Impact on Bitcoin and Taxation in France

New European regulations on cryptocurrency come into effect this month

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New cryptocurrency regulations come into force across Europe this month, as ‘Bitcoin’ levels reach historic highs.

The electoral success of President-elect Donald Trump and his associate Elon Musk has seen the crypto-currency market increase in strength, with Bitcoin, Ether and many other cryptocurrencies performing well. 

One ‘coin’ reached the value of €100,000 in December. 

Read more: Comment: Trump re-election poses challenge for EU and France

European regulations under the name ‘MiCA’ (Markets in Crypto-Assets) focusing on protecting and regulating cryptocurrency investing and trading will be implemented across the bloc by the end of this month.

However, taxation rules on cryptocurrency assets already exist in France.

What are the rules? 

France’s tax authorities treat cryptocurrencies in the same way as capital assets such as bonds and shares.

Cryptocurrency assets themselves are not taxed, and you can have as much cryptocurrency in your wallets as you want without being taxed on them.

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Similarly, no tax is applied during the transaction of one cryptocurrency to another, such as Bitcoin to Ether (another well-known cryptocurrency), or Bitcoin to a ‘stablecoin’, a digital currency tied to a real-life currency such as the Euro or US dollar. 

This applies even when the transaction is profitable to you.

However, the exchange of a cryptocurrency for traditional money (euro, dollar etc.) or to buy a product , goods or a service triggers the requirement for a tax declaration.

In such cases, a 30% flat tax is applied unless annual sales are below €305.

The flat rate is applied on the profits regardless of your tax bracket or income levels, and is the standard capital gains tax in France (17.2% in social charges and 12.8% in income tax). 

If you are selling only a portion of your overall cryptocurrency portfolio, you will be taxed based on the sale price, the overall gain of your portfolio and the percentage of the total portfolio value that was sold. 

In such cases, the specific formula to calculate the gain which will be subjected to tax is:

Sale price – (Sale price * (overall portfolio acquisition price / overall portfolio value))

As a simple example, let’s suppose your cryptocurrency portfolio is now worth €3,000 and was acquired at €1,600. If you sell €600 of your portfolio, the gain which will be subjected to tax is:

€600 – (€600 * (€1,600 / €3,000)) = €280

This flat tax rate of 30% applies to ‘occasional’ investors, those who just have cryptocurrency as part of their assets. 

Professional investors see varying levels of tax up to 45% on a progressive taxation scale.

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It is up to the French authorities on whether a person is a ‘professional’ investor – this is based on the number of transactions, sums involved and means of transactions. 

A non-professional investor can alternatively opt for their cryptocurrency gains to be taxed on the progressive scale (as opposed to the 30% flat rate) by ticking box 3CN on their income tax return.

How do I declare? 

We look at the declaration process for non-professional investors. Gains or losses on cryptotransactions which fall within the scope explained above must be disclosed via your usual spring tax return as appendices to the 2042 form. 

These additional forms are: 

Your final capital gains or losses will be shown on lines 3AN or 3BN (respectively if a profit or loss was made) on the 2042 C form.

You may need to use third-party software to help list your cryptocurrency transactions, as there is only space on Form 2086 for 20 transactions to be listed. 

In addition, you will likely need to declare your cryptocurrency wallets as a foreign bank account on Form n°3916-bis. 

The vast majority of crypto platforms are hosted outside of France, meaning the account holding your cryptos is a foreign one.

Read more: Foreign bank accounts: French court clarifies rules after US account case

Read more: Fines levied for failure to declare bank accounts held out of France

Official guidance on cryptocurrency taxation and associated declaration can be found on the French government website here.