How are crypto-currencies taxed in France?

The fundamentals of crypto-currency taxation

France has not usurped its unofficial title as the king country of taxation, since the taxation of crypto currencies was envisaged as early as 2014, even though BTC was not known to the general public. At the time, however, it was an administrative doctrine. This meant that citizens could challenge it before the Conseil d'Etat, and of course this was done. It has to be said that taxation at the time was rather excessive, since you could be taxed up to 60% of your capital gain...

In April 2018, the Conseil d'Etat overturned the doctrine and then applied the regime for capital gains on movable property to crypto-assets, which notably included a very advantageous provision, exempting disposals of less than €5,000. Alas for investors, this advantageous tax regime only lasted a year, as the Finance Act enacted in 2019 introduced a new regime, which we'll discuss in more detail below, the "flat tax".

A new article, 150 VH bis, has been specially designed and incorporated into the CGI, the French General Tax Code, and applies to occasional or "non-professional" investors, i.e. the majority of the French population concerned.

For the others, regular or professional investors, the Conseil d'Etat's case law still applies, and crypto-currencies will be taxed as Industrial and Commercial Profits (BIC). In fact, the taxation of crypto-currencies is set to change in 2023, and will be governed by the "Bénéfices Non Commerciaux" (BNC) system, as already applied to Bitcoin miners in particular (see below).

As this regime for professionals is very specific, we strongly advise you to contact a tax lawyer like Maître Sion, who will be able to help you optimize your taxation in all legality, and in this article we will deal with the most common regime! But first, how do you know whether you're considered a professional or occasional investor?

The difference between professional and casual crypto investors

Cabinet Sion Avocat explains the difference between an investor who is considered an amateur, i.e. occasional, and one who is considered a professional. It's important to know that the tax authorities use the "bundle of clues" method, and among the clues used by the tax authorities to decide on your classification, here are the most important:

• number of transactions carried out
• amounts invested
• volume of crypto-currency trading
• resources deployed

If, for example, you have carried out a large number of transactions, but for a small amount, and have made a total capital gain of less than €10,000, it is unlikely that you will be considered a professional. You will therefore be taxed under the normal personal income tax regime, and the income to be declared will fall into the BIC category.

However, there's a big change in store, as transactions carried out from January 1, 2023 onwards, and counting towards the 2024 tax return, will now be aligned with stock market transactions, and therefore taxed as BNC. The taxation of 2023 crypto-currencies is therefore in a state of upheaval, and will certainly continue to change over the coming months/years!

But in concrete terms, how are crypto-currencies taxed?

 

Taxation of crypto-currencies: flat tax on capital gains and cases of taxation and exemption

What is flat tax?

What is commonly referred to as the Flat Tax actually corresponds to the Prélèvement Forfaitaire Unique (PFU) for capital gains on securities. In fact, this is the percentage levied on your gains, which amounts to 30%, broken down into 12.8% tax and 17.2% social security contributions. If you are fortunate enough to opt for the progressive scale, for households in the 0-11% TMI bracket, only the 17.2% social security levy is due.

Taxable disposals

Only onerous transfers of digital assets are taxed... Deciphered by Cabinet Sion Avocat!

Transfers are the facts that give rise to taxation, and there are only two of them:

• Exchanging digital assets for legal tender: in concrete terms, if you convert your cryptos into euros.
• Purchase a good or service in digital assets: if you pay for a plane ticket with your cryptos, for example.

To put it plainly, as soon as crypto-currencies are taken out of their digital world, the transaction is taxable and you'll have to declare it, and therefore pay tax on it in the event of capital gains. If you use a crypto bank card, be sure to take your payments into account.

Here are two concrete examples:

• You buy 10 ETH (Ethereum) for €8,000, then sell them a few weeks later for euros, and earn €12,000. Your gain is therefore €4,000 before tax, and you'll owe 30% of your capital gain, i.e. €1,200! Your final profit is therefore €2,800.
• You pay a restaurant in BTC (Bitcoin). This operation will be taxable if you have made a capital gain between the time you acquired the BTC and the time you paid for your restaurant, and therefore sold them.

For the time being, all other transactions are exempt, including crypto-to-crypto exchanges.

A complex calculation method

If you make several disposals, the law provides for a fairly complex calculation method, which Cabinet Sion Avocat will explain to you...

In concrete terms, the formula is: Sale price - (acquisition price x [sale price/total portfolio value]) = capital gain taxable at 30%.

