Cryptocurrencies appeared in the digital world a decade ago and are now experiencing significant growth and democratization.

As virtual means of payment that can be used mainly on the Internet, relying on cryptography to secure transactions and the creation of units, and escaping any control from regulators and central banks exists today more, there are today more than 4000 crypto-currencies in circulation.

Nevertheless, their legal framework is sometimes confusing and difficult to understand. This article will thus aim to study the legislative framework of cryptocurrencies in France, Canada and the United Arab Emirates, but also their tax regime. We will then examine, in a non-exhaustive way, the Initial Coins Offerings, a new phenomenon of fundraising based on cryptocurrencies.

What are cryptos in practice ? 

A cryptocurrency is a virtual means of payment that relies on cryptography to secure transactions and the creation of units, and that is beyond the control of regulators and central banks. Cryptocurrencies are therefore based on a computer protocol of encrypted and decentralized transactions, called blockchain.

The best known cryptocurrency is bitcoin, which is a virtual unit of account stored on electronic media. Nevertheless, today there are more than 4000 cryptocurrencies in circulation in the world, the best known outside of bitcoin being for example Ethereum, Ripple or EOS, XRP, Tether, Cardan, Stellar, Chainlink, Uniswap, Polkado or USD Coin.

Cryptocurrencies are part of the broader framework of cryopoassets,which represent “virtual assets stored on an electronic medium allowing a community of users accepting them in payment to carry out transactions without having to resort to legal tender”.

The issuance and circulation of digital cryptoassets is particularly related to Initial Coins Offerings(“ICOs”). Unlike a stock exchange issue (IPO), the ICO is financed on digital media called tokens. The ICO thus represents a fundraising operation operating through the issuance of digital assets exchangeable for cryptocurrencies during the start-up phase of a start-up or a business project.


The law has difficulties in understanding cryptocurrencies, the main question being whether they should be attached to existing legal categories or whether it is necessary to create new ones.

This choice of qualification depends on the States.


French law has decided to create a specific legal framework for cryptocurrencies through the PACTE law defining digital assets in the Monetary and Financial Code (the“CMF”).
Article L54-10-1 2 ° of the CMF defines digital assets as “any digital representation of a value (…) that is accepted by natural or legal persons as a means of exchange and that can be transferred, stored or exchanged electronically” (emphasis added). Cryptocurrencies are therefore neither a legal tender, nor an electronic money, nor a means of payment recognized by law.
Regarding the cryptocurrency regime, the CMF accepts that transfer, storage and exchange operations can be carried out by using cryptocurrencies through the drafting of legal contracts. For example, cryptocurrencies can constitute a contribution in kind (and not in cash it is not a currency) as part of a contribution in a company.
The regime laid down by Article L54-10-1 2 ° of the CMF thus clearly refuses the qualification of cryptocurrencies as a means of payment but admits it as a means of exchange, as a consideration for the execution of a contractual commitment.


Most other legal systems, including Canada, have preferred to link cryptocurrency to existing legal categories, but they are faced with the difficulty of qualifying cryptocurrencies. Canadian regulators recognize that cryptoassets do not meet the traditional definitions under Canadian securities laws.
For example, some “utility tokens” involve an investment of securities in the form of an investment contract, while other cryptoassets called“crypto tokens” are conventional securities in the form of tokens. Finally, bitcoin has characteristics that bring it closer to a commodity. Therefore, in Canada it will be necessary to evaluate on a case-by-case basis the way in which trading is carried out in order to determine the qualification of the cryptocurrency.


At the European Union level, the European authorities initially considered that cryptocurrencies as such could not be qualified as a payment service, but that the transaction of exchanging currency for a cryptocurrency could be qualified as a payment service, as defined by the Payment Services Directive.

Subsequently, the European Banking Authority (EBA) and the European Securities Market Authority (ESMA) clearly stated that cryptocurrencies should be understood as means of exchange only as means or service of payment.

To be able to qualify and define cryptocurrencies within the meaning of European law, the European Banking Authority and ESMA have developed a 3-point definition of cryptocurrency:

  1. an asset that depends on cryptology and a Distributed Ledger Technology (DLT) or equivalent technology as part of its perceived or intrinsic value;
  2. an asset that is not issued or guaranteed by a central bank or public authority; and
  3. an asset that can be used as a means of exchange and/or for an investment purpose and/or to acquire goods or services.


In any case, as of July 1, 2021, cryptocurrency is still officially and legally prohibited in the United Arab Emirates.

However, in May 2021 was announced the launch of Dubai Coin, a cryptocurrency allegedly launched by the United Arab Emirates. In less than 24 hours, the price of this cryptocurrency has increased by 1000%, showing the craze around cryopoactifs in the Emirates.

