Cryptocurrency is now taxed in almost every country, and France is no exception. However, the tax rules surrounding cryptocurrencies in France, as outlined by the French Directorate General of Public Finance (DGFIP), differ greatly from those of other European countries. If you’re wondering how cryptocurrency is taxed in France, this cryptocurrency tax guide is for you! In this guide, we’ll explain the new rules implemented by the DGFIP and highlight the various administrative procedures. This will help you take the right steps to easily declare your cryptocurrencies to the tax authorities.
Do you pay tax on cryptocurrency in France?
In France, cryptocurrencies are taxed when you convert them into fiat currency, i.e., dollars, euros, or pounds sterling. However, trading or exchanging one cryptocurrency for another is not taxable. The amount of tax payable depends on whether you are considered a casual investor or whether your activity qualifies as professional trading. Only the DGFIP (Directorate for Investment and Investment in France) will be able to decide.
You must also declare any cryptocurrency gains received through activities such as mining or staking. Gains received from these activities will also be taxed. Specific tax rules will apply if you conduct mining or staking as a business. In the following section, we will go into more detail on how cryptocurrency is taxed in France according to the DGFIP.
How is cryptocurrency taxed in France?
Cryptocurrencies were first legally classified in May 2019, under the law on the action plan for business growth and transformation, also known as PACTE. That said, the legal definition of Bitcoin and other cryptocurrencies in France is as follows:
“Any digital representation of value that is not issued or guaranteed by a central bank or a public authority, that is not necessarily linked to a legal tender, and that does not have the legal status of a currency, but that is accepted by natural or legal persons as a medium of exchange and that can be transferred, stored, or exchanged electronically.”
Article L54-10-1 of the Monetary and Financial Code
As indicated by the Directorate General of Public Finance (DGFIP), cryptocurrencies are therefore considered securities. The DGFIP goes on to state that cryptocurrencies are not real currencies and that the only legal tender in France is the euro. However, the DGFIP specifies that it is completely legal to use cryptocurrency to pay for products or services.
How is cryptocurrency taxed in France?
In France, income earned in cryptocurrencies is subject to capital gains tax. This tax, in accordance with Article 150 VH of the General Tax Code, varies depending on how the cryptocurrency was acquired. That is, whether it was acquired through investments or through other activities (e.g., mining).
Cryptocurrencies acquired through investments
The first thing to determine is whether your cryptocurrency activities are occasional or regular. Why? Because they determine your tax treatment. This includes, among other things, the amount of tax you will have to pay on your cryptocurrency income.
For example, if the French Directorate General of Public Finance considers your crypto trading activity to be regular, you will be taxed based on your industrial and commercial profits. This means that your gains will be subject to progressive tax rates.
At the same time, occasionally trading in cryptocurrencies will be considered individual capital gains. This means that you will be subject to a flat-rate tax. This flat-rate tax is called the single flat-rate deduction (PFU).
French tax law does not specifically specify how to determine whether an activity is carried out occasionally or regularly. However, Council of State Decision No. 417809 clearly states that this will be judged on a case-by-case basis. Here are some of the factors that the DGFIP will consider to separate occasional traders from professional traders:
Amount invested
Total trading volume
Frequency of transactions
Cryptocurrencies acquired from mining
Cryptocurrencies acquired from mining activities are classified differently from cryptocurrencies acquired as an investment. In Council of State No. 417809, it is specifically stated that cryptocurrencies derived from mining will be taxed as non-commercial profits and not as capital gains. In the following section, we will examine in more detail the amount of tax you must pay on cryptocurrency.
Cryptocurrency Tax Rates
Since cryptocurrencies are considered movable investments, the amount of tax you must pay depends on your activity with cryptocurrencies. That said, you will be taxed either on gains considered as individual capital gains or on gains considered as commercial profits. Let’s now take a closer look at the different tax rates.
Capital Gains Tax Rates
As of January 1, 2018, a single flat-rate withholding tax (PFU) known as the “flat tax” applies to capital income. This new tax on movable investments includes both social security contributions and income tax. The total tax rate on cryptocurrency capital gains is therefore 30%. This flat tax rate is calculated as follows:
The flat tax does not depend on total taxable income, whether from capital gains or regular income. It applies to both movable investments, such as cryptocurrency, and capital gains from the sale of securities (stocks, bonds, ETFs). Other financial products subject to this flat tax are life insurance, home savings plans, and home savings accounts.
However, your cryptocurrency gains may be taxed at progressive income tax rates. This can only be done by checking box 20P on Form 2042 when filing your tax return. Note that this practice can potentially reduce your tax burden, but it will depend on several factors, such as your other sources of income and your tax bracket. If you are considering this method, we strongly recommend discussing it with a tax advisor.
Tax Rates on Trading Profits
If you are considered a professional trader, all euro-denominated income from the sale of cryptocurrencies will be subject to progressive tax rates, similar to your employment income. This tax rate ranges from 0% to 45%. A 3% surcharge may be added to the taxable income bracket if it exceeds €250,000 for a single person and €500,000 for a married couple.
