The taxation of cryptocurrencies in France has long been a complex and sometimes opaque subject for individual investors. This is all the more true as laws evolve over time. With the growth of these digital assets, the authorities have had to adapt and put in place a specific regulatory framework, in particular with the introduction of the Single Flat Tax (PFU) commonly called “flat tax” of 30% on over- realized values.
Although this regime has clarified certain aspects, the fact remains that many possibilities exist to reduce, or even potentially eliminate, the tax burden linked to crypto investments.
In this article, we will explore in detail the main legal strategies for avoiding or minimizing the flat tax on cryptocurrencies in France. We will discuss the particularities of the applicable tax regime, the optimization mechanisms available to you, as well as the pitfalls to avoid to remain compliant. Whether you are a beginner investor or a seasoned trader, this guide will help you successfully navigate the complex world of crypto taxation.
Understanding the tax regime applicable to cryptocurrencies in France
The Single Flat-rate Withholding (PFU) on Crypto Capital Gains
Since 2019, France has implemented a tax regime specific to capital gains made on digital assets, commonly called the Single Flat Tax (PFU) or “flat tax”. This flat rate of 30% (12,8% income tax + 17,2% social security contributions) applies to the net balance of all capital gains and losses for the year.
It is important to note that this regime only concerns individuals acting within the framework of the management of their private assets. Natural persons carrying out a professional activity of trading cryptocurrencies may be taxed according to a different regime, generally that of industrial and commercial profits (BIC) or non-commercial profits (BNC).
Generating events for taxation
Contrary to popular belief, simply holding cryptocurrencies or transferring them between your own wallets does not constitute taxable events. The DGFiP is clear that the only thing it considers a transfer is converting your crypto into fiat currency, therefore selling your crypto for fiat currency (euro, dollar etc.). Only the following transactions are likely to trigger capital gains taxation:
- The sale of cryptocurrencies against legal tender currencies (euro, dollar, etc.)
- Using cryptocurrencies to purchase goods or services
- Certain specific operations such as contributions, acquisitions of derivative products or loans
It is therefore crucial to correctly identify taxable transactions in order to be able to report them correctly.
Declaration and reporting obligations
All cryptocurrency transactions must be reported as part of the annual tax return. This includes not only realized capital gains, but also holding accounts on exchange platforms located abroad (form 3916).
Failure to comply with these reporting obligations can result in heavy tax sanctions, ranging from penalties to tax increases. It is therefore essential to keep rigorous accounts of all your cryptographic activities.
It is important to know that there is crypto tax software which automate your declarations by recording all your transactions carried out on exchange platforms for example.
We recommend Koinly or Waltio to do this.
You should know that the penalty for tax evasion in France is a fine of up to 80% of the tax due, a fine of up to €500, and up to 000 years of imprisonment! It is therefore a significant risk to choose not to declare your assets.
Strategies to avoid the Crypto Flat Tax in France
Faced with this taxation, numerous legal strategies exist to reduce, or even potentially eliminate, your tax burden linked to investments in cryptocurrencies. Let's review the main ones.
1. Use losses to offset gains
Unlike losses on transferable securities, capital losses realized on digital assets unfortunately cannot be carried forward to subsequent years. However, they can be used to offset current year earnings.
Thus, if you made €10 of capital gain on the sale of Bitcoin, but you also suffered €000 of loss on the sale of Ethereum, you will only be taxed on the €4 of net gain . This strategy therefore allows you to significantly reduce your tax bill.
2. Favor Crypto-Crypto exchanges
A major advantage of the French tax regime is that exchanges between cryptocurrencies are not considered taxable events. Only conversions to legal tender currencies (euro, dollar, etc.) are taxable.
By keeping your gains in the form of cryptocurrencies, in particular by converting them into stablecoins for example, you can therefore defer the taxation of your capital gains indefinitely. This strategy, known as “HODLing,” allows you to protect your profits without triggering immediate taxation.
3. Consider transaction fees
When you sell cryptocurrencies, transaction fees (platform commissions, blockchain fees, etc.) can be deducted from your sale price. This has the effect of reducing the taxable amount of your capital gains.
