Part 2 of my “Crypto Taxes Around the World” series
In France, cryptocurrencies remained largely unregulated until 2014 when the French tax authority published a text clarifying Bitcoin’s legal status: Bitcoin is now considered a “virtual unit of account stored on electronic supports which allows for a community of users to exchange goods and services between themselves without having to use legal tender”. The objective of this definition is to establish a fiscal status for cryptocurrencies and since Bitcoin is now considered a “virtual unit of account that can be valued and used as a speculative tool”, any income it generates is subject to taxation.
The issue for regulators is that cryptocurrencies are highly decentralized and transactions are anonymous so for now they rely solely on the good faith of cryptocurrency holders to declare the gains they make during the year.
As of January 2019, cryptocurrency capital gains are subject to a 30% tax (article 150 VH of the General Tax Code). Individuals who partake in occasional trading must declare all cryptocurrency sales on their yearly tax returns by filing an annex on which they state all capital gains they made that year. Individuals and companies who own foreign based accounts must also declare all sales on their yearly returns or face fines.
Individuals are only taxed on the capital gains so if you invest 1 000€ in BTC and sell for 1 200€ you need only declare 200€: with a 30% tax rate, you’ll pay 60€ and walk away with the remaining 140€.
Anecdotally, crypto sales under 305 € per year are completely tax exempt and need not be declared.
Professional traders who generate the majority of their income from trading are subject to a special tax regime called the BIC: The authorities will determine if you are subject to this tax regime based on your trading volumes and the amount of income you generate.
Despite the 30% tax rate being criticized as being too high, there is some good news for investors: French Economy Minister Bruno Le Maire recently announced that crypto-to-crypto transactions will remain tax exempt and that capital gains will only be taxed once cryptocurrencies are converted into fiat (euro or other). Further, trading in real currencies and remunerations in cryptocurrencies will remain exempt of value-added tax (TVA) as cryptos are not considered physical goods. Thus, TVA will only be assessed when cryptos are used to purchase goods and services.
Le Maire’s announcement is good news for cryptocurrency investors as tracking and declaring every single transaction is tedious and sometimes near impossible if you have to retroactively declare years of transactions.
Governments will feel the urge to quickly implement complicated tax laws to maximize tax collection before crypto holders get familiar with the notion of complying with regulations
Also, implementing a simple tax regime will facilitate both the declaration and the collection of taxes: the main risk is that governments will feel the urge to quickly implement complicated tax laws to maximize tax collection before crypto holders get familiar with the notion of complying with regulations. Indeed, the crypto community is obsessed with the notion of sovereignty and there is a growing divide between those who wish to evade regulations altogether and those who believe that regulations will legitimize widespread crypto investment and adoption.
Naturally, state regulators’ interest in this new form of tax collection will increase given most Western nations’ debt-ridden budgets and evasion will prove to be increasingly difficult.
In sum, it is recommended that individuals involved in cryptocurrency investing stay informed on the evolution of tax legislation in their countries of residence.