il-crypto-tax

Israel Cryptocurrency Tax Reporting Skill v1.0

Based on work by Skills IL, licensed under MIT. Adapted for the OpenAccountants format.

Section 1 — Quick reference

Quick reference table

Field	Value
Country	Israel (מדינת ישראל)
Scope	Cryptocurrency capital gains tax, DeFi income classification, reporting
Currency	NIS (Israeli New Shekel — ₪)
Classification	Cryptocurrency = Asset (Neches — נכס) under Section 88 ITO
Primary guidance	ITA Circular 2018/05 (חוזר 05/2018)
Cost basis method	FIFO (First In, First Out) — mandatory default
Tax rate — individuals	25% capital gains (Revach Hon — רווח הון)
Tax rate — significant shareholder (10%+)	30%
Tax rate — business/traders	Marginal rates (up to 50%) if activity constitutes a business
Corporate rate	23%
Surtax on capital income above NIS 721,560	5% (3% base + 2% additional on capital income)
Advance payment form	Form 1399י (transaction codes 77 and 71)
Advance payment deadline	Within 30 days of disposal
Reporting forms	Forms 1322 / 1325 (attached to annual Form 1301)
Contributor	Open Accountants Community
Validated by	Pending — requires sign-off by Israel-licensed רואה חשבון or יועץ מס

Conservative defaults

Conservative defaults table

Ambiguity	Default
Unknown whether activity is business or investment	Treat as investment (25% capital gains) — flag for professional review if high frequency
Staking reward classification unclear	Treat as income at receipt (most conservative)
Unknown NIS exchange rate for transaction date	Use most recent Bank of Israel business day rate
Crypto received as gift	Use donor's carryover basis (Section 97(a)(5))
Stablecoins (USDT, USDC)	Still an "asset" — every conversion is a taxable disposal

Section 2 — Legal framework

2.1 Core principles

• Crypto classification as asset — Cryptocurrency is classified as an asset (Neches) under Section 88 of the Income Tax Ordinance (Pekudat Mas Hachnasa — פקודת מס הכנסה), NOT as currency (Section 88 ITO)
• Gains taxed as capital gains — Gains are taxed as capital gains (Revach Hon) under Chapter E of the Ordinance (Chapter E, Income Tax Ordinance)
• Primary guidance — ITA Circular 2018/05 provides primary guidance on crypto taxation (ITA Circular 2018/05)
• Taxable event on every disposal — Every disposal (sale, trade, conversion) is a taxable event valued in NIS
• Crypto-to-crypto swaps taxable — Crypto-to-crypto swaps are taxable events — unlike some jurisdictions, Israel has always treated these as disposals

2.2 Business vs investment classification

• Business classification consequence — If crypto activity constitutes a business (Esek — עסק), gains are taxed as ordinary income at marginal rates (up to 50%)
• Classification factors — Classification depends on: Frequency and volume of trading; Whether taxpayer holds crypto as inventory vs investment; Time and effort devoted to crypto activity; Whether the taxpayer has another profession
• Default when in doubt — When in doubt, treat as investment (25%) but flag for professional review

Section 3 — FIFO cost basis method

Israel mandates FIFO (First In, First Out) for calculating cost basis unless the taxpayer can demonstrate a different method was consistently applied.

3.1 FIFO rules

• FIFO calculation steps — 1. Queue all purchases by date (oldest first) 2. For each sale, match against the oldest available purchase lots 3. Calculate gain/loss for each matched lot: (sale price − purchase price − fees) per unit 4. If a lot is partially consumed, the remainder stays in the queue 5. Sum all gains and losses for the tax year

3.2 Currency conversion

• NIS conversion at BOI exchange rate — All transactions must be converted to NIS at the Bank of Israel exchange rate (Sha'ar Yatzig — שער יציג) on the transaction date
• Crypto-to-crypto NIS valuation — For crypto-to-crypto trades, the NIS value of BOTH sides must be determined at the time of trade
• Weekend/holiday rate fallback — For weekends/holidays when BOI doesn't publish rates, use the most recent business day rate

Section 4 — DeFi and special income classification

DeFi and special income classification table

Activity	Classification	Tax rate	Reporting form
Buy and hold, then sell	Capital gain	25%	Form 1325
Crypto-to-crypto swap	Capital gain (disposal + acquisition)	25%	Form 1325
Staking rewards	Income at receipt (conservative); debated	25–50%	Form 1301 or 1325
Liquidity mining / yield farming	Ordinary income	Marginal rates	Form 1301
Airdrops (free tokens)	Income at receipt, capital gain on subsequent sale	Marginal + 25%	Form 1301 + 1325
Mining	Business income or capital gain (depends on scale)	Variable	Form 1301 or 1325
NFT sales (creator)	Business income	Marginal rates	Form 1301
NFT sales (collector)	Capital gain	25%	Form 1325
Hard fork tokens	Zero cost basis, capital gain on sale	25%	Form 1325
Lending interest (CeFi/DeFi)	Interest income	25% (passive)	Form 1301

