Hardly a week goes by without hearing about cryptocurrencies, blockchain or related technologies. This rapid technological evolution, sustained by an unbridled passion on social medias and forums has left no one indifferent, including tax authorities. That said, the French taxpayers are now required to mention their gains in cryptomonnaies in their tax returns on income. What is the regulatory framework? The current tax system? How to calculate your capital gain? How to declare your earnings to the tax authorities? Here are our explanations.
Regulatory framework for cryptocurrencies in France
The Pacte Act (Loi de Pacte) relating to the growth and transformation of companies established an initial legal framework for crypto-assets in France giving birth to a new investment product, the digital asset.
According to the French Monetary and Financial Code (MFC), we can distinguish two categories of digital assets.
The first consists of cryptocurrencies of the Bitcoin type, of which article L54-10-1 of the MFC gives the following definition:
“any digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and that can be transferred, stored and traded electronically”.
The second consists of utility tokens of the ERC20 type, which are similar to financial instruments, defined by article L552-2 of the MFC as follows:
“any intangible asset representing, in digital form, one or more rights that can be issued, registered, retained or transferred using a shared electronic recording device making it possible to identify, directly or indirectly, the owner of that asset”.
However, the above definition does not cover other tokens such as security tokens. According to the Autorité des marchés financiers (AMF), “security tokens are intended to grant their holder financial or voting rights […]. These rights granted by these tokens may result, in accordance with applicable law, in classifying these securities as financial instruments”, which distinguishes them from utility tokens.
Thus, the specific regime applicable to crypto-assets provided by Article 150 VH bis of the FTC which provides for taxation upon sale/transfer for valuable consideration does not apply to income deriving from security tokens and France has not implemented any specific tax regime for security tokens to date.
The taxation of cryptocurrencies and tokens
Since 1 January 2019, France has instituted a specific tax regime, which takes the form of a flat-rate tax, for gains realized by individuals upon the occasional disposal of digital assets (which include both "utility tokens" and cryptocurrencies such as bitcoins). This regime, codified in Article 150 VH bis of the French tax code (FTC), applies to sales made since 1 January 2019.
Therefore, all cryptocurrencies and utility tokens such as Bitcoin, Ether, XRP and BEST fall under the category of digital assets, which are taxed at 30% by the one-time flat-rate levy called "flat tax ”.
The flat tax applies to capital gains realized by natural persons domiciled in France for tax purposes, directly or through an intermediary, during an occasional sale of digital assets. It is taxable at 30%, or 12.8% income tax, and 17.2% social security contributions.
Otherwise, holding or/and exchanging a cryptocurrency for another does not trigger a taxable event. It is only when the gains made in crypto have been converted into legal tenders, such as euro, dollar, or other so-called "fiat" currency, that the virtual currency (crypto) enters the tax base. Taxation is also provided for in certain cases, namely: when the cryptocurrency is used to acquire a service or a good or when a digital asset is the subject of an exchange with a balancing payment.
Besides the flat tax, the tax authorities distinguish two additional situations. The first relates to the gains on cryptocurrencies obtained in return for the taxpayer's participation in an occasional (non-professional) mining activity which is taxable in the category of non-commercial profits (BNC) - i.e. taxable at the marginal tax rate (progressive tax rate applicable to household income) and the rate of 17.2% of social contributions. The second situation concerns regular earnings (professional activity) which are subject to income tax at the marginal tax rate in the category of Industrial and Commercial Profits (BIC) and the rate of 17.2% of social contributions.
How to determine your capital gain?
For all taxable transactions, the principles for determining capital gain comply with specific rules. Thus, the realized capital gain is equal to the difference between, on the one hand, the sale price of the digital assets and, on the other hand, the product of the total acquisition price of the entire portfolio of digital assets multiplied by the quotient of the sale price divided by the overall value of this portfolio on the date of sale.
It should be noted that the total acquisition price of the portfolio of digital assets corresponds to the sum of the prices paid in fiat currency such as euro, on the occasion of all the acquisitions made before the sale and of the value of goods and services given in return for these acquisitions (excluding exchange transactions). This total price will also have to be restated to take into account the disposals of digital assets beforehand.
