France is debating the implementation of tax on unrealised gains of cryptocurrencies, including Bitcoin.
The proposal, introduced in the French parliament during the 26 November 2024 deliberations of the 2025 budget, placed cryptocurrencies into the basket of ‘unproductive assets‘ alongside holdings such as unused luxury yachts, private jets and undeveloped land.
Just as I just said – #France discussing taxing crypto unrealized gains.
French lawmakers are debating a tax on unrealized capital gains for cryptocurrencies, potentially altering how assets like Bitcoin are taxed.
The proposal would categorize cryptocurrencies like Bitcoin as…
— MartyParty (@martypartymusic) December 3, 2024
The taxation policy, if implemented, would represent a major shift from the more conventional practice in France where taxes on gains made from cryptocurrency only become applicable once the asset has been liquidated.
Meanwhile, critics warned that such a trend will stifle growth in the crypto currency space and at the same time will have a greater strain on the investor class of the economy.
Concerns Over Impact On Innovation In France
In France currently, the taxation system for cryptocurrencies is governed by the Article 150 VH bis of the General Tax Code.
Those residents who earn more than €305 selling cryptocurrencies within the year must pay taxes and for other earners, there is no payment. Nonetheless, all activities must be declared regardless of tax status attached to that particular activity.
In this system, the first €500 out of all cryptocurrency profits earned will be taxed at a flat rate of 30% which consists of 12.8% tax on income and 17.2% tax on social sector contributions.
Recently undertaken modifications have included an increased benefit of reducing the maximum tax of 28.2% for those earning less than €27,478 with the recently introduced progressive tax scale in place.
During the Senate debate over the measure, only the supporting senators of the measure were in attendance, indicating that this may not yet be a finalized piece of legislation and will be subject to voting.
However, if this goes ahead as proposed, together with the approval of the National Assembly of France, it can be made into a law.
Meanwhile, critics were quick to point out that such a tax would discourage innovation and migration of investors from France to other regions of the cryptocurrency market.
Analysts argued that the long-term holding of assets, which discourages their use and creates unequal liquidity, raises concerns about the appeal of investing in digital assets.
In its report, Cryptopolitan has described assets under the categories of so-called “unproductive wealth”, unpalatable to investors and industry leaders.
“Introducing taxes on Bitcoin is counterproductive because investors will shy away from an asset they will have to pay extra taxes on,” a market expert noted.
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Comparing Global Approaches to Crypto Taxation
France has a proposed tax of unrealized Bitcoin gains, which may be unlike the tax laws of many other nations.
Countries like Germany have long-term investors who buy and sell cryptocurrencies on a low tax regime. Bitcoin and Ethereum owned for greater than one year are fully exempt from taxes.
Similarly, in Australia, investors can take advantage of a scheme where they discount the capital gains by 50 percent for the assets that have been held for more than one year.
On the other hand, India has a 30% tax on crypto profits, which is among the highest in the world. Despite vigorous criticism directed at the policy for its exorbitant costs to investors, it has been endorsed by some for offering important conformity in a rapidly advancing context.
In the United States of America, the profit earned from selling a cryptocurrency is treated as a capital gain, and is taxed between 10% to 37% depending on the earnings and holding period of the investor.
Meanwhile, the government of Japan taxes the profit made from cryptocurrency investment as other income and the tax rate varies between 5 to 45% which is dependent on total earnings.
Also, as it stands several jurisdictions such as Belarus, El Salvador, Singapore, and Portugal already provide cryptocurrency holding jurisdictions without taxation.
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Implications for Investors and the Crypto Ecosystem
The new taxation scheme could prove to be quite daunting for French crypto owners as digital assets will have their market value assessed once every twelve months, and taxes would apply even if the assets concerned are not been disposed off.
This may be seen as an abrupt turnaround from the current tax regime, which applies taxation only on the realized gains.
The Direction Générale des Finances Publiques of France has the authority to audit records of any French entity for 3 years or up to 10 years if a fraud is suspected.
Moreover, not declaring one’s crypto assets or crypto profits can lead to severe fines if the amounts are above $3000, presenting penalties for up to 10%-80% of that amount. Those involved in illicit concealment should anticipate the chance of , 3 million euros fine and imprisonment of 7 years.
The crypto sphere has raised fears that such measures could undermine the investor’s confidence. OneSafe, a leading blockchain financial firm, reported that it may be concerning that France considers Bitcoin to be an unproductive asset.
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