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Israel has new tax plan on ICOs, and we are yet to find what effect will it have on startups?


Jan 28, 2018 Posted /  6742 Views


Israel has new tax plan on ICOs, and we are yet to find what effect will it have on startups?

Israel issued strict warnings to Initial Coin Offerings as many companies opened out their interest in listing cryptocurrency on Tel Aviv exchange. It was remarked that the stance did not particularly help the Israeli government as it potentially lost out on tax revenue and opportunities, which the cryptocurrency market offered to the country as a place of business.

The media was speculating lately that Israel Tax Authority has drafted a circular and detailed about how domestic companies ICO revenue could be taxed. This tells that how the government premeditated to make token issuers stay on the middle eastern soil.

The startup analysts believe that the ITA is taking steps to legitimize the business of companies financed by ICOs, in an effort to make the country just as attractive. Sirin Labs, which raised $157 million in an ICO recently, is principally based in Tel Aviv, however, its website shows a company address in Switzerland.

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One specific reason for the change on tones on the ITA's circular towards token issuers could be explained as- deferrals on  ICO income would become taxable, and it also suggests about the potential for crypto companies to obtain special tax treatment. As such, it is being speculated that the industry will witness more companies officially working from Israel this year.

Many blockchain based businesses and cryptocurrency operators see many advantages to working in a country that is trying to move cryptocurrency out of a grey area. As local experts point out

"The goal of the blockchain industry in Israel is not to stay under the radar. It’s always been clear to us that there will be regulations and we want to work with the government to help create regulations that are good for both sides."

Specifying the area of operation

It is told to the media that Global consulting giant Deloitte assisted ITA to design the new policy as it got from the extensive feedback by invitation, according to Yitzchak Chikorel of Deloitte's international taxation team.

It was the team from Deloitte that certain the variations between different crypto tokens – whether it be the original currency tokens, such as bitcoin; crypto tokens created to fund the building of a platform that the coins will be used to access in the future; or crypto tokens that act as equity – would be key to writing successful regulation.

"The main focus is the utility coins which are also in the heart of the tax circular," Chikorel told the media. "Our main focus was to tie a direct and clear line between the technology to the tokens, arguing they are connected one to each other in an inseparable tie."

The circular also provides that the income will not be automatically taxed when it will be initially received. In addition, the circular acknowledged that blockchain-based companies could employ further tax advantages that were offered under Israel's Encouragement of Capital Investment Law, that was extensively created to appeal and retain high-tech companies. Chikorel said he's pretty confident such applications would be accepted, and told the media that

"The ITA has realized the magnitude and the importance of the blockchain as an evolutionary technology that could allow the creation of the next generation of multinational companies."

Will This Retain the Startups?

There is still uncertainty about the changes in the tax laws will attract the Israeli companies to bring their ICO incomes home. Initially, screening of cryptocurrency entrepreneurs is necessary and anti-establishment feeling that circumvents the industry that typically views regulatory actions as one of convenience and not as some legitimizing controls.

"Currently, I'm unaware of any Israeli company who did, or plans to do, an ICO under Israeli jurisdiction," said Lior Jaffe, co-founder of Jelurida, the Israeli startup behind blockchain platforms Nxt and Ardor. "And these regulations, if accepted, pretty much ensure that this will stay this way."

Moreover, taxes are just part of the regulatory landscape, and the Israel Securities Authority (ISA), which regulates securities in the country, has, however, to formally rule on how ICO tokens should be categorized. Nevertheless, in September, it built a committee to look into the actions taken by other securities regulators around the world and settle on whether it should consider ICOs part of its purview.


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