How to Calculate Cryptocurrency Capital Gains?
Now that we’ve covered how cryptocurrency is taxed in France, you may be wondering how to calculate capital gains based on the flat tax. Profits from cryptocurrencies are only taxed when exchanged for fiat currencies.
That is, a government-issued currency like the euro or the dollar. This has implications for how to calculate the purchase price and the resulting capital gains. This must take into account both the total value of the portfolio and the actual acquisition cost at the time of the cryptocurrency sale.
To do this, there is a calculation method required by the CGI (General Tax Code) for declaring capital gains. However, this method is quite long and tedious. Numerous articles online explain how to do this, but it’s nonetheless complex. The same applies to the administrative procedures that will be required in your tax return. Particularly with regard to Form No. 2042, a mandatory form for filing your crypto tax return.
Therefore, if you don’t want to spend hours doing a ton of calculations and paperwork, there’s a website dedicated to this type of task: the French platform Waltio. Renowned for its efficiency, it allows you to complete your tax return almost instantly.
Penalties for failure to file
If it is discovered that you have deliberately failed to file, in order to commit fraudulent acts, the tax increase is 80% of the amounts due. If this act turns out to be an attempt at tax fraud, you risk five years’ imprisonment and a €500,000 fine. If your gains exceed the amount of the fine, the fine can be as high as €2 million.
If you make an error calculating your crypto capital gains, the tax will be increased by 10%. However, if the error is unintentional and corrected within 30 days, the increase will be canceled. However, if you deliberately made a mistake on your tax return, the increase is 40%.
How to reduce your tax burden?
There are several ways to minimize your taxable gains and therefore reduce the tax payable. In this section, we will examine some of the most common practices for reducing your crypto taxes.
1. Hold onto your coins
If you never sell your cryptocurrencies, you don’t pay tax on your profits. Less stress and lower taxes. No wonder so many crypto investors are determined never to sell! 2. Convert to stablecoins, not fiat currency
Since you’re only taxed on the conversion of cryptocurrencies into fiat currencies, converting a cryptocurrency into stablecoins can significantly reduce your tax burden. This is a smart strategy if you want to be less exposed to market volatility. This is particularly true if you favor stablecoins pegged to fiat currencies, such as USDT or USDC.
You can even hold these stablecoins indefinitely, without paying tax on your capital gains. But keep in mind that if you ever spend your stablecoins on goods or services, you’ll have to pay tax on your profits.
3. Deduct cryptocurrency losses
If you sell a cryptocurrency and receive less than the calculated purchase price, you will have realized a capital loss on the asset. In France, capital losses can be used to offset capital gains from the same year. This means you will only pay tax if you have a positive net capital gain during the tax year. Unlike stocks, capital losses on cryptocurrencies cannot be carried forward to future years, in case your total loss exceeds your total gains.
4. Trading Fees
Most platforms charge trading fees when you buy, sell, or exchange cryptocurrencies. Trading fees are considered costs that can be deducted from the sale price of a cryptocurrency for fiat currency. If you have a large number of transactions, deducting trading fees can have a significant impact on your total tax payable.
Crypto Tax Forms
You are required to report all your gains from the sale of cryptocurrencies, in addition to any income such as mining rewards or staking, on your tax return. Form 2042 is the primary tax return on which you must report all employment income, gains and losses from securities or other financial products, as well as your gains, losses, and income from cryptocurrency. There are three tax forms you must attach to Form 2042 when filing your crypto taxes:
Form 2086 – Declaration of Capital Gains or Losses on Disposals of Digital Assets
Form 2042-C – Supplemental Income Tax Return
Form 3916-bis – Declaration by a Resident of a Digital Asset Account Opened, Held, Used, or Closed Abroad
On Form 2086, you will need to list all transactions that resulted in either a capital gain or a capital loss during the tax year. This form is limited to 20 transactions, so you may need to consult a tax advisor if you have more than 20 taxable transactions. Once you have calculated your net capital gain or loss, simply complete this value on Form 2042-C on line 3AN if you realized a net gain, or on line 3BN if you realized a net loss.
How to file your cryptocurrency taxes?
Once you have all your tax forms ready, the final step is to file your tax returns before the tax deadline. To file your taxes online, you must first log in to your FranceConnect account.
From this portal, you will have access to all the required forms and information on how to file your taxes. All French taxpayers are required to file their taxes online, except in special circumstances that make this impossible.
Tax filing deadline
The deadline for filing cryptocurrency taxes is the same as the deadline for your regular tax return. As in other European countries, the accounting year corresponds to the calendar year and therefore runs from January 1 to December 31. There are three tax return deadlines in France, depending on your department:
May 26, 2022: Departments 1 to 19 and non-residents
June 1, 2022: Departments 20 to 54
June 8, 2022: Departments 55 to 976
