Quick Answer
Yes, cryptocurrency is legal in Israel but is regulated.
It is not considered legal tender but is treated as a taxable asset.
Crypto businesses must follow strict AML/KYC regulations and obtain proper licensing.
Legal Status of Crypto in Israel
Cryptocurrency is legal in Israel, operating within a defined regulatory framework rather than a legal gray area. It is not recognized as legal tender but is officially classified as a “financial asset” under the Supervision of Financial Services Law and treated as a taxable capital asset by the Israel Tax Authority. This status means that crypto activities are overseen by multiple bodies, including the Bank of Israel and the Israel Securities Authority, and businesses must comply with strict anti-money laundering (AML) regulations like the Prohibition on Money Laundering Law.
Current Regulations
Israel’s approach to cryptocurrency regulation is multifaceted, with several government bodies overseeing different aspects of the market. A cornerstone of this framework is the Supervision of Financial Services Law, which defines virtual currencies as "financial assets" and mandates that service providers, such as exchanges, secure a license to operate. For tax purposes, the Israel Tax Authority treats crypto as an asset, subjecting profits from its sale to capital gains tax. Furthermore, all crypto businesses must adhere to strict Anti-Money Laundering (AML) and Know Your Customer (KYC) obligations to prevent illicit financial activities.
Regulatory Authorities
Several regulatory bodies collectively oversee the crypto landscape in Israel, each with distinct responsibilities:
- Israel Securities Authority (ISA): The ISA oversees public offerings of cryptocurrencies and determines whether a digital token qualifies as a security subject to securities law. It also proposes amendments to include digital assets within existing legal frameworks.
- Israel Tax Authority (ITA): This authority classifies cryptocurrencies as taxable assets and is responsible for issuing guidelines on capital gains tax. The ITA also mandates reporting for crypto-to-crypto exchanges and other digital asset sales.
- Bank of Israel: The central bank issues directives to financial institutions on how to handle crypto-derived funds and assesses the risks virtual currencies pose to the financial system. It is also leading the research and potential development of a digital shekel.
- Capital Market, Insurance and Savings Authority: This body is responsible for licensing and supervising financial service providers that deal in virtual currencies, such as exchanges and wallet providers. It also sets requirements for safeguarding customer assets and implementing anti-money laundering controls.
- Israel Money Laundering and Terror Financing Prohibition Authority (IMPA): As Israel's primary financial intelligence unit, IMPA enforces anti-money laundering regulations for all financial entities, including crypto businesses. It establishes the rules for customer due diligence, transaction monitoring, and reporting suspicious activities.
- Ministry of Finance: The Ministry of Finance helps shape the national economic plan for digital assets by publishing recommendations and proposing new legislation. It coordinates with other regulators to create a comprehensive framework for the crypto sector.
Historical Context
Israel's regulatory journey for crypto began with a 2014 public warning about its risks. The first major legislative step was the 2016 Supervision on Financial Services Law, which classified virtual currencies as "financial assets" and required service providers to be licensed. A pivotal policy shift came in 2018 when the tax authority declared crypto a taxable asset, subjecting gains to capital gains tax. This move increased compliance burdens and reportedly dampened market growth. More recently, regulators have focused on refining the rules, with the Israel Securities Authority proposing to formally include digital assets in securities law and the Ministry of Finance introducing new legislation to create a clearer tax framework.
Compliance Requirements for Businesses in Israel
To operate legally in Israel, crypto businesses must adhere to a comprehensive set of compliance requirements rooted in the country's robust anti-money laundering (AML) and counter-terrorist financing (CTF) framework. The government guidance, primarily enforced by the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA), outlines several essential procedures:
- AML Checks: Financial institutions are required to conduct thorough due diligence on all customers. This includes reporting certain transactions automatically, such as cash deposits or withdrawals over NIS 50,000 and international transfers of NIS 1 million or more. They must also report any unusual activity that deviates from a client’s typical behavior, like transactions designed to circumvent reporting thresholds. Furthermore, businesses must screen clients against global sanctions lists and identify any Politically Exposed Persons (PEPs) as part of their AML/KYC regulations.
- KYC Requirements: "Know Your Customer" rules are detailed and vary by client type. For individuals, firms must verify identity using official documents like an ID card for residents or a passport for foreign residents. For corporations, the process involves collecting registration certificates, foundation documents, and identifying the ultimate beneficial owners or controlling shareholders. All clients must also formally declare whether the account is for themselves or another beneficiary.
- Other Mandatory Procedures: Beyond initial checks, businesses have ongoing obligations. They must appoint a dedicated Money Laundering Officer responsible for overseeing compliance, maintain continuous transaction monitoring, and keep meticulous records of all customer and transaction data. For certain international trade transactions, providing documentation like an invoice or bill of lading can exempt a business from automatic reporting, though this exemption does not apply to dealings with high-risk countries.
Why this matters for Cross-Border Payments
For businesses facilitating cross-border payments between Israel and India, these stringent regulations introduce significant operational hurdles. The rigorous AML and KYC requirements mean that every transaction is subject to intense scrutiny, demanding thorough verification of both sender and receiver. This can lead to increased compliance costs, slower payment processing times, and a higher risk of transactions being flagged or blocked. Ultimately, these measures can create friction and add complexity to financial flows that are otherwise expected to be fast and seamless.
How Lightspark Enables Compliant Crypto-Native Payments
Lightspark provides a global payments platform, the Money Grid, through two core products. Lightspark Connect enables native Bitcoin payments on the Lightning Network, while Grid Switch uses domestic real-time payment rails for fiat transfers. This dual approach allows for instant, low-cost cross-border payments, bypassing the delays and high fees of traditional finance by using Bitcoin as a settlement asset and local systems for on/off-ramps, directly addressing the friction of international transactions.
For regulated institutions navigating strict rules like those in Israel, Lightspark offers crucial infrastructure. It provides tools such as audit-ready reporting, flexible custody options, and compliance integrations that facilitate adherence to their own AML/KYC obligations. This allows firms to leverage modern payment networks while maintaining the necessary controls for secure and transparent operations.
Discover how Lightspark is building the future of open, instant financial infrastructure by exploring their mission and solutions.
Notice: This article is provided for informational purposes only and does not constitute legal advice.
Sources
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Daher, Hanna, et al. "New memorandum of law regulating the crypto sector in Israel." JD Supra, 26 Nov. 2024, www.jdsupra.com/legalnews/new-memorandum-of-law-regulating-the-6600564/.
Discount Bank. "Prohibition on Money Laundering Law." Discount Bank, www.discountbank.co.il/en/private/general-information/anti-money-laundering-law/.
"Israel - Cryptocurrency Laws and Regulation." Freeman Law, freemanlaw.com/cryptocurrency/israel/.
Zichor, Uri. "Blockchain & Cryptocurrency Laws & Regulations 2025 – Israel." Global Legal Insights, Global Legal Group, 25 Oct. 2024, www.globallegalinsights.com/practice-areas/blockchain-cryptocurrency-laws-and-regulations/israel/.