However, the reliability of this cryptocurrency was quickly challenged by the Government of Dubai stating that the currency had not been approved by any official authority.
Nevertheless, the Dubai Financial Services Authority (the “DFSA”) has announced its intention to implement new regulations for cryptocurrencies as part of its business plan for the years 2021 to 2022.

In an effort to “open up to business” regarding innovations in the financial services sector, the DFSA says it wants to build on recent financial achievements to develop a “regulatory regime for digital assets (such as token securities and cryptocurrencies)”.
The authority wants to adopt “a regulatory approach that facilitates innovation while requiring strict compliance with DFSA’s licensing, prudential and conduct requirements.”


  1. Tax regime for cryptocurrencies in France

a – Taxation of transactions in digital during the course of ownership

  • Crypto-loans
    The legislator has not yet taken a position on the issue of the taxation of crypto-loans but the case law has had to decide. The Court of Nanterre in a judgment of February 26, 2020 qualified the loan of Bitcoin as a consumer loan, a qualification that implies a transfer of ownership and therefore a taxable event.
    It remains to be seen whether this position will be confirmed by other case law, and whether it will be applicable to other types of cryptoassets.
  • Portfolio transfer abroad & expatriation

The transfer of tax residence outside France to a state other than the European Union constitutes a taxable event in accordance with Article 167 bis of the General Tax Code which governs the exit tax regime.

For the moment being, the scope of the exit tax does not seem to include digital assets, but given the very spirit of the scheme, it seems very likely that the legislator will extend the scope of this article to cryptocurrencies due more attractive (or even inexistant) tax rates on the transfer of crypto assets abroad.

Furthermore, an expatriation that is poorly prepared and primarily guided by a tax motivation will likely to give rise to the application of Articles L64 and L64A of the Book of Tax Procedures, for non-taxation of one’s asset portfolio with the exclusive or main objective of evading or mitigating one’s tax burden, or to the application of the exit tax for the same reason.

  • The sale of cryptos

Finally, in the event of a sale of digital assets, Article 150 VH bis of the CGI applies and defines the terms and conditions for the taxation of capital gains on the sale of digital assets made by individuals domiciled in France and on an occasional basis. This provision also applies to transfers made through an intermediary.

The sale of cryptos is therefore taxable when the digital assets are sold:

  • against an amount in legal tender currency, such as the euro or the dollar; or
  • in exchange for a good or service other than a cryptoasset; or
  • in exchange for a cryptoasset with a cash payment (conversely, when a digital asset is exchanged for another asset without a payment, the unrealised capital gain is not taxable).

Taxable capital gains realised by natural persons on an occasional basis are taxed at the rate of 12.8%, plus social security contributions on income from assets at the rate of 17.2%. The overall tax rate for these capital gains is therefore 30%.

b – Taxation of the donation of digital assets

Cryptocurrencies may be intended to be passed on to an heir or a third party. The donation will have a double interest: an interest of patrimonial transmission with partial / total erasure of the capital gain. An individual may transmit all or part of his patrimony to one or more heirs, by way of donation or a legacy:

  • through a simple donation (article 922 of the Civil Code), but a cautious one because if the value of the cryptoasset transmitted has strongly increased an infringement on the hereditary reserve may be noted; or
  • through a shared donation : under certain conditions, it is possible to retain the value of the asset transmitted on the day of the donation, which implies that the value of the given cryptoasset would be frozen, regardless of its value given at the time of death.

Finally, donations of digital assets have the same tax advantages as traditional donations, namely no taxation on the donor’s unrealised latent capital gain.

c – The declarative framework for digital assets 

The declarative obligations of cryopoassets have not yet been clearly laid down and affirmed, both at national and European level.

In France, the method of calculating unrealised capital gains must give rise to an individualised calculation of the taxable capital gain. This calculation is complicated for cryptocurrencies and the probable inability to trace all the acquisition prices of taxpayers’ cryptoassets adds an additional difficulty.

Despite these difficulties, taxpayers must declare their cryptocurrencies through an Annex No. 2086-2. If the number of transactions to be declared is more than twenty, it will be necessary to print form No. 2086-2 in several copies.

  1. Tax regime for cryptocurrencies in the European Union

At Community level,the European Commission has initiated a public consultation in order to adopt a possible Directive on Administrative Cooperation No. 8 (DAC 8) for more tax transparency on cryptoassets. This directive would propose a strengthening of the existing rules and an expansion of the existing exchanges of information, to include cryptoassets and virtual currencies. Nevertheless, this project of Community unification comes up against the difficulty for the Member States to understand in concrete terms the volume of use of cryopoactives, as well as the disparity of the penalties applied by the various States.

  1. Tax regime for cryptocurrencies in Canada

a – Taxation of transactions on digital assets during the course of ownership

Taxation of income derived from the holding of cryptocurrency: The Canada Revenue Agency treats cryptocurrency as a commodity. Cryptocurrency income is therefore treated as business income or a capital gain depending on the circumstances (frequency of transactions, circumstances, taxpayer intent, commercial character).

