Airdrops of virtual assets could be liable to gift tax, according to the tax legislation, as the Korean Ministry of Strategy and Finance has interpreted it.
The Ministry of Finance’s interpretation of the tax code mandates that gift tax be paid when free virtual assets with property value are distributed, according to a local media outlet in South Korea.
AirDrop, which pays new virtual assets to people who own specific virtual assets according to the investment ratio, and a hard fork that creates other virtual assets through a new blockchain and deposits virtual assets in a blockchain network are among the transactions that the officials claim are free with regard to virtual assets.
Proceeds from crypto staking are an additional kind of cryptocurrency reward that could be taxed as a gift in the country.
Taxation of airdrops to start in 2025
The Ministry of Finance announced on Monday, 22nd, that the government recently reacted to a tax law interpretation question regarding whether a transaction in which a virtual asset issuer distributes a virtual asset of the same or different kind to a member who owns a particular virtual asset is a transaction subject to the gift tax.
A spokesperson of the Ministry of Finance said: “The free transfer of assets is a ‘gift’ under the Inheritance and Gift Tax Act. In this case, a gift tax will be levied on the third party to whom the virtual asset is transferred free of charge”.
The report claims that while the gift of virtual assets is currently subject to taxation, financial gains from those gifts will start to be taxed in 2025, according to the tax authorities.
South Korea’s gift tax is applicable to all commodities with economic value that can be converted to cash. Within three months of receiving them, the recipient who must pay the gift tax will need to file a gift tax return. This might constitute anywhere from 10 to 50% of the overall amount of gifts given.
However, the system needs to be strengthened by a new law in order to explicitly exclude airdrops from the scope of gift tax.
This year, Korea has tightened its regulations on cryptocurrency trading by conducting numerous investigations into cryptocurrency exchanges and issuers. However, the nation’s newly elected president has vowed to promote the expanding sector, so that Korea is not left behind in the race for progress on a worldwide scale.
