Let’s go for cryptocurrencies in the tax return! – Declaration of income received in 2021 opened on April 7, 2022. Therefore, it is worth remembering to declare if you own digital assets and if you have carried out certain transactions, such as assignments or payments.
Declaration of accounts opened, held or closed with an organization located abroad
First, since 1989, all foreign financial accounts held by French taxpayers must be declared to the tax authorities. Under the Finance Act 2019, this obligation has been extended to digital asset accounts opened, used, or closed at an institution based abroad. Let’s get back to that obligation to declare digital asset accounts!
Target account holders
The obligation to declare accounts located abroad applies to natural persons, associations and companies not in commercial form (1649 bis C of the General Tax Code) who are domiciled or incorporated in France.
Thus, if foreign accounts are owned by SARL (or EURL), SNC, SAS (or SASU), SA or a limited partnership, no reporting obligation arises.
Report account type
First, it will be necessary to declare the accounts opened, used or closed with a neobank located abroad (eg Revolut, N26). Similarly, accounts with financial services brokers such as Robinhood are subject to reporting obligations.
This reporting obligation then also applies to digital asset accounts opened, used or closed on a foreign exchange during 2021. So, if you have opened, used, or closed an account with Binance, FTX, Kraken, or KuCoin (to name but a few), they must be declared. On the other hand, if your digital asset account was opened on a French platform such as Justmining, Paymium or Feel Mining, then you do not need to declare it.
How is the declaration of accounts abroad carried out?
If you have one or more of the accounts described above, you must declare those accounts to the tax authorities by completing Cerfa Form No. 3916 for Bank Accounts and Cerfa No. 3916-bis for Corporate Digital Assets. These Cerfas must be completed at the same time as income tax returns for individuals or results for associations and non-profit companies.
It should be understood that you need to fill out as many forms as you have open, used or closed accounts with a legal entity that is located abroad.
This process is rather tedious, even if now we can find the addresses of various exchanges quite easily in their general conditions or on the Internet. Also, if you have already filed accounts on last year’s tax return, you will have the option to click “Carry Forward” when applying online. This action will save you time by directly reporting the information on your 2020 tax return.
What are the risks of not reporting these accounts?
Failure to report digital asset accounts is subject to a tax penalty. A taxpayer who fails to declare a digital asset account that is subject to an obligation is liable to a fine of €750 (for an undeclared account). In case of omission or error, the fine is 125 euros. These penalties are limited to €10,000 per tax return.
In addition, the amount of these penalties will be doubled if the market value of digital asset accounts opened, used or closed on foreign exchanges exceeds EUR 50,000 at any time during the reporting year.
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Declaration of capital gains from the sale of digital assets
Not all transactions you make with your digital assets are necessarily subject to taxation. Therefore, we need to get back to where we are before explaining to you how to declare taxable transactions to the Administration when filing your 2021 income tax return.
Let’s start on the bright side! If the taxpayer purchased cryptocurrencies for the purpose of storing them, then he will not need to declare his transactions to the tax service.
Then, if the taxpayer bought cryptocurrencies, which he resold for stablecoins, he will have nothing to declare there either.
Finally, the exchange of cryptocurrencies for other cryptocurrencies is also exempt from taxation and, therefore, does not require declaration to the Administration. In short, in these three cases, the taxpayer is not taxed on their transactions made with digital assets. So, if you only made these types of transactions, you can stop reading at this point.
We now turn to the transactions that constitute a taxable event. This is a case of reselling your digital assets for a currency that has legal tender (fiat). In addition, if you buy goods or services using cryptocurrencies, these payments should be taken into account when calculating capital gains. These two transactions are taxable events under the tax regime applicable to digital assets.
How do I declare capital gains in digital assets on my 2021 tax return?
In the event that you have made one or more taxable transactions, you will need to complete Cerfa Appendix No. 2086 “Declaration of Capital Gains or Losses After the Sale of Digital Assets”. You will then need to enter the number of taxable transfers you have made. The Internet space limits their number to 100.
If you have made more than 100 taxable transfers, we advise you to send a message from your declaration box via secure messaging explaining your problem. In this way, you will be able to ask the tax office for permission to send a table similar to Cerfa No. 2086 in order to file a return in the proper and proper form. In general, the reaction of the administration is positive.
Next week we will return to the calculation of capital gains from the sale of digital assets. This calculation is necessary for the correct completion of Form 2086.
Finally, with regard to cryptocurrency mining activities, the profit generated from this activity must be declared in the category of non-commercial profits (BNC). Thus, taxable in the BNC category, these incomes will be subject to the scale and progressive income tax rate.
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