Is France’s crypto je ne sais quoi no more?
Over the last decade, France has established itself as the ideal base for the world’s largest crypto businesses. Binance, Crypto.com and stablecoin issuer Circle all have made Paris their European headquarters. But in the aftermath of the French elections, coupled with increasing competition from within Europe, France’s position as a crypto hub is no longer as secure as it once was.
Why France has been an attractive option for crypto businesses
France has maintained relatively favorable tax rates, possesses a great pool of talent from across Europe, and cultivates a strong sense of innovation in the Web3 space. But most importantly, France was quick to adopt a clear set of regulations for the crypto sector, making it an attractive place for businesses to set up shop compared to other jurisdictions, both in Europe and across the globe. Even before the advent of the EU’s Markets in Crypto Assets Regulation (MiCA), which provides a clear set of rules for the crypto sector, France already had MiCA-like regulations. This made it an easy place for crypto companies to do business and subsequently be MiCA-compliant.
In contrast, other major jurisdictions such as the United States and the United Kingdom had comparatively unclear regulations. The United States adopts a ‘regulation by enforcement’ approach, where rules are often made on a whim, instead of being thought out in clear legislation. Unclear regulations means that businesses are not able to make robust, long-term strategic decisions.
How the elections have thrown a spanner in the works
The French elections saw a surge in support for the New Popular Front (NFP) coalition, who has since tabled some changes to how crypto is taxed in France, as part of their broader revisions to the country’s wealth tax.
Capital gains on the sale of crypto assets would be subject to expanded taxes under an NPF government, which promised to add more tax brackets. The rates are currently 0% to 45%, but the NFP is proposing to add progressivity by creating additional brackets, with rates going up to 90%. Additionally, the NPF also proposes including crypto in a potential wealth tax, with the rate progressing depending on the value of the assets. But what is potentially the most radical is the inclusion of an exit tax for crypto. This could lead to people having to pay tax on the unrealised gains of their crypto, should they choose to leave the country.
It is of course the essential right of a country to determine which taxes are best suited for delivering the highest quality of life for its citizens. However, the commercial reality is that if these new tax proposals are implemented into law, crypto firms would likely consider other jurisdictions over France.
Does this really matter?
Despite NPF’s popularity, they did not gain a majority in Parliament, meaning that bills can’t be decisively passed. This isn’t helped by the reported in-fighting within the party on numerous issues.
Because of the lack of political direction in the French Parliament, there is no immediate concern around how the aforementioned tax proposals will impact the crypto industry. While taxes could potentially be offset through research and development credits, this is an additional administrative burden.
However, France’s political incoordination has longer-term implications. Markets across Europe are implementing the latest MiCA updates into national legislation. While France is currently ahead of most, if the infighting stalls the implementation of MiCA, other jurisdictions might become more attractive.
Looking ahead: What crypto businesses really need
If calls for tax increases grow in the country, France might no longer be the best place for crypto businesses to base themselves. That’s exactly why some businesses have left France recently and moved to tax havens such as The Netherlands or Ireland.
Apart from tax considerations, crypto businesses want regulatory certainty and clarity, particularly one that balances consumer protection with innovation. For now, France appears to have this. But with a deepening rift between the left and right, this sense of stability is less certain.
Crypto businesses, like all other organisations, make their decisions on multiple factors. Tax rules, regulatory conditions, and talent pools are each important tenets to weight up. Up until now, France has excelled in each of these categories. However, if it wants to retain its position as a leader in the crypto space, it will need to continue maintaining this delicate balancing act.