Complicated? Blockpit will take care of it but here is yet an example to illustrate:
In January 2020, a French taxpayer's wallet contained 20 Ethers after making a purchase for an amount of € 2,140. Six months passed (early June 2020), he exchanges 10 Ethers for 37 Moneros. This transaction is considered interim and is therefore not taxable. Following this, the wallet would contain 10 Ethers and 37 Moneros. At the end of the 2020 fiscal year, the taxpayer does not have to make a tax declaration.
In April 2021, he sold 5 Ethers and 17 Moneros for an amount of € 12,250. Thus, his wallet would contain 5 Ethers and 20 Moneros.
Remembring that the acquisition price of the portfolio before disposal was € 2,140, the value of the portfolio at the time of the disposal is € 25,150; € 12,250 (sale price of 5 Ethers and 17 Moneros) + 5 ETHs and 20 Moneros valued at € 12,900 (beginning of April 2021).
So, according to the rule for calculating the gain for cryptos sale price - (purchase price x (sale price / value of the portfolio)), the disposal of the 5 Ethers and 17 Moneros generates a gain of:
12 250 - (2140 x 12 250/25 150) = 11,207 € (taxed capital gain)
An arithmetic operation like this is fun, but it can get overwhelming when the portfolio contains multiple transactions per fiscal year, which is the case for most crypto investors due to the nature of the market. For situations requiring high precision, a Big Four audited tax report with a top-notch reporting tool like Blockpit is recommended.
Other details for a proper calculation
Several additional details should be taken into account during the calculation process. First, depending on the case, the transaction fees paid to the exchange platform or the miners are either to be taken as a reduction of the sale price or as an increase of the acquisition price.
Then, to determine the overall value of the portfolio, the global value of the digital assets held by all the members of the tax household should be taken into account, regardless of the storage media (exchange platforms, wallets, etc.).
Finally, to properly determine the net taxable capital gain, it must be remembered that the capital losses are deducted exclusively from capital gains of the same nature made during the same year. Capital losses cannot be carried forward to subsequent years or be deducted from a capital gain on the sale of a well other than a digital asset.
The result is between capital gains and losses, if the amount of the difference between the two is negative, it will not be taxed. To determine the tax base of your cryptocurrency assets, it is advisable to call on a tax expert specializing in cryptocurrency or to adopt a simpler and more practical solution by using a tool that will save you the hassle and time of calculation such as Blockpit crypto-tax software.
Note that if the total capital gains over the year are equal to or less than the sum of 305 euros per household, no tax will be due.
How to report your cryptocurrencies to the tax authorities?
The following documents must be completed in order to report cryptocurrencies’s gains for tax purposes:
- Cerfa no. 2042: This is the income tax declaration form. It is possible to complete line 3AN of the declaration in the event of an overall capital gain or line 3BN in the event of an overall loss in value on your digital assets.
- Cerfa no. 2086: Annex making it possible to mention and evaluate all the purchase and sale operations to enter the amount of the disposals determining the gain or loss.
It is good to remember that the dates fixed for the filing of the tax report are:
1st zone: May 26, 2021, for departments 01 to 19 as well as non-resident taxpayers in France;
2nd zone : June 1, 2021 for departments 20 to 54 (including the two departments of Corsica);
3rd zone : June 8, 2021 for departments 55 to 974/976.
You feel late and your hands are full? Blockpit is here for you! Blockpit is a crypto-asset tax reporting tool that enables you to generate a full report simply by connecting your exchanges and wallets. Blockpit has partnered with a Big Four auditing firm allowing you to get a comprehensive overview of your asset portfolio, calculate your capital gain to the nearest penny and generate an accurate, clear, and complete tax report according to the French tax requirements.
Disclaimer: The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. We recommend contacting a certified legal advisor in the respective country for detailed information on crypto regulations. If any questions occur, feel free to contact us on our social media channels.