Over the past decade, France has established itself as an ideal location for the world's largest cryptocurrency businesses – Binance, Crypto.com and stablecoin issuer Circle all have their European headquarters in Paris – but in the aftermath of the French elections and growing competition within Europe, France's status as a crypto hub is not as solid as it once was.
Why France is an attractive option for cryptocurrency businesses
France maintains relatively favorable tax rates, attracts top talent from across Europe, and fosters a strong sense of innovation in the Web3 space. But most importantly, France was one of the first to adopt clear regulations for the crypto space, making it an attractive place for companies to set up operations compared to other jurisdictions in Europe and around the world. Even before the advent of the EU's Crypto Asset Market Regulation (MiCA), which set clear rules for the crypto space, France already had MiCA-like regulations in place, which made it easier for crypto companies to do business and then comply with MiCA.
In contrast, other major jurisdictions such as the US and the UK have had relatively limited regulatory clarity. The US has a “regulation by coercion” approach, where rules are often made on a whim rather than through well-thought-out rules in clear law. Regulatory uncertainty means that businesses are unable to make robust, long-term strategic decisions.
How the election disrupted the plan
Following a surge in support for the New Popular Front (NFP) coalition in the French elections, the group has proposed several changes to how cryptocurrencies are taxed in France as part of a broader reform of the wealth tax.
Capital gains from the sale of crypto assets are set to be taxed under the NPF government, which has promised to expand the tax brackets. The tax rate is currently between 0 and 45%, but the NFP proposes adding additional brackets to increase the progressiveness and raise the tax rate to 90%. The NPF also proposes including cryptocurrencies in a wealth tax that would gradually increase the tax rate depending on the value of assets. However, the most radical move would be to impose an exit tax on cryptocurrencies, which could mean that people who want to leave the country would have to pay tax on unrealized gains in cryptocurrencies.
Of course, it is a fundamental right of a country to decide which tax system is best suited to provide its citizens with the best quality of life, but the commercial reality is that if these new tax proposals are enacted into law, cryptocurrency companies will likely consider jurisdictions other than France.
Does this really matter?
Despite its popularity, the NPF lacks a majority in Parliament and is unable to decisively pass legislation, a situation exacerbated by reports of infighting within the party on a number of issues.
In the absence of any political direction in the French parliament, there are no immediate concerns as to how the aforementioned tax proposals will affect the cryptocurrency industry. It is possible to offset the tax through research and development deductions, but this would be an additional administrative burden.
But France's political disagreements will have long-term implications. European markets are implementing the latest MiCA updates into their national laws. France is currently ahead of most countries, but if internal disputes stall the rollout of MiCA, other countries may become more attractive.
Looking to the future: What your cryptocurrency business really needs
If calls for higher taxes grow within the country, France may no longer be the best place to locate cryptocurrency businesses, which is precisely why some companies have recently left the country for tax havens such as the Netherlands and Ireland.
Tax considerations aside, crypto businesses are seeking regulatory certainty and clarity, especially one that balances consumer protection and innovation. For now, France appears to have that. But as the rift between left and right deepens, this stability is becoming more and more uncertain.
Cryptocurrency businesses, like all other organizations, make decisions based on multiple factors. Taxation, regulatory conditions and the talent pool are each important principles to consider. To date, France has performed well in each of these areas. However, it will need to continue to strike this delicate balance if it wants to maintain its position as a leader in the cryptocurrency space.
