Israel treats cryptocurrency as a taxable asset rather than as currency. The Israel Tax Authority (ITA) established this classification through Circular 5/2018, Tax Treatment of Activity with Virtual Currencies, which remains the primary interpretive document governing crypto taxation.
Under the Income Tax Ordinance, a digital asset is defined as an asset constituting a digital representation of a value or right that is transferable and storable electronically using distributed ledger technology.
The Bank of Israel does not recognise crypto as legal tender, and the ITA’s position is that any sale, exchange, or transfer of cryptocurrency that results in a change of ownership constitutes a taxable event.
Capital Gains Tax Rules
The legal basis for CGT on crypto in Israel is Part E of the Income Tax Ordinance, specifically Article 91, which sets out the rates applicable to capital income. ITA Circular 5/2018 confirms that the disposal of a crypto asset constitutes a sale triggering a capital gains calculation.
The Circular has been supplemented by a detailed FAQ document published by the ITA, most recently updated in March 2025, which addresses specific scenarios including the receipt of tokens by employees, the treatment of stablecoins, and the taxation of NFTs.
How CGT Is Calculated
The capital gain on a crypto disposal is calculated as the proceeds of disposal minus the acquisition cost, adjusted for changes in the Consumer Price Index (CPI) between the date of acquisition and the date of disposal.
The CPI adjustment reflects Israel’s longstanding practice of indexing certain tax calculations to inflation, meaning that only the real gain above inflation is subject to CGT. Transaction fees directly associated with the acquisition are added to the cost base, and the ITA has confirmed this in its published FAQ. The ITA requires that all amounts be expressed in New Israeli Shekels (NIS) at the prevailing exchange rate on the relevant transaction date.
- For individuals, CGT on the real (inflation-adjusted) gain is charged at 25%.
- For companies, the rate stands at 23% since 2025.
Where the taxpayer can demonstrate an inflation-adjusted gain that is lower than the nominal gain, the 25% rate applies to the real gain only, providing a degree of relief in high-inflation periods. Losses arising from crypto disposals may be offset against capital gains from the disposal of other assets in the same tax year under Article 92 of the Income Tax Ordinance.
Where losses exceed gains in a year, the balance is carried forward and may be offset against future capital gains in subsequent years, indefinitely, provided that an annual report was filed for the loss year.
Record Keeping
The ITA requires detailed record-keeping for all crypto transactions. Records must include the type of cryptocurrency, acquisition date, acquisition cost in NIS, disposal date, disposal proceeds in NIS, and the calculation of gain or loss.
For crypto-to-crypto exchanges, the proceeds of the disposal are calculated using the fair market value of the cryptocurrency given up on the date of the exchange.
All transactions in a single month may be aggregated and reported as a single transaction on Form 1399, simplifying the reporting burden for high-frequency traders. Records should be retained for the statutory period applicable under Israeli tax law, generally seven years.
Income Tax Rules
Where a taxpayer’s crypto activity is determined to constitute a business or commercial activity, profits are assessed under Chapter B of the Income Tax Ordinance as business income, rather than as capital gains.
The marginal income tax rates applicable under Article 121 of the Ordinance rise to a maximum of 47% for individuals (including surtax on high incomes), and the standard corporate tax rate under Article 126 applies for companies. The ITA applies a multi-factor test to determine whether activity amounts to a business, considering: the nature of the asset, the frequency and scale of transactions, the holding period, the taxpayer’s expertise and organisation, the financing method used, and the overall circumstances of the activity.
Crypto received as employment remuneration is treated as employment income at the date of receipt, valued at the fair market value of the tokens on that date, and subject to income tax accordingly.
Where the tokens are utility tokens issued by the employing company that are not yet traded on an exchange, the income tax point may be deferred to the date of actual sale, unless the employer elects to have the tokens taxed on the allocation date by notifying the ITA at least 60 days in advance.
