France implements a tax on unrealized gains in bitcoin

The French government has decided to make modifications to its tax system, this time focusing on bitcoin. The new tax regulation targets what they call "unproductive wealth," a category that includes assets such as private jets, luxury boats, high-end vehicles, and now also bitcoin.

According to French authorities, these are assets that do not generate income directly. What is the reasoning behind this? If they do not contribute to the economy or generate cash flow, they should be subject to a higher tax burden. However, experts warn that this measure could negatively impact bitcoin investors and discourage innovation in the field of cryptocurrencies.

Current tax situation of bitcoin in France

France already has a regulatory framework for the taxation of digital assets. In 2019, the country established tax rules for cryptocurrencies under Article 150 VH bis of the General Tax Code. If you reside in France and gain more than 305 € from the sale of bitcoin or another cryptocurrency in a fiscal year, you are required to pay taxes.

What if the profits are less than 305 €? In that case, you do not have to pay taxes, but you still have to declare all the transactions made.

The system works like this: France applies a fixed tax rate on profits from cryptocurrencies. It is a combined levy of 30%, which breaks down into 12.8% corresponding to income tax and 17.2% allocated to social security contributions. It seems quite simple, right? But there’s more.

Starting from the fiscal year 2023 ( which will be declared in 2024), France has introduced a progressive scale. Taxpayers in the lower income brackets ( those with income below €27,478 ) will benefit from a slight reduction, paying a maximum of 28.2% instead of the usual 30%.

But it's not just about how much is paid, but also about what needs to be declared. It is mandatory to report all cryptocurrency accounts held outside of France. And let's be frank, most cryptocurrency exchange platforms are not based in French territory.

The declarative process involves completing the Cerfa 3916-bis form along with the annual tax declaration. Failure to comply with this requirement may result in penalties of €750 for each undeclared account, or €1,500 if the value of the account exceeds €50,000.

Complexities of the tax system

This is where the situation becomes more intricate. Not all cryptocurrency transactions are taxed in France, as is the case with exchanges between different crypto assets. This exception may seem like a legal loophole, but in reality, it aims to encourage portfolio diversification without penalizing investors every time they make a move in the market.

Nevertheless, each taxable transaction must be recorded and declared meticulously. French tax authorities have the power to audit records for a period of up to three years, or up to ten if they suspect fraud or undeclared activity.

Income derived from staking, lending, or master nodes is subject to taxation and must be declared. The same applies to capital gains obtained from the sale of assets such as NFTs or participation in liquidity pools.

The omission in the declaration of taxable income can lead to penalties ranging from 10% to 80% of the undeclared amount. In cases of deliberate tax evasion, the consequences are even more severe: fines of up to 3 million euros and a possible prison sentence of seven years.