Classification notes

• Staking guidance status — ITA has not issued definitive guidance. Conservative approach treats rewards as income at receipt (market value), then capital gain/loss on subsequent sale
• Airdrop treatment — Received tokens are income at market value on receipt date. Cost basis for future sale = market value at receipt
• Hard fork treatment — New tokens have zero cost basis; entire sale proceeds are capital gain
• Stablecoin treatment — USDT, USDC, DAI are still "asset" under Section 88. Every USDT-to-USDC swap, every conversion leg of a DeFi trade, every off-ramp to fiat is a taxable disposal (Section 88)

Section 5 — Loss offsetting rules

• Crypto losses offset crypto gains — Capital losses from crypto can offset capital gains from crypto in the same tax year
• Losses offset other asset gains — Capital losses can offset gains from other assets (stocks, real estate) in the same year
• Loss carryforward — Capital losses carry forward to offset future capital gains under Section 92 (but cannot offset ordinary income) (Section 92)
• Spousal loss offset — Losses from one spouse can offset gains of the other spouse if filing jointly
• No wash-sale rule — Israel has no wash-sale rule — a taxpayer can sell in December at a loss and re-buy in January with the loss fully recognized

Section 6 — Reporting requirements

6.1 Annual reporting (Forms 1322 / 1325)

• Form 1322 — Form 1322 (Nispach Gimel — נספח ג) — primary capital gains schedule attached to annual return
• Form 1325 — Form 1325 (Nispach Gimel(1) — נספח ג(1)) — auxiliary detail form for securities/crypto where tax was not withheld at source
• Disposal reporting items — For each disposal, report: 1. Asset description (e.g., "Bitcoin (BTC)") 2. Date of acquisition (FIFO-determined) 3. Date of disposal 4. Acquisition cost (NIS) 5. Disposal proceeds (NIS) 6. Capital gain or loss (NIS) 7. Holding period

6.2 Advance payment (Form 1399י)

• Filing deadline — File within 30 days of the capital gain event
• Transaction codes — Transaction codes: 77 (sale) and 71 (virtual currency)
• Payment rate — Payment: 25% of gain for individuals (30% for significant shareholders)
• Advance payment credit — Advance payments are credited against annual tax liability
• Non-payment penalties — Penalties for non-payment: interest (Ribit — ריבית) and CPI linkage (Hafreshei Hatzmada — הפרשי הצמדה)

6.3 Annual return obligation

• Filing obligation for salaried individuals — Salaried individuals with crypto disposals must file Form 1301 even if they would otherwise be exempt. Any disposal generally triggers a filing obligation.
• Filing deadlines — Filing deadlines (tax year 2025, filed in 2026): Online: June 30, 2026; Paper: May 31, 2026; CPA-represented: extensions available (tax year 2025)

Section 7 — Surtax on crypto gains (Mas Yesafim — מס יסף)

• Surtax structure from 2026 — From 2026, capital income (including crypto gains) above NIS 721,560 is subject to: 3% base surtax on all income above the threshold; Additional 2% on capital-source income above the same threshold; Effective 5% surtax on crypto gains above NIS 721,560 (effective 2026)
• Threshold freeze — Threshold frozen through 2027

Section 8 — Voluntary disclosure (Nohal Gilui Mirtzon — נוהל גילוי מרצון)

Voluntary disclosure tracks table

Track	Eligibility	Deadline
Green Track	Annual income up to NIS 500,000 and cumulative crypto assets up to NIS 1.5M (as of 31.12.2024)	31 August 2026
Regular Track	Larger cases	31 August 2026

The 2025–2026 Voluntary Disclosure Procedure expressly covers digital assets and grants criminal immunity. Anonymity is no longer available — all applications filed with identifying details.

Section 9 — Special rules

9.1 Gifts and inheritance

• Carryover basis for gifts/inheritance — Under Section 97(a)(5), gifts and inheritance use carryover basis — the recipient inherits the donor's original cost basis and acquisition date. Treating inherited crypto as zero-basis or fair-market-value at inheritance is incorrect. (Section 97(a)(5))

9.2 Lost crypto

• Lost crypto treatment — Crypto lost to exchange insolvency (FTX, Celsius pattern), theft, or lost private keys is recognized as a capital loss ONLY when the loss is final and documented (e.g., bankruptcy court order, police report). Do not write off frozen-but-not-bankrupt balances.

