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Retail_Trading_Status

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2025-06-26 12:51
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Executive Summary

In Israel, individual citizens and residents are legally permitted to buy, sell, and hold cryptocurrencies. The regulatory environment is comprehensive and aims to balance innovation with investor protection, treating cryptocurrencies as 'financial assets' for regulatory and tax purposes. Key regulators include the ISA, ITA, BOI, CMISA, and IMLPA, each playing distinct roles in defining security status, taxation, banking directives, licensing, and AML/CFT compliance. Banks are now required to adopt a risk-based approach to funds originating from licensed VASPs, and draft regulations are solidifying tax treatments with potential withholding taxes.

Key Pillars

The primary regulators include the Israel Securities Authority (ISA), Israel Tax Authority (ITA), Bank of Israel (BOI), Capital Market, Insurance, and Savings Authority (CMISA), and Israel Money Laundering and Terror Financing Prohibition Authority (IMLPA). Core compliance requirements revolve around AML/KYC regulations, with VASPs required to conduct due diligence, verify identities, maintain detailed transaction records (including IP addresses and public keys), and report suspicious activities. Entities offering cryptocurrency exchange and custody services need a Financial Asset Service Provider License from CMISA.

Landmark Laws

Financial Services Law: Regulates financial service providers, including those dealing with financial assets and virtual currencies, requiring them to obtain a license.
Amendment to the Proper Conduct of Banking Business Directive (BOI, March 10, 2022 draft): Prohibits Israeli banks from a blanket refusal to receive funds from cryptocurrency activities, provided the funds originate from licensed providers.
ISA Regulatory Amendment (August 2024): Allowed non-bank members of the Tel Aviv Stock Exchange (TASE) to offer cryptocurrency trading and custody services for approved cryptocurrencies like Bitcoin and Ethereum under a 'closed garden' approach.
ITA Draft Regulations (late 2024, effective July 2025): Aims to introduce withholding tax on digital asset transactions.

Considerations

Cryptocurrencies are treated as 'financial assets' and are not legal tender. Profits from cryptocurrency sales are subject to capital gains tax (currently 25% for individuals). Regulators have issued warnings regarding risks associated with cryptocurrency investments, including fraud, money laundering, and market volatility. Operational challenges exist, including difficulties with bank acceptance of funds originating from cryptocurrency activities, which the Bank of Israel is addressing through revised guidelines.

Notes

Israel's regulatory approach has evolved from initial caution to a more structured framework. Banks were initially hesitant to provide services to crypto-related businesses due to AML concerns. The Bank of Israel issued guidelines requiring banks to adopt a risk-based approach rather than outright refusal of services from licensed crypto entities. The regulatory landscape is dynamic, with ongoing proposals and legislative changes. The government's general stance supports technological advancement while ensuring financial stability and consumer protection. A significant amendment in August 2024 allowed non-bank members of the Tel Aviv Stock Exchange (TASE) to offer cryptocurrency trading and custody services for approved cryptocurrencies.

Detailed Explanation

Individual citizens and residents in Israel are legally permitted to buy, sell, and hold cryptocurrencies. The Israeli government and regulatory bodies, including the Israel Securities Authority (ISA), Israel Tax Authority (ITA), Bank of Israel (BOI), Capital Market, Insurance, and Savings Authority (CMISA), and Israel Money Laundering and Terror Financing Prohibition Authority (IMLPA), have been establishing a comprehensive regulatory framework to oversee the digital asset space. This framework aims to balance innovation with investor protection and risk mitigation. Cryptocurrencies are generally treated as 'financial assets' for regulatory and taxation purposes, not as legal tender. Profits from the sale of cryptocurrencies are subject to capital gains tax, currently 25% for individuals, as per Israeli tax laws, which consider cryptocurrencies as financial assets rather than 'regular' currencies.

The ISA plays a crucial role in determining whether specific digital assets qualify as securities. If a cryptocurrency is deemed a security, it falls under Israeli securities laws. In August 2024, the ISA approved a regulatory amendment allowing non-bank members of the Tel Aviv Stock Exchange (TASE) to offer cryptocurrency trading and custody services for approved cryptocurrencies like Bitcoin and Ethereum, under a 'closed garden' approach. The ITA has issued circulars and guidelines clarifying tax obligations for crypto-related activities, including the taxation of exchanging one digital currency for another and the sale of NFTs. Recent draft regulations, proposed in late 2024 and set to be effective from July 2025, aim to further solidify the tax treatment of digital assets and simplify reporting for individuals trading through supervised entities; these regulations also propose introducing withholding tax on digital asset transactions.

