The challenges of managing crypto in Israel | Lior Yaffé

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While Israel is proud of a thriving high-tech industry and home to many blockchain-related startups that export their goods and services, doing business with cryptocurrencies locally is a futile exercise.

The difficulties started with a decision by the Israeli tax authorities in 2017 to define cryptocurrencies as “assets”. This move, which was aimed at increasing tax revenues in the short term, alone killed any prospect of developing a viable cryptocurrency industry in the country.

Lior Yaffe is co-founder and director of Jelurida, and has over 20 years of experience in the design, development and deployment of enterprise applications for large organizations. CoinDesk’s Crypto State: Middle East virtual event will take place on August 11.

The definition of asset, made all the more absurd by the widely-used Hebrew term for cryptocurrency, meaning “currency,” also failed to provide any serious guidance on reporting. Crypto businesses and individuals face unpredictable tax exposure consisting of a toxic mix of capital gains tax (25%), income tax (up to 50%) , value added tax (17%), corporate tax (23%). , high income tax (3% more) and who knows what else depending on the whims of tax collectors.

According to tax authorities, trading from crypto to crypto using a bot on a decentralized exchange is considered a barter deal, like the exchange of milk for eggs between farmers, and is taxed in the same way. . This involves draconian reporting rules (which, of course, no one ever follows) and unknown tax exposure for years to come. Good luck trying to report cryptocurrency exchange transactions to your local tax office using forms designed in the 1980s. Haven’t you reported? You could be exposed to unspecified criminal charges.

Then there are the Anti-Money Laundering (AML) regulations which cast a wide net around anything crypto-related with very little risk management. Software companies and drug cartels are suspect until proven guilty. A dysfunctional government keeps hundreds of fintech companies in limbo for years by not approving their AML procedures.

Confusing the waters further, Israel’s banking monopoly strictly refuses to deal with cryptocurrencies or accept trust funds from crypto exchanges. Some even refuse to accept salaries paid by foreign blockchain companies to their Israeli contractors. It seems that bankers, who perhaps view crypto as a competition, like to make the lives of anyone dealing with crypto miserable.

Given our tax burden, we might expect something from the state. But law enforcement entities offer very little security and support to cryptocurrency holders or poor people who have been scammed or suffered a ransom attack, or both. Although Israel has dedicated cybercrime agencies, these agents are more concerned with combating terrorism and appear ineffective in helping small businesses and individuals. Typically, if you are hacked, you will be directed to the local police station to file a complaint and never receive a response.

In a country like Israel where democracy and civil rights are constantly under pressure, you would expect the media to understand the potential and power of blockchain technology and decentralization. Alas, most of the media mentions focus on cryptocurrency prices, scams and scandals, which this industry (unfortunately) provides on a daily basis.

Are you planning to operate a blockchain or crypto business in Israel? Take my friendly advice and go elsewhere.

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