Taxation of crypto gains in France: from cccasional investors to professional traders

The rise of digital assets has given way to complex tax situations, where the classification of gains realized by taxpayers, as well as the characterization of their activity involving the purchase, sale and/or exchange of these assets, is of critical importance — while the legal framework continues to feed uncertainty among tax law practitioners.

As this article aims to introduce readers to the topic, we will limit our discussion to the issues surrounding the classification of gains and the nature of digital asset transactions, along with the current applicable tax regimes as interpreted by the French tax authorities (French tax authorities instructions BOI-BIC-CHAMP-60-50, para. 730, published on 28/06/2023).

In its decision of 26 April 2018 (CE, 8th and 3rd Chambers, No. 417809, Rycke), the French Conseil d’État classified units of Bitcoin as intangible movable property. Depending on whether the activity of purchasing, selling, or exchanging digital assets is considered occasional, fully professional, or quasi-professional, the applicable tax regime can vary significantly:

• The capital gains regime for individuals on occasional disposals of digital assets (Article 150 VH bis of the French Tax Code) applies when sales are made by an individual as part of the management of their private wealth;
• The regime for industrial and commercial profits (BIC) applies where the activity qualifies as a professionally carried out business of purchasing and reselling digital assets;
• The regime for non-commercial profits (BNC) is intended for so-called quasi-professional taxpayers who earn gains under conditions similar to those of a professional activity, without this activity formally constituting the taxpayer’s main professional occupation.

Understanding the distinctions between these regimes is essential for any cryptocurrency investor seeking to anticipate their tax obligations and avoid reassessments by the French tax authorities.

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The tax regime for individuals making occasional digital asset transactions

For individuals who carry out occasional transactions involving digital assets, Article 150 VH bis of the French General Tax Code (CGI) applies exclusively. This regime provides specific rules for calculating and taxing capital gains, which are outlined below.

Occasional capital gains arising from the sale of digital assets are subject to a flat tax rate of 30%, which includes:

• 12.8% income tax, and
• 17.2% social contributions.

This rate does not take into account the exceptional contribution on high income (3% or 4%), nor the temporary differential contribution on high income, which ensures a minimum effective income tax rate of 20%.

However, if applying the progressive income tax scale proves more favorable to the taxpayer, they may opt for that method. This option is especially beneficial for taxpayers with a marginal tax rate below 12.8%.

The gross capital gain or loss from the occasional sale of digital assets is calculated as the difference between:

• the sale price, and
• the amount obtained by multiplying the total acquisition cost of the digital asset portfolio by the ratio between the sale price and the total value of the portfolio.

This method — known as the weighted average acquisition price method — smooths out the acquisition cost across the taxpayer’s entire portfolio, rather than assessing each transaction individually.

Let’s look at an example to illustrate how this method works:

• March: Purchase of 2 Bitcoins at €70,000 each
• April: Purchase of 1 Bitcoin at €85,000
• June: Sale of 1 Bitcoin at €80,000

🔹 Calculation of the Weighted Average Acquisition Price:

🔹 Calculation of the taxable gain:
€80,000 − €75,000 = €5,000

The investor will therefore be taxed on a capital gain of €5,000 when selling their Bitcoin.

Another key feature of Article 150 VH bis lies in the deferral of taxation mechanism applicable to cryptocurrency-for-cryptocurrency exchanges.

When an individual exchanges one digital asset for another (e.g., Bitcoin for Ethereum), no immediate taxation occurs. Tax is only triggered when the asset is converted into fiat currency (euros, dollars, etc.) or used to acquire a good or service. Let’s take an example to illustrate how this tax deferral mechanism works:

• January: An investor purchases 1 Bitcoin for €70,000
• February: The investor exchanges that Bitcoin for 35 Ethereum, at a time when the Bitcoin is worth €80,000 and each Ethereum is valued at approximately €2,285
• No tax is due at this stage, as this is a crypto-to-crypto exchange with no conversion into fiat currency
• A few months later, the investor sells 10 Ethereum for €20,000 (i.e., €2,000 per ETH)

🔹 Calculation of the taxable gain:
The acquisition cost of the Ethereum received during the exchange is based on the value of the Bitcoin at the time of the transaction — i.e., €80,000 for 35 ETH, which results in an average cost of approximately €2,285 per ETH.

When 10 Ethereum are later sold for €20,000, the taxable capital gain is calculated as follows:

In this example, the investor realizes a capital loss of €2,850, which may only be offset against future gains of the same nature.

The tax deferral mechanism provided under Article 150 VH bis applies exclusively to individuals.
Professional or quasi-professional traders, who are taxed under the BIC (industrial and commercial profits) or BNC (non-commercial profits) regimes, are subject to entirely different rules, which do not provide for any deferral of taxation.

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Capital gains from the sale of digital assets as a professional activity (Business Income Regime)

While gains realized occasionally fall under Article 150 VH bis of the French Tax Code (CGI), the habitual purchase of digital assets for resale — based on the frequency, amount, and regularity of transactions — may lead to a reclassification as a professional activity.