• The transfer price being the amount received upon the sale of the crypto-currencies
• The acquisition price being the purchase price of the crypto-currencies.
• The overall value of the portfolio being the value at the time of purchase of the crypto-currencies (and not at the time of sale).

Rest assured, the formula is calculated automatically by the tax authorities, as long as you know the transfer price and the initial acquisition price. On the other hand, there are tools and aggregators that can help you, and which can be advised by your crypto-currency tax lawyer.

Exemptions

As mentioned above, exchanges between crypto-currencies, for example if you convert your Bitcoin into Dogecoin, are not taxable for occasional individuals, even in the case of capital gains.

What's more, "holding" your cryptos in a personal wallet, or on an exchange platform, even over the long term, is not taxable.

Finally, if you're moving abroad, exit tax is not currently applicable to the world of digital assets, unlike unrealized capital gains on the stock market, for example, above a certain amount!

 

Taxation of crypto currencies: the special cases of DeFi, mining, staking and lending

DeFi, decentralized finance, is surely no stranger to you if you're interested in crypto-currencies. And activities on DeFi, enabling crypto-currencies or digital asset interest to be earned, have long generated legal uncertainty.

Lawyers specializing in the taxation of digital assets try to comply as closely as possible with the requirements of the tax authorities mentioned above, to best declare the various capital gains. Here, then, is an overview of the different types of taxation associated with income from decentralized finance.

Taxation of lending income

To begin with, if you lend an amount in cryptocurrencies, you're acting as a supplier of liquidity, in exchange for interest, and you're then practicing lending.

The interest is then earnings received as debt income, as with any loan, and will be taxed at the flat tax of 30%. When calculating the capital gain on a sale, your lending income will be added to the overall value of your portfolio, and considered as having been acquired free of charge.

Taxation of staking income

The aim of staking is to generate income by investing a portion of your digital assets, "locking them in" for a given period of time, thereby earning interest.

As with lending, the easiest method is to consider that the income from staking is added to the overall portfolio for a purchase price of €0.

Taxation of cryptocurrency mining

The special regime for crypto-currency miners is considered a hybrid. This is because the gains from mining are not taxed in the same way as the gains from a classic buy-sell capital gain, but are declared as non-commercial profits, BNC, as cryptos will also be from 2024.

However, if you can precisely calculate the quantities of crypto-currencies obtained by mining, and their price, you can add them to the overall value of your portfolio, as in the case of lending or staking.

Taxation of crypto-currency donations

Lastly, donations of digital assets (including NFTs, for example) are in principle subject to standard gift tax, and the deductions for family gifts may apply. If there is no family relationship between donor and recipient, the tax is 60% of the amount donated. And, in the event of a subsequent sale by the recipient, the capital gain is calculated on the basis of the acquisition value of the donation, on the date the crypto-currencies are received.

 

Don't forget: declaring your accounts and reporting procedures

Foreign bank accounts

If you have one or more accounts on crypto exchange platforms that aren't based in France, you're obliged to declare them, even if you don't realize any capital gains in the taxable sense of the term, and if you don't convert your crypto-currencies into "traditional" currency. Note that the majority of exchange platforms (Binance, Kraken, eToro...) are based abroad, so, like any bank account you may have abroad, you must make this known to the tax authorities, on pain of penalties.

Reporting procedures

Please note that foreign accounts should be reported on Schedule 3916 bis of your tax return, while taxable capital gains, as explained above by Cabinet Sion Avocat, should be reported on Schedule 2086...

 

Optimizing the taxation of crypto-currencies

It should be noted that there is currently no tax niche for individual, occasional investors. However, we strongly recommend that, in the event of a capital gain, you exchange your crypto-currencies for stablecoins, such as USDT (Tether) or USDC (US Dollar Coin), rather than converting them into dollars or euros, since it's the transfer against a traditional currency that triggers taxation!

Note also that the donation or transfer of crypto-currencies can benefit from family tax allowances (in direct line) of up to €100,000 per donor. So you can give crypto-currencies to your children or your spouse without having to pay tax or make a declaration.

 

In any case, as you can see, the taxation of crypto-currencies is no small matter, and if you're considering tax optimization, we advise you to consult a tax lawyer first. That way, you'll avoid a tax audit on your crypto-currencies, with, potentially, a tax reassessment at the end of the day.

So don't hesitate to contact Cabinet Sion Avocat, a tax lawyer in Marseille (and online!) specializing in tax optimization, who will be able to help and guide you through the taxation of your crypto-currencies!

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