9.3 Inflation indexation

• Inflation indexation split — Section 91(b)(3) splits capital gain into a "real gain" (taxed at 25%) and an "inflation-component gain" (taxed at 0% for individuals on assets acquired after 1.1.1994). For long-held lots, a CPA should perform the manual indexation pass, which reduces effective tax. (assets acquired after 1.1.1994) (Section 91(b)(3))

Section 10 — Worked examples

Example 1 — Simple buy and sell

Scenario: Bought 0.5 BTC in January 2025 for NIS 80,000, sold in August 2025 for NIS 120,000.

Working:

• Capital gain: NIS 120,000 − NIS 80,000 = NIS 40,000
• Tax: NIS 40,000 × 25% = NIS 10,000
• Surtax: total income below NIS 721,560 → no surtax
• Advance payment: Form 1399י within 30 days of August sale → NIS 10,000
• Annual reporting: Forms 1325/1322 with 2025 Form 1301

Example 2 — Crypto-to-crypto with FIFO

Scenario: Bought 2 ETH at NIS 5,000 each (March 2024), 3 ETH at NIS 7,000 each (June 2024). In October, traded 3 ETH for 0.5 BTC when ETH = NIS 9,000.

Working:

• FIFO: consume Lot 1 (2 ETH @ NIS 5,000) then 1 ETH from Lot 2 (@ NIS 7,000)
• Lot 1 gain: 2 × (NIS 9,000 − NIS 5,000) = NIS 8,000
• Lot 2 partial gain: 1 × (NIS 9,000 − NIS 7,000) = NIS 2,000
• Total gain: NIS 10,000 → Tax: NIS 2,500
• New BTC cost basis: NIS 27,000 (3 × NIS 9,000)
• Remaining: 2 ETH at NIS 7,000 each

Example 3 — DeFi staking rewards

Scenario: Staked 10 ETH, earned 0.5 ETH in rewards (ETH = NIS 8,000 at receipt). Not sold.

Working:

• Conservative: NIS 4,000 taxable income at receipt (0.5 × NIS 8,000)
• Rate: 25% if passive income → NIS 1,000 tax; or marginal rates if ordinary income
• Cost basis for 0.5 reward ETH established at NIS 8,000/ETH
• The 10 staked ETH have not been disposed — no capital gain event on those
• Recommend professional consultation on staking classification

Section 11 — Common errors

Common errors table

Error	Consequence
Using US capital gains rates (15%/20%)	Israeli rate is 25% for individuals
Treating crypto-to-crypto as non-taxable	Always taxable in Israel
Using average cost or LIFO	Israel mandates FIFO
Ignoring stablecoin conversions	USDT/USDC are assets — every swap is a disposal
Treating inherited crypto as zero basis	Carryover basis applies (Section 97(a)(5))
Applying US wash-sale rule	Israel has no wash-sale rule — loss harvesting is valid
Missing 30-day advance payment deadline	Interest and linkage penalties accrue
Ignoring surtax on crypto gains	5% additional on capital gains above NIS 721,560

Section 12 — Reference material

Reference material table

Resource	Reference
ITA Circular 05/2018 (crypto classification)	https://www.gov.il/he/Departments/legalInfo/04-2018
Tax Authority — annual return service	https://www.gov.il/he/service/reporting-and-payment-2025-annual-tax-report-for-individuals
Bank of Israel — exchange rates	https://www.boi.org.il/roles/markets/exchangerates/
Voluntary Disclosure Procedure 2025–2026	https://www.gov.il/he/Departments/policies/voluntary-disclosure-2025
Bituach Leumi — self-employed rates	https://www.btl.gov.il/Insurance/National%20Insurance/type_list/Self_Employed/Pages/rates.aspx
OECD CARF (Israel collection from 1 Jan 2026)	https://www.oecd.org/tax/exchange-of-tax-information/crypto-asset-reporting-framework.htm

Section 13 — When to escalate to a professional

• Transaction volume exceeds 100 trades per year
• DeFi activities involve complex protocols (multi-chain, bridging, wrapping)
• Uncertainty whether activity constitutes business vs investment
• Total gains exceed NIS 500,000
• Tokens received from ICO, IEO, or similar offering
• Cross-border transactions with foreign tax obligations
• Voluntary disclosure consideration

Disclaimer

חשוב: כל המידע בקובץ זה מיועד למטרות מידע וחישוב בלבד. יש לבדוק כל עמדה מול רואה חשבון (Ro'eh Cheshbon) או יועץ מס (Yo'etz Mas) מוסמך לפני הגשה או פעולה.

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional — such as a רואה חשבון (Ro'eh Cheshbon — CPA) or יועץ מס (Yo'etz Mas — tax advisor) licensed in Israel — before filing or acting upon.

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