This might be the case in Israel, but in EU there is a directive "VAT on electronic services". Merchants outside of EU selling certain electronic goods/services to EU citizens must register for VAT and collect it. Whether this applies to Bitcoin is unclear. Exchanges are probably not affected, since they are not the seller.
This is incorrect. Exchanges are affected by VAT, at least in most countries that have VAT. The fact that the commodity is virtual is not a reason to not pay VAT, that's ridiculous. Everything
is in the domain of VAT except the exceptions and there are not many of them. Financial instruments are an exception but bitcoins are not a financial instrument as I've already mentioned. This is how it is in Finland, the VAT laws might be different in other places though.
In case of an exchange, it's not the same as if you were directly selling bitcoins. It's totally different. If you were directly selling them, you'd have to add the VAT to the price of the bitcoins being sold, which would be ridiculous. No one does it that way.
Exchanges don't actually sell bitcoins, they offer a service. But now it's important to remember that not only are all commodities in the domain of VAT, so are all services
(with some rare exceptions of course). The exchanges provide a service and the fee they take from each transaction is something that must include VAT unless the exchange is based in a country that doesn't have it. Or if the VAT laws are crappy (well, not crappy from the exchange's perspective but full of holes from any other perspective).
If I'm wrong about this I'd certainly like to know because I'm just about to start a company that will broker bitcoins from an exchange to my clients and vice versa. This is from a taxation perspective the same thing that exchanges do, so I need to include the VAT into the fee that I take from the brokering. I really can't find any loopholes that I could use to avoid VAT, the Finnish VAT law seems fairly strict and has no exceptions that apply, now that I confirmed that bitcoins are not a financial instrument.
Could you please tell me what was a process of confirming that bitcoins are not a financial instrument? If you mentioned somewhere else could you post a link to that post. Thank you.