In such cases, the resulting gains are no longer taxed under the individual regime of Article 150 VH bis, but instead fall under the category of industrial and commercial profits (BIC), as provided in Article 34 of the CGI. In other words, these gains are treated as profits from a commercial business, subject to the corresponding tax and accounting obligations.

Professionals with annual revenue not exceeding €77,700 (excluding VAT) may benefit from the micro-BIC regime (Article 50-0 of the CGI). This simplified regime offers several advantages:

• Taxation is based on a standard 50% profit margin, with the other 50% considered as deductible expenses, without the need for justification;
• Reduced accounting and tax obligations, including simplified income declarations and no requirement to maintain detailed accounts.

This regime is particularly well suited to professionals who conduct moderate volumes of transactions and operate with modest margins.

If the professional is not eligible for, or opts out of, the micro-BIC regime, the taxable income from their activity is calculated using the method set forth in Article 38, 2 of the CGI, which is based on the variation in net assets between the closing and opening of the accounting period.

In the event of losses, these may be fully offset against the taxpayer’s overall taxable income: pursuant to Article 156 of the CGI, losses from a commercial activity may be deducted from all other taxable income, including salaries, rental income, or miscellaneous earnings. This mechanism effectively reduces the taxable base, and thus the amount of tax owed.

This loss carryforward mechanism does not apply to individuals conducting occasional activities. In such cases, losses may only be offset against future gains of the same nature. In other words, a non-professional investor cannot deduct their losses from their salary or other taxable income.

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Taxation of Semi-Professional Crypto Traders under the Non Commercial Business Income Regime (NCBI)

The taxation of digital assets has evolved over the years to reflect the increasing diversity of practices. While Article 150 VH bis of the French Tax Code (CGI) governs the taxation of capital gains for individual investors, some taxpayers whose digital asset trading activity is deemed “semi-professional” may instead be reclassified under the regime for non-commercial profits, as per Article 92 of the CGI.

This regime constitutes an exception to the standard classification as a private individual or as a self-employed professional taxed under the Business Income regime.

The French tax authorities consider that certain gains from cryptocurrency transactions fall under neither Article 150 VH bis (individual capital gains), nor Article 34 (Business Income Regime). Instead, such gains — when derived from activity carried out under conditions similar to those of a professional, but without being strictly classified as such — fall within the scope of the NCBI regime.

According to the tax authorities, reclassification of crypto-related income as NCBI is reserved for exceptional cases, assessed based on a set of indicators, including:

• the taxpayer’s access to, control over, and use of specialized information and trading techniques;
• the material and technical resources used (e.g., computing power, trading infrastructure);
• the trading strategies and volume of transactions;
• the taxpayer’s skills and professional training.

Taxpayers under the BNC regime may benefit from the micro-NCBI simplified scheme, provided their annual revenue does not exceed €77,700 (Article 102 ter, I of the CGI). This scheme offers several advantages:

• a flat 34% deduction on gross receipts, considered to cover all operating expenses;
• simplified accounting requirements and a streamlined reporting process.

However, if the revenue exceeds that threshold, standard NCBI rules apply.

For NCBI taxpayers, taxable income is determined under the cash accounting method, in line with case law on securities trading. This means gains are recognized when they are actually received, rather than on an accrual basis. This calculation method contrasts with the net asset variation method applied to BIC taxpayers.

Unlike professionals taxed under the BIC regime, quasi-professional crypto traders under NCBI cannot offset their losses against overall taxable income. Pursuant to Article 156, I, 2° of the CGI, a loss may only be carried forward and offset against future income of the same nature, and only for a period of up to six years.

Also, unlike individual investors subject to Article 150 VH bis — who can opt for the 30% flat tax (PFU) — NCBI taxpayers are taxed under the progressive income tax scale by default.

Finally, the determination of taxable gains under the NCBI regime follows a transaction-by-transaction approach, consistent with traditional accounting practices. Each sale is evaluated individually, in contrast to the portfolio-based average acquisition price method used by individuals under Article 150 VH bis.

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Other types of income from digital assets: qualification and tax regime

Technological evolution continuously generates new sources of income within the world of digital assets, far beyond traditional mining. Staking, airdrops, forks, DAOs, and decentralized finance (DeFi) are among the mechanisms enabling investors and users to benefit from blockchain innovation.

In the absence of a specific tax framework, it falls to practitioners to determine the applicable tax regime on a case-by-case basis, depending on the method by which the gain is realized and the nature of the underlying activity. This section presents our preliminary lines of analysis, using conditional language given the polymorphic and evolving nature of the subject.

Mining and Proof of Work (PoW)

In Proof of Work protocols, cryptocurrencies are mined — meaning they are automatically created with each new block added to the blockchain. The protocol directly generates the assets within the block and assigns them to the miner’s public address. Mining is therefore defined as the process of validating a block, which results in the creation of new units of account awarded to the participant whose block is selected by the network.