Subsequent disposal of employment-received tokens gives rise to a further CGT event, with the cost base set at the value on which income tax was originally paid.
Mining and Staking Treatment
Mining
Under ITA Circular 5/2018, a person who receives cryptocurrency in return for mining activities is treated as having earned business income at the point of receipt. The taxable income is the market value of the cryptocurrency received, in NIS, on the date of receipt.
This income is subject to full income tax rates under the business income provisions of the Ordinance, and relevant business expenses are deductible against mining income.
A subsequent sale or exchange of mined cryptocurrency gives rise to a separate taxable event. At that point, a CGT event occurs, and the gain (or loss) is calculated as the difference between the disposal proceeds and the value on which income tax was originally paid (which forms the cost base for CGT purposes).
Staking
The ITA has not issued separate detailed guidance specifically addressing staking income. Based on the principles established in Circular 5/2018, staking rewards would most likely be treated as business income at the point of receipt, with the taxable amount being the market value in NIS on the date each reward is received. As with mining, subsequent disposal of staked rewards would trigger a CGT event.
NFT Taxation
The ITA’s March 2025 FAQ document explicitly addresses non-fungible tokens, classifying them as digital assets within the scope of the Income Tax Ordinance.
The acquisition and disposal of an NFT for investment purposes follows the same CGT framework as other crypto assets: proceeds minus cost base, CPI-adjusted, at the 25% individual CGT rate. A crypto-to-NFT swap constitutes a disposal of the cryptocurrency used as payment, triggering a CGT calculation on the crypto side, and the NFT is acquired with a cost base equal to the fair market value of the crypto disposed of on the date of the exchange.
Where NFTs are created and sold commercially, the income received is likely to be treated as business income subject to marginal income tax rates rather than CGT. The ITA assesses the business-versus-investment question on a facts-and-circumstances basis, consistent with its approach to other crypto activity. Creators who mint and sell NFTs regularly, with commercial organisation and an expectation of profit, are more likely to be classified as carrying on a business.
Reporting Requirements
Israeli residents with crypto gains or losses must report them to the ITA through Form 1399 within 30 days of each disposal.
The form requires the taxpayer to fill in the capital gain amount in field 71, with detailed instructions set out in Note 18 of the form. Transactions occurring in the same calendar month may be aggregated and reported as a single entry, which provides administrative relief for active traders. Where the taxpayer already files an annual report through Form 1301 (the online annual income tax return), the Form 1399 reporting is incorporated within that annual return and does not need to be filed separately.
For taxpayers who do not hold an existing income tax file with the ITA, a file must be opened specifically for the purpose of reporting the sale of digital assets. The ITA will classify such files as type 93, which does not require the payment of tax advances or the submission of a capital declaration. All gains and losses must be calculated in NIS, requiring conversion of foreign currency amounts at the Bank of Israel representative exchange rate on the date of each transaction.
The ITA has significantly increased its data collection and enforcement activities in relation to crypto. It requires domestic financial institutions and exchanges to report customer transaction data, and Israeli residents trading on foreign platforms remain subject to full reporting obligations under the personal taxation system applicable to worldwide income.
Failure to report crypto gains in the annual return, even where Form 1399 has been filed, is treated as non-compliance with reporting obligations.
Penalties
The ITA applies its standard civil penalty regime to non-compliance with crypto reporting and payment obligations. The penalty for late filing of an annual report is assessed under the Income Tax Ordinance and may involve both a fixed penalty and an interest charge on any outstanding tax. Where a taxpayer has understated taxable gains, the ITA may issue an additional assessment and impose penalties based on the amount of tax understated.
Interest on unpaid tax accrues at the prescribed statutory rate from the payment due date until the date of actual payment. Where non-compliance is found to be wilful or fraudulent, enhanced penalties and criminal proceedings may be initiated under the Ordinance. The ITA’s enforcement programme has been expanding, with particular focus on taxpayers with significant crypto holdings who have not filed consistent annual returns.
