The new regulations applicable since 2019 require the declaration of digital assets at the same time as the income tax return. This new obligation came into force in 2020 and concerns income generated in 2019. These new rules apply exclusively to occasional investors. Habitual investors, on the other hand, fall under the tax rules for sole proprietorships: industrial and commercial profits (BIC) until 2022, and non-commercial profits (BNC) since 1 January 2023.
The tax rules applicable to cryptocurrencies have evolved regularly so that these types of transactions are better regulated. Indeed, the tax regulation of cryptocurrencies long remained vague and difficult to grasp.
However, despite these new provisions, which clarify certain essential points, legal uncertainty unfortunately persists in some respects, particularly as regards the boundary between occasional and habitual investors. Moreover, the reporting procedures remain in all cases rather complex to master.
To avoid penalties, it is essential to study the reporting system and the taxation of cryptocurrencies. It is also necessary to look into the reporting and taxation of foreign accounts in cryptocurrencies.
The declaration of cryptocurrencies and the declaration of cryptocurrency accounts must comply with the new legal provisions. Take the time to find out about the steps to follow in order to file proper declarations. In this way, you will avoid penalties that can sometimes be severe.
Reporting Obligation: Which Cryptocurrency Transactions Are Concerned?
According to current French legislation applicable to occasional investors, four categories of transactions involving cryptocurrencies are taxable. These are:
- The sale of cryptocurrencies: digital assets are exchanged for government-issued currencies such as the dollar, the euro or others;
- The use of cryptocurrencies to purchase services or goods;
- Gains generated by cryptocurrency mining ;
- Income generated by centralised or decentralised finance (staking, lending, farming, masternodes, etc.). The taxation of these types of transactions nevertheless remains imprecise.
If you need to file your cryptocurrency declaration and are unable to distinguish or categorise the various transactions, do not hesitate to seek the assistance of a tax lawyer. This professional will be able to advise you at every stage of the declaration in order to avoid errors and omissions that could prove costly.
Declaring Cryptocurrencies: How Is It Done?
Declaring cryptocurrencies is an obligation that applies to all investors. However, the provisions concerning occasional investors differ from those applicable to habitual investors. Indeed, the latter must comply with the standard tax rules applicable to professionals.
In this article, we will focus on the declaration and taxation of occasional cryptocurrency investments.
Whether your activities have generated gains or losses, you will have to declare them at the same time as your ordinary income. To do so, you will need to complete form no. 2086. You will have to report your cryptocurrency gains or losses on it. This obligation to declare cryptocurrencies at the same time as ordinary income only concerns occasional investors (habitual investors fall under the tax rules applicable to professionals: BNC since 2023).
How do you activate form 2086? When you file your income tax return online, on reaching step 3, click on "Déclarations annexes" (additional declarations) to access form no. 2086. Select it, then all you have to do is confirm it. When you click on next, you will be able to access this form at any time. Indeed, it will be displayed on the left of the screen and you will simply need to click on it to open it and access your declarations of cryptocurrency gains/losses.
1- I Complete Form No. 2086
It should be noted that the obligation to declare gains or losses recorded on cryptocurrency transactions has always existed. Nevertheless, it was only in 2019 that a specific legal framework was put in place for cryptocurrencies. Indeed, up to gains received in 2018, forms no. 2048-M had to be used. The reporting procedure was similar to that for declaring a transaction concerning any object (furniture or a collector's vehicle, for example).
These former forms did not make it possible to declare cryptocurrencies correctly because they were not suited to them. Things changed for 2019 gains and losses, declared in 2020. A specific legal framework was put in place for declaring cryptocurrency gains or losses. Since then, form no. 2086, a much more suitable document, must be completed.
Thus, since 2020 (for 2019), every French tax resident must declare cryptocurrency gains and losses, and must do so for every year.