According to case law, when digital assets are allocated as a result of mining activity, the acquisition and disposal gains may fall under Article 92 of the French Tax Code (CGI), as ruled by the Conseil d’État (26 April 2018, Nos. 417809, 418030 to 418033). In this case, the NCBI regime applies.

However, based on our analysis, when the activity is carried out on a professional basis, these gains should fall under the Business Income regime (Article 34 of the CGI).

Staking and Proof of Stake (PoS)

Staking, an alternative to mining, involves locking up crypto-assets to participate in the consensus mechanism of a Proof of Stake blockchain. The staked assets are temporarily frozen, and rewards (block rewards) are granted upon successful validation. Malicious behavior or validation failure may result in penalties (slashing or forfeiture of rewards).

The tax qualification of staking rewards is complex due to the multifaceted nature of staking. There is a distinction between direct and indirect staking, and between different types of rewards: some come from transaction fees, others from newly minted tokens created by the protocol.

In the absence of a dedicated tax framework, only analogy-based reasoning is currently possible. In the absence of a specific classification, staking rewards should fall under the NCBI regime (Article 92 CGI). However, if the activity is carried out professionally, they should be taxed under the Business Income regime (Article 34 CGI).

Airdrops

An airdrop refers to the allocation of crypto-assets by a project or company — either to passive recipients, based on their holding of certain tokens or their on-chain activity, or to active recipients, as a reward for specific actions.

This promotional tool is used to generate interest around a cryptocurrency, blockchain, or project. Airdrops may also serve to transfer governance power to users through governance tokens, promoting varying degrees of decentralization.

Airdrops fall into two broad categories:

• Those received gratuitously, without any action by the recipient;
• Those received in return for a service or promotional action.

A gratuitous airdrop, attributed without any action by the beneficiary, could be considered an accidental windfall under French tax law and may escape income tax, much like gains from windfalls or treasure discoveries.

By contrast, an active airdrop, received as compensation for a promotional action, may fall under the residual NCBI regime, given the current legislative and administrative silence on this specific type of gain.

Forks (Blockchain Splits)

A fork is a change to a blockchain’s consensus rules — akin to a constitutional amendment. A soft fork adjusts certain parameters without breaking compatibility between versions. A hard fork, on the other hand, causes the blockchain to split, forming two separate branches: one continuing the old protocol, the other adopting the new one.

From a productive standpoint, a hard fork results in the creation of a new cryptocurrency, while the original one continues to exist.

Gains derived from a hard fork represent the entry of a new value into the taxpayer’s estate, resulting from a change in the blockchain’s consensus rules. As such, these acquisition gains should fall under the NCBI regime (Article 92 CGI) when the activity is occasional or semi-professional, and under the Business Income regime (Article 34 CGI) if carried out professionally.

DAOs (Decentralized Autonomous Organizations)

Although DAOs generally lack legal personality, they are developing hybrid structures to interact with users and public authorities. They may offer decentralized financial services through protocols and self-executing smart contracts, and distribute returns to governance token holders — returns which could, in theory, be assimilated to dividends if those tokens were classified as security tokens.

However, this classification remains uncertain, given the absence of a clear legal framework for many DAOs.

In the absence of specific legislation, interest income received from lending protocols by individuals should be treated as NCBI regime (Article 92 CGI) and reported accordingly. This residual qualification is likely to be adopted by the tax authorities by default, in analogy with the treatment of mining gains.

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A clear divide between the individual regime and professional/business activities

The taxation of gains from digital assets is based on a fundamental criterion: the nature of the activity carried out. The capital gains regime for individuals, set out in Article 150 VH bis of the French Tax Code (CGI), applies exclusively to taxpayers who sell digital assets on an occasional basis, as part of the management of their private wealth.

Sales of digital assets carried out in the context of a buy-and-sell business, or under conditions similar to a commercial activity, must be taxed under the rules applicable to business income regime. The application of the non-commercial business income (NCBI) regime is restricted to exceptional cases, where transactions are carried out “under conditions similar to those of a professional”, without formally constituting a professional activity.

The identification of transactions subject to NCBI reclassification is based more on qualitative rather than purely quantitative criteria. In other words, it is not just the frequency or volume of transactions that determines the applicable tax regime, but also the means employed. The use of sophisticated tools, advanced trading software, automated bots, or expertise in technical and fundamental analysis are all factors that may lead to a fiscal requalification.

As a result, the boundaries between tax regimes can sometimes be difficult to define. To avoid the risk of a tax reassessment, taxpayers are strongly advised to clearly distinguish between the digital assets held as part of their private wealth and those used in an activity that may be deemed professional.

If the French tax authorities identify undeclared professional activity, the consequences can be severe. In the event of requalification:

• the taxpayer may face retroactive taxation;
• penalties for hidden activity of up to 80% of the reassessed tax may apply (Article 1728 of the CGI);
• late payment interest may also be charged.

In some cases, this situation may lead to the need for voluntary disclosure, and even criminal prosecution for tax fraud if deliberate concealment is established.

For any questions or assistance regarding the taxation of digital assets, feel free to contact us at:
📩 contact@taxlhab.com

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