding), reporting may still be mandatory – because the tax authority wants to know what assets you have. More on this later.

Types of Crypto Reporting – What You Need to Report and How

When discussing crypto reporting, there are actually several different types of reporting, and each one can affect your taxes in different ways.

1. Business Income Reporting (Self-Employed and Sole Proprietors)

If you are self-employed or a sole proprietor (exempt or licensed) and received crypto as payment for a service or product, this is business income. You must report this in an annual report or in an advance tax payment report (depending on your business type). The amount reported is the value in NIS at the time of receipt. If you received 1 bitcoin worth 50,000 NIS, report 50,000 NIS as income. Simple and clear.

2. Capital Gains Tax (Profits from Crypto Transactions)

If you purchased crypto at a low value and sold it at a higher value, the difference is a capital gain. In Israel, capital gains tax on assets held for more than one year is 25% (generally). If held for less than a year, it may be regular income tax. Example: you purchased bitcoin at 30,000 NIS and sold it at 50,000 NIS. The profit is 20,000 NIS. The tax on 20,000 NIS is (generally) 25%, which equals 5,000 NIS.

3. Foreign Asset Reporting (FBAR)

If you have a crypto wallet abroad with a balance exceeding a certain amount, you must report it on the FBAR form (Report of Foreign Accounts). This is an annual report to the tax authority. If you did not report and it is discovered, this can be problematic.

4. Advance Tax Payment Reporting (Business Operators)

If you are a licensed business operator and income from crypto is substantial, the tax authority may require annual advance tax payments. This is an amount you pay in advance on expected income.

Practical Scenarios – Real-World Examples

To make this clearer, here are a few scenarios we've encountered at Ben Or Kook Accounting while working with clients:

Scenario 1: Freelancer Who Received Crypto Payment

Dan is a freelancer in the IT field. A client abroad asked to pay him for a project in Bitcoin. Dan agreed and received 0.5 Bitcoin, which at that time was worth NIS 25,000. Dan must report NIS 25,000 as business income in his annual report. Even if the Bitcoin rises later to NIS 30,000, the report has already been filed at the value of NIS 25,000. If he sells later at NIS 30,000, the additional profit (NIS 5,000) is subject to capital gains tax.

Scenario 2: Employee Who Invested in Crypto

Michal is an employee at an office in Tel Aviv. In her free time, she purchased 2 Ethereum at NIS 4,000 each (total NIS 8,000). After one year, she sold them at NIS 6,500 each (total NIS 13,000). Her profit is NIS 5,000. Michal must report this in her tax return. If held for more than one year, it is subject to capital gains tax (25%), meaning NIS 1,250 in tax. If less than one year, it could be ordinary income tax (depending on her total income).

Scenario 3: Business Owner Who Receives Crypto and Engages in Transactions

Abraham is an authorized business owner in the retail sector. Some of his customers pay him in crypto. Additionally, he also invests in crypto himself. Abraham must report: (1) the crypto received as payment – as business income, (2) profits from his own crypto transactions – as capital gains or business income (depending on the frequency of transactions and their nature). The tax authority may view him as a crypto trader, not just an investor.

Scenario 4: New Immigrant with Crypto Abroad

Ran immigrated to Israel from abroad. He has a crypto wallet abroad with a balance of NIS 100,000. Ran must report this as a foreign asset, and if he conducts transactions, he must report the profits. Even if he did not make a transaction in the first year, the report on the asset itself is still mandatory.

Common Mistakes in Crypto Reporting – and How to Avoid Them

When working with clients who have crypto assets, we see certain mistakes that repeat themselves again and again. Here they are:

Mistake 1: "I didn't sell, so I don't need to report"

Many people think that if they only buy and hold, there's no reporting requirement. This is incorrect. If you have crypto in a wallet, the tax authority wants to know about it – especially if it's held abroad. The reporting may be in the form of an assets report or in a capital declaration (if you are a business person).

