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In a newly published circular, the Israeli government has outlined possible approaches to taxing ICOs.

Issued by the Tax Authority on Wednesday, the draft circular proposes imposing a value-added tax (VAT) on ICOs, differentiating them into two types: service transactions and sales transactions.

Tax Authority Director Moshe Asher said: "The Tax Authority is monitoring the technological developments and is working to provide an answer regarding the tax implications of virtual currency transactions and the issuance of digital tokens, thereby increasing the certainty and tax transparency of those operating in the field."

At the level of the issuing company, the draft circular regulates the source of income in the framework of the issue, the method of recognition of income, and determines the times for this in accordance with the various circumstances and familiar business models in this area.

In addition, it specifies the manner of reporting for tax purposes in the event of the granting of tokens to employees.

According to the document, token sales which reap more than 15 million Israeli new shekels (INS) in revenue will be subject to bookkeeping regulations in accordance with existing law.

Under the plan, investors who sell the tokens they had already purchased from an ICO will be subject to taxation as well, the circular explained. However, groups which trade as a business will be "classified and registered as a financial institution" specifically for tax purposes.

The Israeli Ministry of Finance said in November 2017 it would establish a working team on digital currencies together with the heads of the big accounting firms and relevant professional chambers.

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