France Considers Tax on Unrealized Bitcoin Gains: A Potential Game-Changer for Crypto Investors

French lawmakers are currently debating a proposal that could significantly alter the way cryptocurrencies, including Bitcoin, are taxed. The controversial plan would introduce a tax on unrealized capital gains from digital assets, marking a major shift in the country’s approach to crypto taxation.

New Tax Category for Cryptocurrencies: Non-Productive Property

The proposal, introduced during the French Senate’s discussions on the 2025 budget, suggests that cryptocurrencies like Bitcoin should be classified as “non-productive property.” This would align them with assets like dormant real estate or luxury items, such as yachts, which are subject to the proposed “unproductive wealth tax.” If passed, this change would replace the current real estate wealth tax and extend the tax net to include digital currencies, even when they have not been sold.

The shift would represent a significant departure from the existing framework, where taxes on cryptocurrency gains are only applied when the assets are sold and profits are realized. Under the new proposal, any increase in the value of cryptocurrencies, such as Bitcoin, would be taxed — regardless of whether the asset has been converted to cash or remains in the investor's wallet. This could have profound implications for crypto holders, particularly those who are long-term investors or those who are holding onto assets with significant unrealized gains.

Senator Sylvie Vermeillet Pushes for Change

Senator Sylvie Vermeillet, the sponsor of the proposal, argued that the tax change would bring cryptocurrency taxation in line with other forms of wealth, such as real estate and luxury goods. Vermeillet’s proposal reflects growing international scrutiny over the taxation of digital assets and aims to address concerns about fairness in the taxation of crypto investments. She contends that this new model would level the playing field for crypto investors, aligning their tax obligations with those of traditional wealth holders.

In addition to cryptocurrencies like Bitcoin, the proposed tax would also target other non-productive assets that appreciate in value but are not actively generating income. By taxing unrealized gains, the French government hopes to ensure that those with significant wealth — even in digital form — are contributing fairly to the economy.

International Context: A Global Shift Toward Crypto Taxation

The debate in France follows a similar conversation taking place globally, as governments grapple with how to regulate and tax the rapidly growing cryptocurrency market. In Denmark, the Tax Law Council recently recommended a bill to tax both unrealized gains and losses on crypto assets under an inventory taxation model. The Danish proposal is aimed at addressing what lawmakers see as an unfair system that currently benefits crypto investors by only taxing them when their assets are sold. This aligns with France’s current position, but the country’s move to tax unrealized gains would be a significant departure from the Danish model.

Elsewhere in Europe, other countries have adopted more crypto-friendly tax policies. For example, Germany and Portugal have been relatively lenient with cryptocurrency taxation, with Germany offering tax exemptions for long-term holdings and Portugal providing favorable tax treatment for crypto investors. These jurisdictions have been seen as attractive destinations for crypto investors seeking to minimize their tax burdens. In contrast, the potential introduction of a tax on unrealized gains in France could make the country less appealing to crypto investors, particularly those who are holding substantial amounts of Bitcoin and other cryptocurrencies.

A Complex Proposal with Broad Implications

The notion of taxing unrealized gains is a contentious one. Unrealized gains refer to the increase in value of an asset that has not yet been sold. For example, if an investor buys Bitcoin at $50,000 and its value rises to $70,000, the $20,000 increase is considered an unrealized gain. Under current French tax laws, no taxes would be levied on this paper gain unless the Bitcoin is sold. The new proposal would change this by applying taxes to the increase in value, even if the asset is still in the investor’s portfolio.

The introduction of such a tax could have wide-reaching implications for the cryptocurrency market. Taxing unrealized gains could encourage investors to sell their assets prematurely to avoid the tax burden, potentially leading to increased market volatility. It could also discourage long-term investing, as crypto holders might be incentivized to sell their assets once they accrue significant gains in order to avoid taxes on those unrealized profits.

A Long Road Ahead: Next Steps for the Proposal

While the Senate debate on the proposal is ongoing, the tax is not yet law. A preliminary vote on the proposal was held, but only senators supporting the plan were present, meaning the vote does not reflect the broader political consensus. If the proposal moves forward, it would need to pass through the French National Assembly before becoming law.

The proposal’s passage is uncertain, as it has sparked significant debate within the French government and among crypto industry professionals. If approved, it would add France to a growing list of countries introducing new and potentially stricter tax rules for digital assets.

What Does This Mean for Crypto Investors?

For crypto investors, this development is a critical one to watch. A tax on unrealized Bitcoin gains could dramatically affect their tax planning and investment strategies. It could force investors to reconsider their approach to holding digital assets in France, especially if the new tax burden proves significant.

As governments around the world continue to shape the future of crypto regulation, the French proposal highlights the growing pressure on investors to navigate a more complex and potentially costly tax environment. The coming months will likely bring more clarity on how France, and other nations, will approach the taxation of digital assets.

In the meantime, crypto investors may need to prepare for more regulatory changes in the space. With the crypto market continually evolving, the legal landscape will play a critical role in shaping how digital currencies are viewed and taxed around the world.