While the BOI does not recognize cryptocurrencies as legal tender, it has been actively involved in discussions around digital assets, including exploring the potential issuance of a central bank digital currency (CBDC), the 'Digital Shekel'. On March 10, 2022, the Bank of Israel published a new draft of an amendment to the Proper Conduct of Banking Business Directive, prohibiting Israeli banks from implementing a practice of complete refusal to receive into clients' bank accounts amounts of fiat funds deriving from cryptocurrency activities without a specific cause, provided that the funds are being transferred from a licensed cryptocurrency service provider. Entities offering cryptocurrency exchange and custody services in Israel are required to obtain a Financial Asset Service Provider License from the Capital Market, Insurance, and Savings Authority.

Strict AML and KYC regulations are in place, aligned with international standards set by the Financial Action Task Force (FATF). VASPs must implement robust customer due diligence processes, verify client identities, maintain detailed transaction records (including IP addresses and public keys), and report suspicious activities. Operating without a license can lead to significant penalties, including closure and fines, as regulated under the Financial Services Supervision Law. Regulators have issued warnings about the risks associated with cryptocurrency investments, including fraud, money laundering, and market volatility. Israel's approach to cryptocurrency regulation has evolved from initial caution to a more structured and comprehensive framework, with the government supporting technological advancement while ensuring financial stability and consumer protection.

Summary Points

Retail Trading of Cryptocurrencies in Israel: Regulatory Overview (June 26, 2025)

Status: Allowed-Regulated

1. General Regulatory Status

  • Legality: Individual citizens and residents are legally permitted to buy, sell, and hold cryptocurrencies.
  • Classification: Cryptocurrencies are treated as "financial assets" for regulatory and taxation purposes, not as legal tender.
  • Overall Approach: The Israeli government is establishing a comprehensive regulatory framework balancing innovation with investor protection and risk mitigation.

2. Key Regulatory Bodies and Roles

  • Israel Securities Authority (ISA):
    • Determines if digital assets qualify as securities, subjecting them to Israeli securities laws.
    • Approved an amendment in August 2024 allowing non-bank members of the Tel Aviv Stock Exchange (TASE) to offer cryptocurrency trading and custody services for approved cryptocurrencies (e.g., Bitcoin, Ethereum) under a "closed garden" approach.
  • Israel Tax Authority (ITA):
    • Considers cryptocurrencies as assets.
    • Profits from cryptocurrency sales are subject to capital gains tax (currently 25% for individuals).
    • Issues circulars and guidelines clarifying tax obligations for crypto-related activities (e.g., exchanging digital currencies, NFTs).
    • Draft regulations aim to solidify tax treatment and simplify reporting, including potential withholding tax on digital asset transactions (effective July 2025).
  • Bank of Israel (BOI):
    • Does not recognize cryptocurrencies as legal tender.
    • Exploring the potential issuance of a central bank digital currency (CBDC), the "Digital Shekel".
    • Issued guidelines to banks regarding accepting funds originating from cryptocurrency activities, prohibiting blanket refusal if funds originate from a licensed Virtual Asset Service Provider (VASP). Banks must establish risk-based policies.
  • Capital Market, Insurance, and Savings Authority (CMISA):
    • Responsible for licensing financial service providers, including those dealing with virtual currencies.
    • Entities providing services like holding, safekeeping, management, transfer, or exchange of financial assets (including cryptocurrencies) must obtain a license.
  • Israel Money Laundering and Terror Financing Prohibition Authority (IMLPA):
    • Sets AML/CFT (Combating the Financing of Terrorism) requirements for VASPs.

3. Key Legislation and Regulations

  • Financial Services Law: The primary legislation regulating financial service providers, including those dealing with financial assets and virtual currencies.
  • AML/KYC Order: Applies to providers of services in financial assets relating to cryptocurrencies, imposing requirements such as keeping records of IP addresses and public keys used by customers.
  • Bank of Israel Directives: Directives to banks regarding the acceptance of funds originating from cryptocurrency activities.

4. Requirements for Compliance

  • Licensing: Entities offering cryptocurrency exchange and custody services must obtain a Financial Asset Service Provider License from the CMISA. Operating without a license can lead to penalties.
  • AML/KYC:
    • Strict AML and KYC regulations are in place.
    • VASPs must implement robust customer due diligence processes, verify client identities, maintain detailed transaction records (including IP addresses and public keys), and report suspicious activities.
    • Compliance with international standards (e.g., FATF).
  • Taxation:
    • Profits from cryptocurrency trading are subject to capital gains tax.
    • The ITA is working to clarify tax reporting and payment procedures.
    • Draft regulations propose withholding tax on digital asset transactions (effective July 2025).