It should be understood that exchanges between cryptocurrencies do not need to be reported on form no. 2086 because they are not taxable. On the other hand, if you have exchanged cryptocurrencies for fiat, services or goods, you must enter them on form no. 2086 because they are taxable. This would be the case, for example, for the purchase of a device financed with banknotes obtained by making a cash withdrawal with a crypto.com card at an ATM. It also covers grocery shopping at the supermarket or travel bookings paid for with a Binance Visa card, etc.
Although the regulations in force already provide for a legal framework dedicated to cryptocurrencies, some legal points still need to be clarified. The French tax authorities (administration fiscale) have since updated their administrative guidelines (BOFiP) to provide further clarification regarding the regime applicable since 2020.
However, pending this information, several areas remain unclear. We will not list them in this article, which is intended to remain simple and easy to understand. Thus, if you are faced with complex situations involving significant stakes, it seems advisable to contact a tax lawyer. This professional's expertise is essential in order to analyse the specific features of your case and to anticipate the risks to which you are exposed.
Whether you decide to complete form 2086 yourself, file your declaration online or entrust this task to a tax lawyer, there are certain things you need to know. In the event of a subsequent request from the tax authorities, you must be able to produce all the required supporting documents: they must match the figures shown on form no. 2086 very precisely. Do not forget that, after form no. 2086 has been submitted, tax officials may carry out a tax audit. In principle, save for exceptions, they have three years to do so. Anticipate their intervention by preparing all these supporting documents in advance, especially if you are in a high-stakes situation.
At present, merely holding cryptocurrencies is not taxable under the French tax system. If you hold cryptocurrencies without having carried out any exchange, it is in principle not necessary to complete form no. 2086. Under the regime for occasional investors, the same rule applies if you have carried out a simple exchange of cryptocurrencies.
2- Other Forms to Complete?
If the exchanges carried out are taxable, you must complete form no. 2086 because it is the main form. Note that other supplementary forms must also be completed subsequently. Indeed, the tax authorities request a great deal of information that is essential to calculate the amount of tax you must pay. Here is the list of forms you must complete to declare digital assets:
- The main form no. 2086: you must provide a great deal of information on it, such as the dates of disposals, acquisition and disposal prices, exchange fees, etc. This is the most complex part of the cryptocurrency declaration. You must be able to substantiate all the information you have provided in this document. Indeed, in the event of a tax audit, you must be ready to provide the corresponding supporting documents;
- Form no. 2042-C: you must enter the capital gain or loss you have realised on your sales of digital assets in boxes 3AN or 3BN of form no. 2042-C.
How to Declare Cryptocurrency Accounts Opened Abroad?
1- A Closer Look at the Regulations Applicable to Cryptocurrency Accounts Abroad
Article 1649 bis C of the French General Tax Code (Code général des impôts, CGI) provides that all individuals, associations and companies that do not have a commercial form and that are domiciled or established in France are required to declare the digital asset accounts that they have opened, held, used or not, or closed with one or more financial institutions abroad. The cryptocurrency declaration must be made at the same time as the ordinary income tax return.
The digital asset accounts to be declared are those opened with private-law or public-law entities that customarily receive digital assets on deposit. The declaration of a cryptocurrency account must be attached to the annual income tax return when the taxpayer, association or company does not have a commercial form. A declaration must be made for each digital asset account, whatever its use (private, professional, or both private and professional).
It should be borne in mind that each account is considered to be held as soon as a person is its holder, joint holder, beneficial owner or economic beneficiary.
An account is considered to be used when a debit or credit has been made during the period to be declared. The holder, the joint holder and persons holding a power of attorney must file a declaration. In any event, all accounts must be declared, even those that have not been used.
2- I Declare My Cryptocurrency Accounts
The tax authorities have created a dedicated form for declaring each cryptocurrency account that you have opened, hold, use or not, or have closed abroad. If you have one or more cryptocurrency accounts (Kraken, Binance, Coinbase, etc.), you must complete a form 3916-bis for each account.
