Crypto Taxes in France: All you Need to Know!
In 2019, the French government introduced tax legislation to address digital assets and cryptocurrencies. The French authorities, under Article 150 VH bis, VI of the General Tax Code (CGI), have defined “digital assets” which include tokens (representing, in digital form, one or several rights, which can be issued, registered, stored or transferred using a shared electronic recording device) and cryptocurrencies (hereinafter referred to as crypto assets).
In France, taxable income consists of annual disposable income from all sources. Income is identified based on its nature, and then allowances, deductions and treaty provisions are applied in calculating net taxable income subject to progressive tax rates. Certain capital gains from the disposal of assets attract a Flat Tax rate (PFU) of 30% which comprises of Income Tax at 12.8% and an additional 17.2% of social taxes charged on passive income and capital gains.
Which taxes apply
The French Council of State announced that profits earned from crypto asset trading are considered as “industrial and commercial gains”, however this only applies to individuals that regularly generate earnings from crypto asset trading. Gains generated from occasional transactions are regarded as non-commercial profits. In France, under the CGI, Article 150 VH bis, the following exchanges of crypto assets are taxable.
- The exchange of crypto assets for fiat currency;
- The exchange of crypto assets for a good other than a digital asset;
- The exchange of crypto assets for a service; and
- The exchange of crypto assets for another virtual currency when the difference in value is paid in fiat currency,
- Any exchange of a crypto asset for another crypto asset is not considered a taxable event and is not subject to tax.
The Appropriations Law of 2019 amended the French Tax Code to clarify how crypto assets are taxed. Under these provisions, the gains from the sale of crypto assets are subject to an income tax of 12.8% and social contributions of 17.2%. This aligns crypto assets with the taxation of income from stocks and other non-real estate assets. Under the new tax provisions, persons who sell less than EUR 305 worth of crypto assets in a year are exempt from these taxes.
The French tax authority’s guidance indicates that the reward given to miners to validate crypto asset operations is exempt from tax, however, the Supreme Court of France has ruled that VAT must be paid on this (see below the “Indirect Taxes” heading).
How much tax do you have to pay on crypto assets?
The tax amount is calculated on the net gain or loss at the time of the sale i.e. the proceeds on sale less the acquisition cost (including the transactional costs).
Under the French Tax Code, the ability to deduct capital losses has been limited. Crypto asset investors may only use capital losses realised in the year they were incurred and may only be used to reduce gross capital gains of the same nature realised in the same tax year. The law does not allow for the carryforward of unused capital losses to future years.
Value Added Tax (VAT)
There is no specific VAT law or guidance on the VAT treatment of cryptocurrencies. However, the French Supreme Court has ruled cryptocurrency assets are associated for tax purposes to intangible assets which means that, for now, their VAT treatment should be the following:
- Revenue received from cryptocurrency mining activities is subject to VAT as a supply of services
- When cryptocurrency is exchanged for fiat currencies, such as Euros or Dollars, no VAT is due, on the value of the cryptocurrency and in respect of the fees, if any, charged by the intermediary
- Charges made over and above the value of the cryptocurrency for arranging or carrying out any transactions in Bitcoin, except forex transactions with official currencies, are subject to VAT
- The sale of cryptocurrencies is not subject to VAT unless made for the purpose of obtaining income therefrom on a continuing basis
In France, however, revenue from mining activities is considered taxable as a supply of services.
No transfer taxes are payable in France on crypto asset transactions.
If a decedent or donor was resident in France, tax is payable on gifts and inheritances of worldwide net assets. Subject to certain exemptions for spouses and children, the net assets are subject to inheritance tax ranging from 35% to 60%. The rates and thresholds are determined based on the relationship between the donor and the recipient. Crypto assets forming part of the net assets will be subject to gifts and inheritances tax.
Which tax forms do you report crypto on?
From 1 January 2020 French taxpayers are required to declare all of their crypto asset accounts to the French tax authorities, including accounts located abroad, in their annual income tax return. This applies to Tax residents of France who have opened, held, used or closed a cryptocurrency account.
The Tax Administration has not prescribed a set of documents and information that crypto asset investors need to submit, however the crypto asset investors will need to maintain detailed records to support the information declared in their tax return. This information may include:
- The date of the transaction;
- The value of the units bought or sold;
- The taxable capital gain on disposals; and
- The number of units.