5. Notable Restrictions or Limitations

  • Banks' Hesitancy: Historically, banks have been hesitant to provide services to crypto-related businesses and individuals due to AML concerns. BOI guidelines aim to address this.
  • Limited Approved Cryptocurrencies: The ISA's "closed garden" approach initially limits trading and custody services to approved cryptocurrencies like Bitcoin and Ethereum.

6. Recent Developments or Changes

  • ISA Amendment (August 2024): Allowed non-bank members of the TASE to offer cryptocurrency trading and custody services for approved cryptocurrencies.
  • BOI Guidelines (March 2022): Required banks to adopt a risk-based approach rather than outright refusal of services for funds from licensed crypto entities.
  • Draft Tax Regulations (Late 2024): Proposed withholding tax on digital asset transactions, set to be effective from July 2025.
  • Ongoing Legislative Changes: Ongoing proposals and legislative changes aimed at further refining the regulatory framework, such as those concerning the definition of digital assets as securities and the specific tax obligations.

Full Analysis Report

Retail Trading Status of Cryptocurrencies in Israel

Report Date: June 26, 2025

Topic: Retail_Trading_Status

Description: This section assesses whether individual citizens and residents in Israel are legally permitted to buy, sell, and hold cryptocurrencies. It also details the regulatory environment surrounding this activity, including Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements imposed on platforms, and any general warnings issued.

Status: Allowed-Regulated

Detailed Narrative Explanation:

Individual citizens and residents in Israel are legally permitted to buy, sell, and hold cryptocurrencies. The Israeli government and regulatory bodies have been progressively establishing a comprehensive regulatory framework to oversee the digital asset space, balancing innovation with investor protection and risk mitigation. Cryptocurrencies are generally treated as "financial assets" for regulatory and taxation purposes, not as legal tender or currency.

Several Israeli regulatory bodies are involved in shaping the crypto landscape:

  • Israel Securities Authority (ISA): The ISA plays a crucial role in determining whether specific digital assets qualify as securities. If a cryptocurrency is deemed a security, it falls under Israeli securities laws. The ISA has been working on proposals to amend securities laws to better incorporate digital assets, aiming to provide clarity and protect investors. In August 2024, the ISA approved a regulatory amendment allowing non-bank members of the Tel Aviv Stock Exchange (TASE) to offer cryptocurrency trading and custody services for approved cryptocurrencies like Bitcoin and Ethereum, under a "closed garden" approach.
  • Israel Tax Authority (ITA): The ITA considers cryptocurrencies as assets, and profits from their sale are subject to capital gains tax (currently 25% for individuals). The ITA has issued circulars and guidelines clarifying the tax obligations for crypto-related activities, including the taxation of exchanging one digital currency for another and the sale of NFTs. Recent draft regulations aim to further solidify the tax treatment of digital assets and simplify reporting for individuals trading through supervised entities.
  • Bank of Israel (BOI): While the BOI does not recognize cryptocurrencies as legal tender, it has been actively involved in discussions around digital assets, including exploring the potential issuance of a central bank digital currency (CBDC), the "Digital Shekel". The BOI has also issued guidelines to banks regarding the acceptance of funds originating from cryptocurrency activities, aiming to ease the previous difficulties individuals and businesses faced when trying to deposit such funds. Banks are now prohibited from a blanket refusal of such funds if they originate from a licensed Virtual Asset Service Provider (VASP) and are required to establish risk-based policies.
  • Capital Market, Insurance, and Savings Authority (CMISA): This authority is responsible for licensing financial service providers, including those dealing with virtual currencies. Entities providing services such as holding, safekeeping, management, transfer, or exchange of financial assets, including cryptocurrencies, must obtain a license.
  • Israel Money Laundering and Terror Financing Prohibition Authority (IMLPA): This authority plays a key role in setting AML/CFT (Combating the Financing of Terrorism) requirements for VASPs.

Key Regulatory Aspects:

  • Licensing: Entities offering cryptocurrency exchange and custody services in Israel are required to obtain a Financial Asset Service Provider License from the Capital Market, Insurance, and Savings Authority. Several companies have already secured such licenses. Operating without a license can lead to significant penalties, including closure and fines.
  • AML/KYC Requirements: Strict AML and KYC regulations are in place. VASPs must implement robust customer due diligence processes, verify client identities, maintain detailed transaction records (including IP addresses and public keys), and report suspicious activities. These requirements align with international standards, such as those set by the Financial Action Task Force (FATF).
  • Taxation: Profits from cryptocurrency trading are subject to capital gains tax. The ITA has been working to clarify tax reporting and payment procedures, including introducing mechanisms for individuals to pay taxes on crypto profits even when facing difficulties with bank acceptance of funds from crypto sources. Draft regulations proposed in late 2024 and set to be effective from July 2025 aim to introduce withholding tax on digital asset transactions.
  • Investor Protection: Regulators have issued warnings about the risks associated with cryptocurrency investments, including fraud, money laundering, and market volatility. The ISA's efforts to bring clarity to the classification of digital assets and regulate service providers are also aimed at enhancing investor protection.

