Virtual Currencies and Taxation in Israel
An overview of digital-currency taxation, beyond bitcoin.
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Crypto & Tax
Bitcoin: Is the Popular Currency Still Taxable in Israel?
The rule: every realization of bitcoin — including converting it to another cryptocurrency — is taxable and reportable. The possible exception: gains from bitcoin during the period when it was legal tender in El Salvador.
Updated October 2026, following the amendment of El Salvador's Bitcoin Law. In short: every realization of a cryptocurrency — including converting between cryptocurrencies — is a capital-gain event that must be reported. An individual who realized bitcoin during the period when bitcoin was legal tender in El Salvador (September 2021 to early 2025) may be able to raise a claim for a tax exemption on the gain — for bitcoin only.
The Rule: A Cryptocurrency Is an Asset, and Realization Is Taxable
The Israel Tax Authority's position, set out in Income Tax Circular 05/2018 (17.1.2018), is that virtual currencies are not a "currency" or "foreign currency" but an asset. The gain on their sale is therefore subject to capital-gains tax — for an individual at a rate of up to 25%, with surtax also applying to high incomes. Activity that reaches the level of a business is taxed as business income.
In 2019 the Central-Lod District Court adopted this position in the Kopel ruling (Tax Appeal 11503-05-16): it held that bitcoin is not "foreign currency". The court pointed to two features of a currency: a physical form as a banknote or coin, and in addition — for "foreign currency" — being legal tender in a foreign country. At the time of the ruling, bitcoin was not legal tender in any country.
Every Conversion Is a Tax Event — and Must Be Reported
Under Tax Authority Position 91/2021, exchanging one cryptocurrency for another — for example, bitcoin for Ethereum — is also a taxable realization, even if no official currency was received. In other words, the tax event is not only "cashing out to shekels": every conversion between currencies creates a capital gain (or loss) that must be computed and reported.
For every realization at a gain, a report must be filed with the assessing officer within 30 days of the sale and an advance on the tax paid (section 91(d) of the Ordinance), and there may also be an obligation to file an annual return. Orderly documentation of every transaction — date, quantity, price and wallet — is therefore essential.
Read our full article: Virtual Currencies and Taxation in Israel →
The El Salvador Window: September 2021 to Early 2025
On 7 September 2021, El Salvador's Bitcoin Law took effect, making bitcoin legal tender in the country, with a duty on every economic agent to accept it. (The Central African Republic also recognized bitcoin as legal tender in April 2022, and repealed this in March 2023.)
In January 2025, under an agreement with the International Monetary Fund, El Salvador amended the law: bitcoin is no longer defined as "currency" (moneda), its acceptance became voluntary, and taxes can no longer be paid in it. The amendment was approved on 29.1.2025, published on 30.1.2025, and according to reports took effect on 1.5.2025.
The implication: during the period when bitcoin was legal tender and an official currency in El Salvador, the condition the court mentioned in Kopel — legal tender in a foreign country — was met. An individual who realized bitcoin at a gain during that period can therefore raise a claim that the gain is "exchange-rate differences" on foreign currency, which are exempt from tax in the hands of an individual (section 9(13) of the Ordinance).
Important to know about the exemption claim
- Bitcoin only — the claim applies only to bitcoin. Other cryptocurrencies were never legal tender, and the gain on them is subject to capital-gains tax as usual.
- An individual, not in a business — the exemption in section 9(13) applies to an individual, not to business income.
- A claim, not a certainty — the Tax Authority's position is that bitcoin is an asset, and the Kopel ruling also mentioned the physical-form feature. Each case must therefore be examined on its merits, and the claim should be raised in a reasoned way.
- The window's boundaries — from its start on 7.9.2021 until the amendment of the law in early 2025; the relevant end date (approval, publication or entry into force of the amendment) should be examined in each case.
What to Do in Practice
- Anyone who realized bitcoin during the window — it is worth checking whether the relevant years are still open, and whether to raise the exemption claim in a return, an objection or a request for amendment.
- Anyone converting between cryptocurrencies today — every conversion is a tax event; report within 30 days and keep full documentation.
- Anyone who did not report in the past — the 2025 voluntary disclosure procedure ended on 31.8.2026. Before approaching the Tax Authority, get advice, because the right course depends on the circumstances of the file.
Read our full article: Voluntary Disclosure — the 2025 Procedure and the Situation Since It Ended →
Realized bitcoin between September 2021 and early 2025? It is worth reviewing your file
Anyone who paid tax on bitcoin realized during the window, or has not yet reported it, should know where they stand. This is how we work:
- We check which years are still open, and what gain is attributable to bitcoin only;
- We draft the exemption claim in a reasoned way, and file it in the manner that suits your file;
- We represent you before the assessing officer until the matter is closed.
Summary
As a rule, bitcoin and the other cryptocurrencies are an asset for Israeli tax purposes: every realization — including conversion between currencies — is subject to capital-gains tax and reporting. The possible exception is gains from bitcoin only, realized by an individual during the period when bitcoin was legal tender in El Salvador (September 2021 to early 2025): for these, a claim for a tax exemption can be raised. Anyone who may be affected should review their file with a specialist.
Our Firm's Support
Our firm accompanies bitcoin holders, crypto traders and blockchain entrepreneurs — correct classification of income, capital declarations, capital-gain calculations, voluntary-disclosure procedures and representation before the assessing officer. CPA Amir Gonen, partner and head of international taxation and hi-tech, formerly Head of Tax at the Israel Innovation Authority, leads this field at the firm.
The above article does not constitute a recommendation, professional advice or a legal opinion. If you have any questions, you are welcome to contact us — we will be happy to advise, accompany and represent you before the Israeli tax authorities.
Kind regards,
Hager-Alperowitz & Co. — Certified Public Accountants
Realized bitcoin during the window?
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