First-step analysis: cryptoasset trading in France

Cryptoasset trading

What rules and restrictions govern the exchange of fiat currency and cryptoassets?

Providing services, such as concluding a purchase or sale of digital assets in legal tender on behalf of third parties, entails the mandatory requirement for the service provider to register as a DASP with the AMF if the DASP is established in France or provides services in France.

DASPs must comply with AML/CFT requirements.

According to ACPR Position 2014-P-01, in the context of a transaction to buy and sell digital assets for legal tender, the intermediation activity of receiving funds from the buyer and transferring them to the digital asset seller may qualify as the provision of payment services within the meaning of article L. 314-1 of MFC, which requires, in principle, an ACPR licence as a payment service provider (ie, credit institution, e-money institution or payment institution) or to be mandated as an agent or distributor by a duly licensed payment service provider on the basis of article L. 523-1 of MFC.

Other rules may apply if the cryptoasset may be classified as something other than a digital asset (eg, e-money, financial instrument, securities and units in investment funds, etc).

Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?

There are no specific restrictions on where investors are allowed to trade cryptoassets.

Operating a digital asset trading platform in which multiple third-party buying and selling interests in digital assets for other digital assets or legal tender may interact in a manner that results in the conclusion of contracts, is subject to mandatory registration as a DASP with the AMF if the DASP is established in France or provides services in France. Operators of exchanges, alternative trading systems and secondary markets for cryptoassets, may thus require prior registration as a DASP accordingly.

DASPs must comply with AML/CFT regulations.

Pursuant to the ACPR Position 2014-P-01, a payment service provider license or a registered agent may also be required insofar as funds are effectively collected on behalf of third parties.

Other rules may apply if the cryptoasset may be classified as something other than a digital asset (eg, e-money, financial instrument, securities or units in investment funds).

How are cryptoasset custodians regulated?

Custody services of digital assets or means of access to digital assets in view of holding, storing or transferring digital assets on behalf of third parties is subject to mandatory AMF registration as a DASP if the DASP is established in France or provides services in France.

DASPs must comply with AML/CFT regulations.

Other rules may apply if the cryptoasset may be classified as something other than a digital asset (eg, e-money, financial instrument, securities or units in investment funds).

How are cryptoasset broker-dealers regulated?

Providing services such as concluding a purchase or sale of digital assets in legal tender on behalf of third parties, triggers the mandatory requirement for the service provider to register as a DASP with the AMF; whereas, the trading of digital assets by an operator for its own account remains outside the scope of the DASP regulation.

DASPs must comply with AML/CFT regulation.

Pursuant to ACPR Position 2014-P-01, a payment service provider licence or a registered agent may also be required insofar as funds are effectively collected on behalf of third parties.

In the event the cryptoasset would, in light of its characteristics, be classified as something other than a digital asset (eg, e-money, financial instrument, securities or units in investment funds), other rules may apply.

What is the legal status of decentralised cryptoasset exchanges?

A DeFi application is not regarded as a DASP under French law. However, creators, owners and operators or persons otherwise maintaining control or sufficient influence in the DeFi arrangements or protocol may potentially qualify as DASPs. A case-by-case analysis is required even where the DeFi arrangement appears fully decentralised.

What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?

Peer-to-peer transfers of cryptoassets without any involvement of an intermediary are not currently regulated under French law.

Does the law permit trading cryptoassets with anonymous parties?

French law does not prohibit the trading of cryptoassets with anonymous parties. However, DASPs subject to mandatory AMF registration, AMF-licensed DASPs and AMF approved token issuers are required to perform KYC due diligences prior to any occasional transaction, regardless of its amount (Decree No. 2021-387 of 2 April 2021). Furthermore, when e-money is used for the purchase of digital assets, e-money issuers are also subject to KYC requirements.

Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?

Cryptocurrency exchanges fall within the scope of the services subject to mandatory AMF registration. Such registration is only required, however, to the extent the DASP is established in France or the services are provided in France (article L. 54-10-3 of the MFC).