Historical Context and Nuance:

Israel's approach to cryptocurrency regulation has evolved from initial caution to a more structured and comprehensive framework. Early on, regulators issued general warnings about the risks. However, recognizing the innovative potential of blockchain technology and the growing adoption of cryptocurrencies, authorities have moved towards establishing clear rules.

A significant challenge has been the interaction between the crypto space and traditional banking institutions, with banks often hesitant to provide services to crypto-related businesses and individuals due to AML concerns. Guidelines from the Bank of Israel aim to address this by requiring banks to adopt a risk-based approach rather than outright refusal of services for funds from licensed crypto entities.

The regulatory landscape is still dynamic, with ongoing proposals and legislative changes aimed at further refining the framework, such as those concerning the definition of digital assets as securities and the specific tax obligations. The government's general stance is supportive of technological advancement while ensuring financial stability and consumer protection.

Relevant Text Excerpts and Sources:

  • Status as "Financial Assets" and Licensing: "Under Israeli law, cryptocurrencies are considered “financial assets” and are subject to regulation. The Financial Services Law is the primary legislation that regulates financial service providers, including those dealing with financial assets and virtual currencies... This law requires entities engaged in providing services for the holding, safekeeping, management, transfer, or exchange of financial assets, including cryptocurrencies, to obtain a licence."

  • AML/KYC Requirements: "The duties require compliance with AML regulations, and cryptocurrency service providers in Israel must perform adequate KYC procedures. This involves verifying the identity of customers, conducting background checks, and obtaining the necessary documentation to verify transactions. Furthermore, Israeli financial institutions... are subject to certain AML obligations and are required to implement a risk-based approach. The AML/KYC order applicable to providers of services in financial assets relating to cryptocurrencies imposes certain requirements, such as keeping a record of the IP addresses and public keys used by customers."

  • Taxation of Cryptocurrencies: "According to Israeli tax laws, cryptocurrencies are considered financial assets rather than "regular" currencies. This means that the taxation of crypto is approached more like "property" or "securities" rather than a currency for daily transactions... Profits arising from the sale of cryptocurrencies are considered taxable under capital gains tax if the cryptocurrency is sold for a higher price than it was purchased. The tax rate on these profits is currently 25% (as of 2024)."

  • ISA's Role and Proposed Amendments: "In August 2024 the ISA approved a significant amendment to allow cryptocurrency trading within Israel's traditional capital markets framework. Specifically, it allowed non-bank members of the Tel Aviv Stock Exchange (TASE) – such as brokerage and investment firms – to offer cryptocurrency trading and custody services to their clients. This is often described as a “closed garden” approach: customers will be able to buy, sell and hold approved cryptocurrencies (initially limited to Bitcoin and Ethereum) through their regulated investment account providers."

  • Bank of Israel's Stance and Banking Directives: "On 10 March 2022, the Bank of Israel published a new draft of an amendment to the Proper Conduct of Banking Business Directive... The amendment will prohibit Israeli banks from implementing a practice of complete refusal to receive into clients' bank accounts amounts of fiat funds (ie, money that is a legal tender) deriving from cryptocurrency activities, without a specific cause... provided that the funds are being transferred from a licensed cryptocurrency service provider."

  • Licensing of Crypto Exchanges: "In Israel, crypto exchanges must obtain a licence from the Israeli Capital Market, Insurance, and Savings Authority (CMISA), which regulates cryptocurrency service providers under the Financial Services Supervision Law."

  • Government's Approach to Regulation: "The Israeli government broadly supports advances in technology, as well as the regulation of laws and incentives that can further industry growth. The government's general approach toward cryptocurrencies is that there is a need to establish a comprehensive regulatory framework for cryptocurrencies and tokenised securities... To address these concerns and the absence of clear guidelines, the government is committed to enacting legislation and implementing an informed risk management structure."

Disclaimer: This report is based on information available up to the specified date and is for informational purposes only. It does not constitute legal or financial advice. Users should consult with qualified professionals for specific guidance.

Web Sources (23)

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