To find this form when filing your income tax return online, you must go to step 3 and click on "Déclarations annexes" (additional declarations). Next, you must select form no. 3916-Bis before confirming it. Note that you can select it at the same time as form no. 2086.
It should be noted that you must complete a form no. 3916-Bis for each cryptocurrency account abroad and for each year. The obligation to report to the tax authorities concerns all the accounts you have opened on foreign exchanges. As there are very few French exchanges that are regularly used, most cryptocurrency accounts are opened with foreign entities and are therefore subject to the reporting obligation.
Once you have completed this step, your cryptocurrency accounts will be duly declared. All that remains is to declare any gains or losses you have realised during the tax year. The tax authorities need this information to calculate the amount of tax you must pay. The figures must be precise: they must match the supporting documents you have.
Taxation of Cryptocurrencies: What Is the Rule?
1- A 31.4% Tax on Capital Gains
It should be borne in mind that only realised capital gains are taxable. Thus, depending on the results of the transactions carried out, the taxpayer is required to pay a 31.4% tax (12.8% income tax and 18.6% social security contributions; 30% for disposals made up to 2024), unless they opt for the progressive income tax scale, on the total amount of capital gains realised in respect of the tax year.
For example, if you sold 1 ETH, which you had bought for 250 euros, for 750 euros, the tax amounts to 157 euros [(750-250) x 31.4/100].
2- What Are the Risks of Failing to Declare Cryptocurrency Gains and Cryptocurrency Accounts?
If you fail to file declarations, you are exposed to a tax reassessment which may, in certain cases, result in severe penalties (tax surcharges, fines, and even, in very serious cases, a criminal conviction).
A 40% surcharge applies where it is established that the taxpayer acted in bad faith and intentionally made an error or omission in declaring the capital gains realised. This surcharge is increased to 80% where the taxpayer has engaged in fraudulent practices.
A fine of 750 euros is in principle applied for each account you have not declared. A financial penalty of 125 euros is also provided for each error or omission, even though the tax authorities are currently more open to applying the right to make mistakes (droit à l'erreur).
However, in the case of accounts with holdings exceeding 50,000 euros, the 750-euro fine is increased to 1,500 euros and the 125-euro fine for each error or omission is also doubled, i.e. 250 euros.
In the most extreme cases, where the taxpayer persists in ignoring requests for explanations from the tax authorities or where the value of the fraud is more than 100,000 euros, they are exposed to criminal prosecution which, in the most serious cases, may in principle lead to a fine of 3 million euros and 7 years' imprisonment. Although such cases are very rare in practice, these criminal penalties do exist.
It is therefore strongly recommended that you take great care when completing your income and cryptocurrency declarations. In particular, you should rely on your transaction histories over a whole year and record all the transactions you have carried out.
3- Deadlines to Meet for Declaring Income and Digital Assets
Every year, the tax authorities set deadlines for declaring income and digital assets. The dates vary from one département to another, generally ranging from the end of May to the beginning of June.
A period for spontaneously correcting declarations is moreover in principle open every year, generally from August to mid-December.
Tax Regime for Cryptocurrencies: Important Clarifications
The tax regime for digital assets, applicable since 2019, was introduced by Article 41 of Law 2018-1317 of 28 December 2018. It takes the form of a flat-rate tax on gains realised by individuals on an occasional basis in connection with disposals of digital assets (bitcoins and other cryptocurrencies).
This tax regime, provided for in Article 150 VH bis of the French General Tax Code (CGI), applies to disposals made on or after 1 January 2019. Thus, gains generated in 2019 had to be declared in 2020. As filing these declarations is relatively complex, the assistance of a tax lawyer may seem advisable, particularly if the stakes are high.
The tax rules remain vague on several points concerning the terms of taxation and reporting obligations. Our tax law firm can shed light on these matters and assist you with declaring your digital assets.
1- Who Can Be Taxed?