Mistake 2: "Buying and holding within a year is not capital gains tax, it's not income"

Not exactly. If you held crypto for less than a year and sold it at a profit, it could be ordinary income tax (at a rate higher than 25%). The tax authority takes the view that it is a commodity, not a long-term asset.

Mistake 3: "Cross-border platform transactions don't need to be reported"

Every transaction, whether in Israel or abroad, must be reported. The platform doesn't matter. If you bought on Binance, Kraken, or any other platform, it is still income or capital gains in Israel.

Mistake 4: "My crypto is small, there won't be any audit"

This is a risk. The tax authority is increasingly monitoring crypto transactions. If they discover you didn't report, you could face penalties, interest, and demands for future payment. As with all tax reporting, it's better to be safe than sorry.

Mistake 5: "I use crypto as currency, not as an investment – no tax"

Even if you use crypto to buy coffee or other items, the tax authority views every transaction as an asset exchange. If the crypto increased in value since you purchased it, there is capital gains tax here too.

What Happens if You Don't Report?

This is a question clients often ask. The answer is simple: it's not worth it.

If the tax authority discovers that you failed to report crypto holdings, they can demand payment of the tax itself, plus a penalty (up to 100% of the tax in some cases), and interest on the amount owed. Additionally, if it appears to be deliberate evasion, there could be legal consequences.

In recent times, the tax authority has stepped up monitoring of crypto transactions. They can obtain data from platforms (especially overseas ones) and track wallet addresses. If you have a wallet in your name or linked to you in any way, this could trigger an audit.

If you're concerned that you haven't reported in the past, it's better to contact an accountant now and settle it. In some cases, you can file an amended return and avoid harsh penalties.

Tax Advance Payments on Crypto – What You Need to Know

If you are a licensed business owner and your income or profit from crypto is substantial, the tax authorities may require tax advance payments. This is an amount you pay each year (usually in certain months) on expected income.

Advance payments are calculated based on the previous year's income. If your crypto profit last year was 100,000 NIS, the tax authorities may require advance payments on a similar amount in the current year. If you don't pay, you'll face penalties and interest.

Important note: If your crypto income increases sharply unexpectedly, you can file a request for advance payment adjustment. This is not automatic – you need to contact the tax authorities yourself.

When Should You Consult a CPA About Crypto?

Not everyone with crypto needs a CPA. But in certain circumstances, it's really worth it:

• If your income or profit is substantial – more than a few thousand shekels. Here there's a real risk of an audit, and a reporting error could be costly.
• If you're self-employed or a business owner – reporting is more complex, and you need to account for business income, capital gains tax, and advance payments.
• If you have crypto abroad – FBAR reporting requires precision, and an error could be problematic.
• If you're a new resident or foreign resident – there are special rules for reporting foreign assets, and it can be confusing.
• If you haven't reported in the past and want to settle – it's better to do this with a professional to support an amendment request and avoid severe penalties.
• If you're an active crypto trader – if you conduct frequent transactions, this could be business activity, not just an investment. This requires professional guidance.

Summary – What You Should Do Now

If you're reading this and you have cryptocurrency, here's what you should do:

1. Assess what you have – Document all your cryptocurrency, where it is located (in Israel or abroad), and when you acquired it.
2. Gather documentation – If you've conducted transactions, collect the transaction history from the platform (purchase, sale, exchange, and payment receipt transactions).
3. Calculate the value in NIS – Using the exchange rate on the relevant date, calculate the value in NIS for each transaction.
4. Check if you've reported previously – If not, determine how many years have passed and consider filing an amended return.
5. Contact an accountant – If you have significant cryptocurrency holdings or are uncertain about reporting requirements, it's time to seek professional assistance.

Ben Or Kok Accountants handles cryptocurrency reporting for self-employed individuals, business owners, and companies. We know the regulations, know how to report correctly, and know how to avoid mistakes. If you are in Petach Tikva, Ramat Gan or the surrounding area, you can schedule a complimentary initial consultation to discuss your situation.