Article 721-1-1 of the AMF General Regulation specifies that a digital asset service is deemed to be provided in France where it is provided by a DASP established in France or the services are provided to clients residing or established in France. The AMF General Regulation further specifies the situations where the service is deemed to be supplied in France as follows:

• the DASP has business premises or facilities from which it markets digital asset services in France;
• the DASP has equipment such as crypto ATMs in France;
• the DASP addresses promotional communication, regardless of the medium, to customers or prospective customers residing or established in France;
• the DASP organises the distribution of its products and services through one or more distribution systems to customers residing or established in France;
• the DASP has a postal address or a telephone number in France; or
• the DASP has a ‘.fr’ domain name.

The AMF acknowledges that where a DASP does not directly or indirectly solicit customers residing or established in France and the service is not provided in France within the meaning above, the service will not be regarded as being provided in France (AMF Position DOC 2020-07 as amended on May 31, 2022, question 3.5).

Pursuant to ACPR Position 2014-P-01, a payment service provider licence or a registered agent may also be required insofar as funds are effectively collected on behalf of third parties.

Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?

Under French law, there are no specific circumstances prohibiting a French citizen to exchange crypto assets on a foreign exchange.

Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?

Currently, individual investors who occasionally sell digital assets for fiat currency, goods and services are taxable on the capital gains derived therefrom at a flat rate of 30 per cent (General Tax Code, article 150 VH-bis). Crypto-to-crypto transactions are not regarded as a taxable event.

The determination of taxable capital gains is subject to specific rules, whereby the acquisition cost is deemed equal to a fraction of the acquisition cost of the overall digital asset portfolio corresponding to the fraction of the fair market value of the overall portfolio represented by the digital assets sold at the date of the disposal.

However, in case of frequent transactions, the taxpayer may be reclassified as a professional trader and gains as industrial and commercial profits (BIC) may be liable to personal income tax escalating rates or brackets (up to 45 per cent plus social contributions).

From 1 January 2023, the 30 per cent flat-rate taxation will be available to all individuals acting as private investors within the framework of a wealth management strategy, irrespective of the number and volume of transactions made during the year. Moreover, an election for taxation according to personal income tax escalating rates or brackets will also be possible. Classification as a professional trader (which gains will qualify thereon as non-commercial profits) will focus on whether the trading conditions are comparable to those of a professional.

For corporate taxpayers, profits derived from cryptocurrency trading are liable to tax under the general corporation tax regime for profits and losses (25 per cent rate).

The French Accounting Standards Authority (ANC) has published amendments to its ANC Regulation No. 2014-03 of 5 June 2014 to clarify the accounting treatment of issued and held digital assets and services on digital assets.      

Even if the accounting and tax treatment should be assessed on a case-by-case basis, it is generally understood that:

• When the token issuer undertakes to provide a good or service to subscribers, funds raised are regarded as prepaid income to be taxed upon token utilisation.
• For corporate subscribers, utility tokens intended to be held until redemption for goods or services to be provided to the benefit of the holder beyond the ongoing fiscal year are to be recorded as intangible assets and amortised or depreciated according to standard rules.
• Digital assets held for investment purposes are to be recorded in a specific ‘tokens held’ subaccount under the cash instruments category. Fair market value is to be assessed upon disposal and each balance sheet date. Unrealised profits or losses should be neutralised for tax purposes. However, contrary to individual investors, crypto-to-crypto transactions are regarded as taxable events for corporate tax purposes.

The Court of Justice of the European Union (CJEU) confirmed that an exchange of units of bitcoin for a legal currency (and vice versa) is a VAT-exempt supply of services (Case C-264/14, Skatteverket v David Hedqvist). The French tax administration (FTA) has acknowledged this precedent and further extended the VAT exemption to all digital assets and crypto-to-crypto transactions (BOI-TVA-CHAMP-10-10-40-50 no. 10; BOI-RES-000054).

The FTA has also clarified the VAT treatment applicable to the public offerings of tokens by confirming that the funds raised are subject to VAT upon effective use of the tokens by the token holders (based on the counterpart value at issuance) and that the issuer’s input VAT recovery right is not adversely impacted.