According to Article 150 VH bis of the French General Tax Code (CGI), the tax regime for occasional disposals of digital assets applies to capital gains generated by transactions carried out by individuals directly or through an intermediary.
The tax authorities have indicated that taxation is established at the level of the tax household. Accordingly, all disposals made by the taxpayer, their spouse or civil partner (Pacs), their children and the other persons attached to the tax household must be taken into account.
The only real consequence of this taxation by tax household is that, if some members of the household have realised gains and others losses, the capital gains and losses are offset against each other.
According to the tax authorities, the intermediary is, broadly speaking, a company or group having its registered office in France. In principle, the intermediary does not carry on a professional activity. This includes, for example, companies or groups engaged in a civil activity such as acquiring or managing a portfolio of digital assets and related rights. These intermediaries are in principle subject to the tax regime for partnerships (sociétés de personnes), whatever the taxpayer's functions and involvement in the company or group.
The tax authorities have indicated that this regime does not concern partnerships with a craft, commercial, industrial, agricultural or non-commercial purpose. Indeed, when this type of company realises capital gains, it is subject to the regime for professional capital gains, whether the disposal of assets is carried out on an occasional basis or more regularly.
The definition of the intermediary is, broadly speaking, comparable to the one used in administrative doctrine for capital gains on securities and company shares.
2- Which Digital Assets Must Be Declared and May Be Taxed?
The tax authorities adopt the definition set out in Article L 54-10-1 of the French Monetary and Financial Code (Code monétaire et financier) and in Article 150 VH bis of the French General Tax Code (CGI).
These texts specify that the expression "digital assets" covers tokens, except those having the characteristics of financial instruments and cash vouchers (bons de caisse), whose tax regime is the one provided for in Article 200 A of the CGI. Thus, in view of the terms of Article L 552-2 of the Monetary and Financial Code, any intangible asset representing one or more rights in digital form would seem to be considered a token.
3- Which Transactions May Be Taxed?
This tax regime applies to disposals for consideration of digital assets or related rights. It should be noted that transactions (exchanges) without a balancing cash payment (soulte) may benefit from a tax deferral. Your tax lawyer can provide further clarification on this point.
Article 150 VH bis I of the CGI states that the payment of transaction fees in digital assets to an exchange platform or to members of a network, such as miners, for the transaction to be validated also constitutes a taxable transaction.
The tax authorities have introduced a simplification measure by accepting that the provision of services relating to these fees may be treated globally as one and the same taxable transaction. The taxpayer will then be able to determine a single capital gain or loss for all of these transactions.
Restating the previous administrative rule, the tax authorities specify that the activity of buying and reselling digital assets, carried out on a habitual basis, was taxed as BIC (industrial and commercial profits, bénéfices industriels et commerciaux); since 1 January 2023, it has fallen under BNC (non-commercial profits, bénéfices non commerciaux). The tax authorities provide no further clarification making it possible to distinguish between an occasional investor and a habitual investor.
It is most regrettable that the tax authorities do not provide details in this area. Indeed, it is often difficult to decide between the specific tax regime introduced by Article 150 VH bis of the CGI and the regime for professional profits.
Several regimes therefore overlap today.
Gains arising from a disposal of digital assets may be taxed either:
- as an occasional disposal
- in the category of non-commercial profits (BNC)
- in the category of industrial and commercial profits (BIC)
It should be noted that occasional disposals made by individuals have successively been subject to BNC taxation (administrative doctrine of July 2014), to the regime for capital gains on movable property (Conseil d'État, 26/04/2018) and then, from 01/01/2019, to the regime provided for in Article 150 VH bis of the CGI.
The distinction between occasional and professional would appear to have to be made on the basis of a set of criteria.
The tax authorities state: "The criteria for the habitual or occasional exercise of the activity result from a case-by-case examination of the factual circumstances in which the purchase and resale transactions are carried out (the time between the dates of purchase and resale, the number of digital assets sold, the conditions of their acquisition, etc.".
