Would Israel's ICO Tax Plan Retain Startups or Scare Them Off?

According to some, the Israel Tax Authority's draft circular, published last week, detailing how domestic companies' ICO revenue could be taxed, is an effort by the Israeli government to entice token issuers to stay on the Middle Eastern soil.

"Up until now all Israeli ICOs ran the ICO from either Switzerland or Gibraltar," said Uriel Peled, a co-founder of two Israeli crypto startups.

Plus, Sirin Labs, which raised $157 million in an ICO recently, is largely based in Tel Aviv, but its website shows a company address in Switzerland.

One of the main reasons the ITA's circular might be appealing to token issuers is that it describes deferrals on when ICO income would become taxable, plus it mentions the potential for crypto companies to earn special tax treatment.

As people start to spend the tokens bought in an ICO to purchase items on a new platform, the company will then calculate how much profit it made after it built the software and acquired customers.

The circular also acknowledges that blockchain-based companies could apply for further tax advantages under Israel's Encouragement of Capital Investment Law, which was broadly designed to attract and retain high-tech companies.

Having said that, others aren't so sure that tax laws will persuade Israeli companies to bring their ICO income home.

"Currently, I'm unaware of any Israeli company who did, or plans to do, an ICO under Israeli jurisdiction," said Lior Jaffe, co-founder of Jelurida, the Israeli startup behind blockchain platforms Nxt and Ardor.

Secondly, taxes are just part of the regulatory landscape, and the Israel Securities Authority, which regulates securities in the country, has yet to formally rule on how ICO tokens should be categorized.

Not many countries' securities regulators have set hard-and-fast definitions for ICO tokens.