The Autorité des Marchés Financiers (“AMF”) defines “cryptocurrencies” as follows: “Crypto-currencies”, rather called “crypto-assets”, are virtual digital assets that rely on blockchain technology through a decentralized registry and an encrypted computer protocol. A crypto asset is not a currency. Its value is determined solely by supply and demand. Crypto-assets do not rely on a trusted third party, like a central bank for a currency. There are currently more than 1,300 crypto-assets. The best known are bitcoin, ripple, ether, litecoin, nem and dash.” Bitcoin is today the best-known cryptocurrency. It is both a payment system and a unit of account. It allows its holder to make transactions but also to build up assets. Because of the invasion of Ukraine by Russia and the economic sanctions taken against the latter, cryptocurrencies are now at the center of discussions. On February 24, 2022, just before the collapse of the ruble, purchases of bitcoins in Russia reached a peak of 1.5 billion rubles (about 20 million euros). Some Russian citizens have also invested heavily in Tether (stock symbol: USDT), a “stablecoin” that aims to replicate the value of the U.S. dollar and is said to be more stable in price than bitcoin. The adoption of the Finance Law for 2022, the current crisis in Ukraine but also the ever-growing interest of the general public in crypto-currencies represent an opportunity to take stock of the tax regime applicable in case of transfer of a crypto-currency by an individual resident in France, and the related reporting obligations.

Transfer of digital assets: main tax considerations

Taxable event

Transfers of digital assets for consideration are taxable transactions when they are the counterpart of

  • money which is legal tender ;
  • the exchange of an asset other than a digital asset;
  • the exchange of a digital asset with a balancing cash;
  • a service.

Conversely, transactions involving the exchange (without balancing cash) of digital assets do not trigger the payment of any tax. The French Tax Code (“FTC”) defines “digital assets” by reference to Article L. 54-10-1 of the French Monetary and Financial Code (“FMFC”). The following are thus covered

  • tokens mentioned in Article L. 552-2 of the FMFC, excluding those meeting the characteristics of financial instruments mentioned in Article L. 211-1 of the FMFC and the savings bonds mentioned in Article L. 223-1 of the FMFC subject to another tax regime (that of Article 200 A of the CGI). As a consequence, pursuant to article L. 552-2 of the FMFC, a token is any intangible asset representing, in digital form, one or more rights, which can be issued, registered, kept or transferred by means of a shared electronic recording device allowing the owner of the asset to be identified, directly or indirectly. In practice, this includes tokens from Initial Coin Offerings (ICOs), which are issued through a blockchain technology to finance a new or innovative company;
  • any digital representation of value that is not issued or guaranteed by a central bank or public authority, that is not necessarily attached 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.

Recommendation: Holders of volatile crypto-currencies (e.g. bitcoin) should be able to secure part of their wealth, without tax friction, by converting part of their crypto-currencies into “stablecoin” (which are deemed less volatile – e.g. USDT). This transaction would be tax neutral if the “stablecoin” in question is validly considered a cryptocurrency.    

Applicable tax regime

Capital gains realized – under the conditions referred to above – by individuals domiciled in France for tax purposes upon the sale of cryptocurrencies for consideration, are taxable at the flat tax rate of 30% (12.8% for income tax / 17.2% for social security levies)[1]. However, this tax regime only concerns individuals who carry out transactions on an occasional basis in the context of the management of their private assets. It should be noted that :

  • the capital gains resulting from the usual exercise of an activity of purchase-resale of digital assets are subject to the regime of Industrial and Commercial Profits (“BIC”) – application of the (application of the progressive scale of income tax)[2].
  • the regime of Non-Commercial Profits (“NCP”) applies (progressive income tax scale), by exception, when the gains realized by the taxpayer do not constitute a capital gain resulting from an investment transaction, but are the consideration for the taxpayer’s participation in the creation or operation of this virtual unit of account system (so-called “mining” activity).

The 2022 Finance Act has modified the above regime (for transfers of digital assets that will be carried out on or after January 1, 2023), as follows:

  • the professional or non-professional character of transactions involving digital assets will no longer be assessed on the basis of their usual nature but on the basis of the conditions under which they are carried out. The criteria for qualifying as “professional” the purchase and sale of digital assets will be aligned with those provided for stock exchange transactions, namely the carrying out of purchase, sale and exchange transactions of digital assets under conditions similar to those characterizing an activity carried out by a person engaging in such transactions on a professional basis. In practice, only a modification of the applicable administrative doctrine with the assistance of professionals in the sector should make it possible to identify clear criteria and thus secure the various types of transactions. Capital gains realized under such conditions will henceforth be taxed according to the BNC regime (application of the progressive income tax scale);
  • capital gains realized in a non-professional context may be subject to the progressive income tax scale instead of the flat rate of 12.8%, upon the taxpayer’s express and irrevocable option. The option will be global and will cover all capital gains on the sale of digital assets realized by the tax household. It will be exercised each year when the tax return is filed and at the latest before the deadline for filing. This option can be exercised for the first time in 2024 for the taxation of 2023 income.

Recommendation: The option for the progressive income tax scale should only be of interest if the taxpayer’s marginal income tax bracket is 11% (or lower).

Reporting obligations

Individuals (resident in France) who carry out transactions on an occasional basis as part of the management of their private assets must :

  • declare their accounts held abroad (e.g. Coinbase, Binances, Bitpanda) using a form n°3916 ;
  • declare capital gains realized on the sale of assets using form n°2086.