4- What Exemptions Are Provided For?
Article 150 VH bis II-B of the CGI provides for a tax exemption for taxpayers whose total disposal proceeds (excluding exchange transactions benefiting from a tax deferral) during the tax year do not exceed 305 euros.
All taxable disposals for all forms of consideration (currency, services, goods) made by the tax household, directly or through an intermediary, during the tax period must be taken into account. When the disposal is made through an intermediary, reference must be made to the share corresponding to the partner's rights in the company in order to calculate the disposal price to be taken into account.
When total disposals exceed the 305-euro threshold, tax is calculated on all disposals made during the tax year, including those whose amount is below the 305-euro threshold. The corresponding formalities must therefore be completed before the relevant deadline.
5- How Is the Capital Gain Calculated?
The method for calculating the capital gain or loss is defined by Article 150 VH bis III of the CGI. This amount is equal to the difference between the disposal price and the total acquisition price of the entire digital asset portfolio multiplied by the quotient of the disposal price divided by the total value of the digital asset portfolio.
Capital gain or loss = disposal price – [total acquisition price x disposal price/total portfolio value]
The result of this calculation is expressed in euros. If another currency is involved, it must be converted into euros before making the calculation. To do so, it would seem necessary to apply the exchange rate on the date on which each transaction was carried out.
The same exercise must be carried out for disposals of digital assets in exchange for, or for the purchase of, goods or services. The market value in euros of these goods or services on the date of the disposal or purchase must be taken into account.
6- The Disposal Price
This is in principle the disposal price net of transaction fees.
7- The Acquisition Price of the Portfolio
The tax authorities specify the rules for determining the acquisition price of the portfolio for disposals made before 1 January 2019, the date on which the new regime came into force. The acquisition price of assets disposed of before 1 January 2019 should in principle not be included in the calculation of the total acquisition price of the portfolio declared from 2019 onwards under the new tax regime.
Deduction is in principle not allowed either for disposals declared under the regime for capital gains on movable property, or not declared because an exemption applied where the disposal price was below 5,000 euros. The same would seem to apply to disposals not declared in breach of the law applicable before 1 January 2019.
As regards transactions prior to 2019, a regularisation may be considered. In this respect, the tax authorities have specified that, for any capital gains generated before 1 January 2019, the authorities' right of reassessment (droit de reprise) applies under ordinary law conditions (in principle 3 years – Art. L169 of the Book of Tax Procedures (Livre des procédures fiscales, LPF) –, extended to 10 years in certain cases, particularly in the case of undeclared foreign accounts).
When the taxpayer is unable to provide supporting documents for the acquisition price or value of the digital assets disposed of, their acquisition value is deemed to be zero.
8- Clarifications on the Overall Value of the Digital Asset Portfolio
It includes all digital assets held at the time of the sale.
All storage media are in principle concerned, whether local or foreign exchange platforms, personal servers, offline storage systems (cold storage), or "digital vaults" (CoolWallet, Trezor, Nano, Ledger, KeepKey, etc.) used to store private keys…
Still with regard to the definition of the overall value of the portfolio, the tax authorities appear to accept that the taxpayer may use valuation tools such as websites publicly recognised as reliable (in principle coinmarket, coingecko…), which provide histories of average daily prices from the main exchange platforms.
Cryptocurrencies: How to Regularise Your Situation in the Event of Non-Declaration?
Following the creation of the new tax regime for cryptocurrencies, the taxpayers concerned have, since 2020, been required to declare their cryptocurrencies: gains and foreign accounts. However, owing to imprecise information on certain points and the difficulties encountered in completing the formalities, some taxpayers have chosen not to file the necessary declarations, which of course seems regrettable.