Taxation of income from the use of cryptocurrency as a means of payment: the use of a cryptocurrency to pay for goods or services, or to acquire another cryptocurrency is considered a barter transaction that is generally not taxable.

However, the taxpayer may be taxed if the barter is accompanied by one of the following transactions:

  • Sale or donation of cryptocurrency; or
  • Trade or exchange of the cryptocurrency, including to obtaining another; or
  • Conversion of the cryptocurrency into government-issued currency; or
  • Use of cryptocurrency to purchase goods or services.

The income will then have to be classified as business income or capital gain.

Finally, when a taxable good or service is exchanged for cryptocurrency, the Goods and Services Tax (GST)/Harmonized Value Tax (HST) applies to the exchanged good or service. The GST/HST is calculated based on the fair market value of the cryptocurrency at the time of the exchange.

If a business accepts cryptocurrency as a method of payment for taxable property or services, the value of the cryptocurrency for GST/HST purposes is calculated based on its fair market value at the time of the transaction.

b – The declarative framework for digital assets

For cryptocurrencies held in Canada,any gain generated from the sale or exchange of cryptocurrencies must be reported as business income or a capital gain.
If the cryptocurrency belongs to a company, the profits are considered business income, even if the purchase of a cryptocurrency for the purpose of selling it is an isolated or one-time event.

Conversely, if the sale of a cryptocurrency does not constitute the operation of a business and the amount sold is greater than the purchase price, the taxpayer has realized a capital gain. 50% of this gain will be included in the taxpayer’s income and subject to tax at the taxpayer’s tax rate.

All Canadian taxpayers are required to maintain books and records of accounts in order to establish the information that allows them to determine the amount of their taxes. For cryptocurrency, the CRA recommends that taxpayers periodically export their various cryptocurrency transactions, including recording the date of transactions, receipts for the purchase or transfer of cryptocurrency, the value of the cryptocurrency in Canadian dollars, etc.

For cryptocurrencies held outside Of Canada, any taxpayer with, at any time during the year, a total holding of more than $100 000 CAD of foreign property must file, in addition to their federal income tax return, Form T-1135. Failure to report imposes a penalty on the taxpayer.

In any event, whether or not the cryptocurrencies are held in Canada, the taxpayer will need to value them and determine whether they are considered capital assets or inventory:

  • A capital asset represents a sustainable and lasting investment for the business;
  • An inventory refers to the description of the property, the price or value of which is used in computing a taxpayer’s income from a business for a taxation year.

Where cryptocurrencies are held as capital property, it will be necessary to record and track the adjusted cost base in order to accurately report the capital gain.

Where cryptocurrencies are considered inventories, calculation methods should be used to assess the inventory consistently from year to year.

III.The legal regime of ICOs

ICOs are, as we defined in the introduction, a new form of financing given to companies, and more particularly to SMEs. As with cryptocurrency, States had to put in place a legal framework to regulate these ICOs and public offerings of token.


France has set up a regulatory framework specific to ICOs through Article 26 of the PACTE law creating a non-binding legal framework for the offering of tokens in order to encourage their localisation in France. This regime is based on an optional visa, issued by the AMF to token issuers. This visa is an approval of an operation of a public offering of tokens. It is optional but has the very competitive advantage of the serious and verifiable nature of the public offering.

There are several conditions for obtaining a visa:

  • Conditions relating to the actors: the procedure is addressed to any token issuer referred to in Article L552-1 of the CMF which must be constituted in the form of a legal person or entity established in France.
  • Conditions relating to operations: the visa only concerns to the structuring of the offer and not the quality of the project, which must be open to more than 150 people. It will also be necessary to draft an information document setting out the proposed token issuance.

The PACTE law also imposes a safeguard mechanism for assets raised under an ICO, issuers must have the means to ensure the safeguarding and monitoring of assets. A back-up system is also put in place to back up technology failures.

To obtain this visa, the issuer must submit an application to the AMF. Within a period of 20 days, the AMF will notify its visa on the basis of all the mandatory documents submitted. After obtaining its visa, the issuer has to disclose the amount of funds and digital assets collected, the total number of tokens of the same nature issued etc.


In Canada, if an ICO involves the distribution of securities, companies may need to be registered as a broker or be granted an exemption from registration. This condition will depend on whether the company trades the coins or tokens for commercial purposes.

Registration as a broker involves compliance with a wide range of obligations, including know-your-client rules and verification of investor suitability.

It should be noted that issuers carrying out ICOs can engage in various activities that could trigger a registration requirement, such as soliciting a broad base of investors, including retail investors, over internet or at public events such as conferences.

Leave a Reply