It is therefore essential to properly document all fees related to your cryptographic transactions in order to claim them on your tax return. Using a crypto tax tracker can make this task much easier.
- Lire: The 5 best software to file your crypto taxes
4. Choose the Most Advantageous Tax Regime
Since 2023, taxpayers have been able to choose between the flat rate of 30% (PFU) or the progressive income tax scale for the taxation of their crypto capital gains.
This option may prove interesting for people whose marginal tax rate is less than 30%, because the progressive scale may then prove more advantageous. However, it requires a thorough analysis of your overall tax situation.
5. Use Suitable Investment Vehicles
In some countries, it is possible to benefit from tax advantages by investing in cryptocurrencies via specific investment vehicles, such as retirement accounts (IRA in the United States for example).
Although France does not yet offer this type of solution, it is important to stay on the lookout for future regulatory developments that could help reduce the tax burden linked to crypto investments.
6. Domiciling in a Favorable Jurisdiction
Some countries, such as Portugal, Germany or Singapore, have implemented tax regimes that are particularly favorable to cryptocurrencies.
You can consult the list of European countries most friendly to cryptocurrencies here: The 7 countries in Europe where capital gains in cryptocurrencies are not taxed. In these jurisdictions, capital gains may be exempt from tax, under certain conditions.
Although this option may be attractive, it requires careful consideration of the legal, personal and financial implications of a possible move.
Traps to avoid and good tax practices
Although the strategies previously described are perfectly legal, it is important to remain vigilant and follow certain best practices to avoid any risk of tax adjustment.
Scrupulously respect the Reporting Obligations
As mentioned earlier, accurately reporting all your crypto transactions and holdings is paramount. Failure to comply with these obligations may result in heavy penalties.
So make sure you fill out the appropriate forms (2042, 2086, 3916) and keep detailed records of your activities. Using a crypto tax tracker can make this task much easier.
How to declare crypto taxes in France?
The easiest way to declare your crypto taxes is online via your FranceConnect account. In fact, it is now mandatory to use the online declaration unless you are unable to do so, in which case you must submit a paper declaration instead.
Forms are available online and in paper form – and there are several that you will potentially need to report your crypto to the DGFiP depending on your transactions.
- Form 2042 : The main tax return form where you have to declare all your income, which all taxpayers must file. You can file your return as a single taxpayer or jointly as a married taxpayer.
- Form 2086 : This is attached to form 2042. It is used to report your capital gains and income transactions, therefore all the gains or losses you make by selling cryptocurrencies for fiat currency.
- Form 2042 C : If you have mining income, or other income considered as BNC.
- Form 3916-bis : Declare any cryptocurrency account opened outside France.
Important note however, Form 2086 only allows 20 itemized assignments. If you have made more than 20 disposals, whether crypto or otherwise, you should seek advice from a crypto accountant.
Avoid Activities Qualified as Professional
If your cryptographic activities are considered too important and regular to fall under simple wealth management, they can be reclassified as a professional activity. In this case, you would then be taxed according to a different tax regime, generally less advantageous.
It is therefore essential to clearly delineate your cryptographic investments within the framework of your private assets and to avoid any behavior that could be assimilated to a commercial activity.
Stay tuned to regulatory developments
Given the youth of the crypto ecosystem, tax regulations are likely to evolve quickly. It is therefore essential to keep yourself informed of upcoming changes, whether at national or European level (MiCA regulations for example).
Regular monitoring will allow you to anticipate these developments and adjust your strategies accordingly in order to always remain in compliance.
Conclusion: Legally optimize your Crypto taxation
The taxation of cryptocurrencies in France may seem complex, but many opportunities exist to minimize the impact. By applying the strategies detailed in this article, you will be able to significantly reduce your tax burden while remaining compliant with regulations.
Whether you are a beginner or experienced investor, keep in mind that the key lies in a good understanding of the legal framework, rigorous management of your transactions and active monitoring of regulatory developments. With the right tools and best practices, you will be able to get the most tax benefit from your crypto investments.
See also:
- What is the applicable taxation for NFTs in 2024?
- The 7 countries in Europe where capital gains in cryptocurrencies are not taxed
- How to buy gold with bitcoin: The 5 sites
- How are taxes handled for businesses that accept bitcoin?
