If you need to navigate the French tax regime for crypto and digital assets, this handy guest contribution from Waltio is the perfect guide. It should not be taken as investment advice regarding the types of products and incomes mentioned, nor should it be taken out of its educational context and purpose.
Nowadays, most governments have created or are in the midst of creating specific tax regimes to regulate crypto assets. This step is often seen as necessary to strengthen the everyday and mainstream uses of these assets, and each country has its own tax regime.
Definition of a digital asset: A digital asset is an asset consisting of digital data granting its ownership (or right of use of the said data) as an element of the property of a natural or legal person. Data that do not grant such a right of use are not considered assets.
Definition of a crypto asset: Crypto assets are digital assets using a computer network and based on the blockchain. For example, owning 0.5 BTC on your account on Huobi Exchange or your own Huobi Wallet counts as both a digital asset and a crypto asset.
Some countries, like France, have a capital gains tax system and tax crypto-to-fiat transactions for individuals — that is, purchases of goods and services in cryptos, as well as crypto-to-fiat conversions. Other countries, such as the US, tax all crypto-to-crypto transactions.
In countries such as Portugal, Denmark and Luxembourg, tax-paying residents are exempt from tax on their digital assets. However, tax authorities in Denmark — along with those in Australia, Spain and the US — have begun enforcing tighter controls on taxpayers of late. In 2019, the IRS (Internal Revenue Service) conducted over 10,000 tax audits of cryptocurrency transactions.
4 tax calculation methods
1. Flat tax (FT): A flat tax is a single-rate levy on the capital gains of an asset, In France, for instance, this rate is 30% for individuals. Example:
Jan 2017: You purchase 1 BTC for €920
Dec 2018: You purchase 1 BTC for €3,400
Dec 2018: You sell 1 BTC for €3,600
Total cash-in (total amount invested): €920 + €3,400 = €4,320
Total portfolio value in Dec 2018: 2 BTC x €3,600 = €7,200
Sale amount: €3,600
Total added value: €7,200 – €4,320 = €2,880
Net capital gain received: €3,600 sale amount – (€4,320 cash-in x €3,600 sale amount/€7,200 total portfolio value) = €1,440.
On the withdrawal of €3,600, €1,440 comprise added value. In France, you would pay 30% of €1,440, which is €432.
2. First in, first out (FIFO): In cryptocurrency terms, the FIFO method deems the last coins you bought to be the same as first ones you sold. Example:
Jan 2017: You purchase 1 BTC for €920
Dec 2018: You purchase 1 BTC for €3,400
Dec 2018: You sell 1 BTC for €3,400 euros and purchase €3,400 of ETH
If we apply the FIFO method, the first entry is €920 and the first exit is €3,400. You should therefore be taxed on €3,400 – €920 = €2,480.
3. Last in, first out (LIFO): In cryptocurrency terms, the LIFO method deems the first coins you sold to be the same as the last ones you bought. Example:
Jan 2017: You purchase 1 BTC for €920
Dec 2018: You purchase 1 BTC for €3,400
Dec 2018: You sell 1 BTC for €3,400 euros and purchase €3,400 of ETH
If we apply the LIFO method, the last entry is €3,400 and the first exit is €3,400. Therefore, you should be taxed on €0.
4. Average cost basis (ACB): ACB means that, when calculating capital gains on cryptocurrencies, the average cost of the cryptocurrency is used as the cost base, and is deducted from the proceeds of the sale to calculate the overall capital gain. Example:
Jan 2017: You purchase 1 BTC for €920
Dec 2018: You purchase 1 BTC for €3,400
Dec 2018: You sell 1 BTC for €3,400
ACB: (€3,400 + €920) / 2 = €2,160 euros
Added value: €3,400 – €2,160 = €1,240
6 different types of new income
There are three main families of transactions: deposits, withdrawals and exchanges. Examples of different types of new income include:
1. Staking: Immobilization and locking of digital assets in order to participate in the operation of a proof of stake (PoS) blockchain and its network. This operation allows its holder to generate rewards passively by simply giving up using his digital assets for a certain period of time, determined or otherwise. Such products are available on Huobi Staking and Huobi Earn.
2. Lending: Lending digital assets to a protocol or platform for the purpose of providing liquidity against interest for a certain period of time. Each holder of digital assets can take out a loan. The transaction is transparent because the necessary information is entered into a smart contract. Digital asset lending operations can be carried out via more or less decentralized protocols or a centralized intermediary. For example, Huobi Crypto Loans acts as such an intermediary on the platform.
3. Airdrop: Free distribution of digital tokens for liquidity or for communication purposes on the service. Quite often, a certain preliminary action is necessary in order to be able to benefit from this operation (trading amount, minimum deposit, use of a particular service on the platform, subscription to the social network account, newsletter, etc). Huobi Primepool provides an example of this type of income.
4. Derivatives: A derivative, or financial futures contract, is a contract between two parties who agree on the price of an asset. Leveraged trading basically consists of borrowing money from a broker to increase his return on investment (ROI). This is an essential component for most reliable cryptocurrency exchanges. On Huobi, Huobi Derivatives is where derivative traders should take their first steps.
5. Donations: The act of freely and gratuitously giving up ownership of something (in this case, digital assets) to someone. To donate digital assets, it is enough simply to send the desired amount to the recipient’s crypto address, comply with the declarative formalities and, if applicable, to pay the donation fees. On Huobi, you may deposit and withdraw your cryptocurrency to your other exchanges or personal addresses, or to other people’s addresses at any time.
6. Borrowing: The process of blocking a digital asset as collateral to be able to borrow other digital assets for a given period, in return for paying interest. Huobi Crypto Loans offers users just such a possibility.
As all these types of income are taxed in different ways, it would be useful to have access to software that automatically registers them in order to calculate the payable taxes. However, there are still many crypto products that are difficult to register and are poorly understood by tax administrations, (including products from DeFi, swap, loan, liquidity pools, and other complex products). For example, in many countries, there is no tax regime for NFTs.
To calculate and declare your crypto earnings, you may consult with an accountant or use Waltio, France’s leading software for calculating capital gains on digital assets (use the code 10HUOBI<3 for a 10% discount). Do not hesitate to contact a tax lawyer or accountant in your country to obtain more information about your government’s tax regime for digital assets, or take the chance to read Waltio’s well-researched white papers from 2020 and 2021.
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