Over the past decade, France has established itself as an ideal base for the world’s largest crypto businesses. Binance, Crypto.com, and stablecoin issuer Circle have all made Paris their European headquarters. But with competition intensifying in Europe following the French elections, France’s position as a crypto hub is no longer as secure as it once was.
Why France is an Attractive Choice for Cryptocurrency Businesses
France maintains relatively favorable tax rates, has a large pool of talent across Europe, and has a strong sense of innovation in the Web3 space. But most importantly, France has been quick to adopt clear regulations for the crypto sector, making it an attractive place for businesses to do business compared to other jurisdictions in Europe and around the world. Even before the EU’s Market in Crypto Assets Regulation (MiCA), which provides clear rules for the crypto sector, France already had MiCA-like regulations in place. This has made it easier for crypto companies to do business and, as a result, comply with MiCA.
In contrast, other major jurisdictions, such as the US and the UK, have relatively unclear regulations. The US adopts a ‘regulation by enforcement’ approach, where rules are often created capriciously rather than being considered clear law. The unclear regulations mean that companies cannot make solid, long-term strategic decisions.
How the election disrupted work
Following the French elections, support for the New Popular Front (NFP) coalition has surged, with the NFP proposing some changes to how cryptocurrencies are taxed in France as part of a broader overhaul of the country’s wealth tax.
The NPF government is looking to expand taxes on capital gains from the sale of crypto assets, and the government has promised to add more rates. The rates currently range from 0% to 45%, but the NPF proposes to create an additional rate that would increase the rate to 90%, making it more progressive. The NPF also proposes to include cryptocurrencies in a potential wealth tax that would increase the rate based on the value of the assets. But the most radical one would include an exit tax on cryptocurrencies, which would mean people would have to pay taxes on unrealized gains in cryptocurrencies if they choose to leave the country.
Of course, it is a fundamental right for a country to determine the taxes that are most appropriate to provide its citizens with the highest quality of life. However, the commercial reality is that if these new tax proposals become law, crypto companies will likely consider jurisdictions other than France.
Is this really important?
Despite the NPF’s popularity, it does not have a majority in parliament, meaning it cannot pass legislation decisively. This is further exacerbated by reported internal conflicts within the party over a number of issues.
There is no immediate concern about how the aforementioned tax proposal will affect the crypto industry, given the lack of political direction in the French parliament. The tax could potentially be offset by the R&D tax credit, but this is an additional administrative burden.
But France’s political discord has long-term implications. Markets across Europe are implementing the latest MiCA updates into their national laws. France is currently ahead of most, but if internal conflicts stall MiCA implementation, other jurisdictions could become more attractive.
Looking to the Future: What Cryptocurrency Businesses Really Need
If calls for higher taxes grow in the country, France may no longer be the best place for cryptocurrency businesses to be based. That’s why some businesses have recently moved out of France and into tax havens like the Netherlands or Ireland.
Beyond tax considerations, crypto businesses want regulatory certainty and clarity, particularly a balance between consumer protection and innovation. France seems to have it right now. But as the left-right divide deepens, that sense of stability is becoming less certain.
Like any other organization, cryptocurrency businesses make decisions based on a number of factors. Tax rules, regulatory requirements, and talent pools are all important considerations. France has so far excelled in each of these categories. However, to maintain its position as a leader in the cryptocurrency space, it must continue to maintain this delicate balance.