The first step is then to determine whether the taxpayer is an occasional investor or a habitual investor. This makes it possible to determine the method of taxation: for the former, the 31.4% flat-rate levy regime applies (30% for capital gains realised before 2025, with the possibility of opting for the progressive scale since 2023), whereas for habitual investors, the BNC (non-commercial profits) regime has applied since 2023 (BIC previously). As the boundary between the two statuses – occasional or habitual – is unfortunately still very imprecise, a request for a tax ruling (rescrit) may be submitted so that the tax authorities decide which regime applies. This ruling request is not, however, anonymous.
As mentioned, many grey areas remain to be clarified.
Nevertheless, and despite a certain degree of legal uncertainty, it is important to note that the tax authorities have begun to launch their first tax audits concerning cryptocurrencies.
These audits, very sporadic in 2021, are tending to increase. Officials of the Ministry of Finance and the Economy appear to have stepped up their action since mid-2022, targeting taxpayers who fail to meet – or improperly meet - their tax obligations in respect of cryptocurrencies.
In this context, spontaneous regularisation remains in principle available (except in cases of flagrant bad faith), ahead of any tax audit.
The Right to Make Mistakes
Introduced by the ESSOC Law (État au Service d'une Société de Confiance – a State serving a society of trust) in 2018, the right to make mistakes (droit à l'erreur) is a tax provision that allows taxpayers to correct an omission or error in their declarations while benefiting from a reduction in late-payment interest.
Please note: the right to make mistakes does not apply to persons who have deliberately evaded tax.
Practical Answers to the Most Frequently Asked Questions on the Taxation of Cryptocurrencies
1- How Do I Declare Income Generated by Cryptocurrency Exchanges If I Am a Private Individual?
A French taxpayer considered to be a private individual must fulfil two reporting obligations with the tax authorities. Where they have opened accounts on cryptocurrency platforms abroad, they are required to complete forms no. 3916/3916-bis.
Next, they are required to complete form no. 2086 in the event of a taxable disposal. This is the annex to the annual declaration of capital gains on crypto-assets. In particular, the taxpayer must indicate on it the acquisition price, the disposal price and the overall value of the portfolio for each disposal made.
Finally, the total amount of capital gains or losses must be entered in boxes 3AN (capital gains) or 3 BN (capital losses) of form no. 2042 C.
2- Can Cryptocurrency Losses Be Offset Against Gains Generated in Subsequent Years?
Losses recorded during a given year cannot be carried forward. They are considered lost for tax purposes. Thus, if you recorded a loss of 3,000 euros in 2019 and gains amounting to 18,000 euros in 2020, tax will be calculated on the basis of 18,000 euros and not 15,000 euros (18,000 euros – 3,000 euros).
3- Cryptocurrency Declarations: What Are the Most Common Errors?
In general, taxpayers who make errors have not declared all the accounts they have created. They often forget to include the exchange platforms that allow cryptocurrencies to be purchased.
It is also essential to gather all information on the trading platforms that allow cryptocurrencies to be exchanged for assets held in storage wallets. This information must contribute to the valuation of the portfolio after each taxable disposal. It is obtained by monitoring the portfolio regularly.
Taxpayers who only take into account transactions carried out during the year also make an error. For example, if you decide in 2022 to resell a Bitcoin bought in 2019, you must know the acquisition price and the other financial information for the previous years.
4 - If the Tax Authorities Carry Out an Audit After the Income Tax Return Has Been Filed: What Can Be Done?
In the event of a tax audit, you must be able to explain all the figures entered in the declaration (form no. 2086). It is strongly recommended that you keep your documents, the various supporting documents and your trade histories well organised.
You must be able to explain very precisely the origin of the figures presented and the calculation methods applied. You must also explain how the composition of the crypto-asset portfolio has been tracked over the years. Sending the file containing the raw trade history is not sufficient. This document must be accompanied by precise explanations that the tax authorities can use. If you do not provide sufficient supporting documents when responding to the tax authorities' requests for explanations, you will risk reassessments.
