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France has significantly simplified the taxation of cryptocurrencies in the country. Granted, while there is a lot that is still viewed as taxable, crypto trading isn’t one of them.
Undoubtedly, the move to introduce tax-exemptions on crypto-to-crypto trades comes as good news to the growing number of people seeking to explore crypto investing for a profit.
What the country’s Finance Minister Bruno Le Maire announced affirms, on the face of it, if you are in France, trading one cryptocurrency for another will not raise any capital gains tax obligation.
So, if you buy Bitcoin (BTC) now and a couple of months down the road you use it to buy several altcoins because prices are booming and you need to cash in on it, then your purchases of these other cryptocurrencies would not be taxed as it was before – but only if you do not sell them for regular government-issued money.
Tax exemption simplifies tax reporting
Making crypto-to-crypto transactions tax-exempt could see more people filing their crypto tax returns. Why? Because the exemption makes tracking of reportable transactions much easier compared to when you have to keep a record of all the trades, which sometimes can run into hundreds in a couple of months if you are a day trader.
Part of the reason many cryptocurrency investors and traders find it challenging to report on their crypto gains is the fact that crypto-to-crypto trades don’t have any fair market value associated with them. Most taxpayers therefore use something like CoinMarketCap to find the historical market price in USD and convert it to their local currency, but if you have anything more than a handful of trades – this becomes a very time-consuming task. It is even tougher if you have trades spread across multiple exchanges and wallets.
However, with the new rules, all this goes away. The only thing traders will need to report is when they actually sell a crypto for fiat – simplifying tax reporting significantly.
Tax applies if you sell crypto for fiat
While your crypto-to-crypto trades will be tax-exempt, the same does not apply for selling or disposing of crypto for fiat. As per the French government, taxation on crypto gains applies when an individual converts their crypto into a conventional fiat currency.
In 2018, the French National Assembly’s Financial Commission discussed an amendment to the country’s tax legislation, allowing for treatment of gains from crypto to be classed as capital income. That not only simplified the taxation of crypto, but it also lowered the tax rate from 36.2% (19% fixed tax and 17.2% social security contribution) to 30 % (income tax fixed at 12.8%).
If you use crypto to purchase goods or services, that transaction is subject to capital gains much like regular crypto-to-fiat transactions.
What about stablecoins?
This needs a lot more clarifying from authorities. “Stable” cryptocurrencies – coins pegged on fiat, asset, or commodity – continue to grow in usage within the crypto industry as more projects get released.
France is spearheading a G7 stablecoin task force but has yet to pronounce itself clearly on whether stablecoins qualify as cryptocurrencies or not.
As of now there is no reason to believe stablecoins will be treated any differently than regular cryptocurrencies, which opens up an interesting possibility: one can choose to hold and trade crypto assets, moving them around, converting one into another and potentially never have to pay capital gains tax.
Offering a competitive advantage
France’s new crypto tax law contrasts sharply with the somewhat hard-line stance on crypto-to-crypto trades being pushed by authorities in tax jurisdictions like the US and Australia.
According to the IRS and the Australian Tax Office (ATO), you trigger a taxable event if you use BTC to buy ETH or any other cryptocurrency/virtual currency. So if you use crypto to buy other coins, you need to report all these transactions on your tax returns.
Even better than France’s move, however, is Portugal’s decision to do away with taxes for crypto gains altogether.
The issue of crypto taxes has heated up across the globe, and countries are busy issuing guidelines aimed at streamlining the process. More relaxed regulations and guidelines could bring more investments into a country. So it’s no wonder nations are one-upping each other in a bid to become the Switzerland-of-cryptos.
Robin Singh is the co-founder and CEO of Koinly.io, a cryptocurrency tax platform that automatically generates capital gains reports for the USA, Canada, Sweden and other countries.