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The French government has introduced a controversial new tax targeting unrealized capital gains on Bitcoin, adding the cryptocurrency to a list of assets deemed to represent “unproductive wealth.” This list already includes private jets, luxury cars, and yachts. The move is part of France’s broader initiative to increase taxation on assets that generate indirect income rather than direct revenue.
A Push to Tax Unproductive Wealth
French authorities argue that Bitcoin and other luxury assets fall into the category of unproductive wealth. According to the government, these assets contribute indirectly to the wealth of their owners, making them deserving of heavier taxation compared to income-generating investments. However, critics have raised concerns that this new policy could discourage Bitcoin investors and stifle innovation in the cryptocurrency sector.
France’s History of Crypto Taxation
France has a history of taxing cryptocurrencies, with laws implemented as early as 2018 under Article 150 VH bis of the General Tax Code. Currently, crypto users in France must pay taxes on their Bitcoin earnings if they exceed €305 annually. Below this threshold, users are exempt but still required to declare their transactions.
The country employs a flat tax system for calculating crypto profits, which typically amounts to a combined tax rate of 30%. This includes 12.8% for income tax and 17.2% for social security contributions. However, in 2023, France introduced a progressive tax scale, offering slight tax breaks to those earning under €27,478 annually, reducing their tax rate to 28.2%.
Reporting Challenges for Crypto Investors
The reporting process for crypto taxes in France is notoriously complex. Users must report every crypto holding, especially those stored in accounts outside France. This includes completing additional forms alongside their annual tax returns. Failure to declare these accounts can result in fines of €750 per undeclared account, or €1,500 for accounts exceeding €50,000 in value.
French tax authorities are also known for their rigorous investigations into potential fraud, which can span up to ten years. Transactions involving staking, masternodes, lending, and NFT sales are all taxable under current laws. Failure to declare taxes can lead to penalties as high as 80% of the declared amount. In cases of intentional tax evasion, offenders may face fines of up to €3 million and up to seven years in prison.
Critics Fear Impact on the Crypto Ecosystem
While the government sees this move as a way to increase revenue and target wealth that doesn’t generate direct income, analysts fear it could backfire. Many believe that taxing unrealized gains on Bitcoin could drive investors away from France’s crypto ecosystem and hinder innovation in the sector.
Conclusion
France’s new tax on unrealized Bitcoin capital gains adds another layer to the country’s already complex crypto tax system. As the global cryptocurrency market continues to evolve, the impact of this policy on France’s competitiveness and innovation in the crypto space remains to be seen.
This development highlights the ongoing tension between regulating digital assets and fostering an environment that supports innovation. Whether this approach will yield positive results or deter investors will depend on how the policy is implemented and its long-term effects on the French crypto market.