South Korean Finance Ministry Says Airdrops Are Subject to Gift Tax South Korean Finance Ministry Says Airdrops Are Subject to Gift Tax

The South Korean government’s Ministry of Strategy and Finance said virtual asset airdrops are subject to gift tax under existing tax laws.

The donation tax must be paid when free virtual resources with economic value are paid, the media said.

Tax on Airdrop Gifts

Recently, the South Korean Ministry of Finance was asked by an investigation into the interpretation of the tax law to provide its interpretation of whether or not an airdrop is subject to gift tax. In its response, the finance ministry stated that the free transfer of virtual assets is a gift under the Inheritance and Gift Tax Act and, therefore, should be taxed.

“In this case, a donation tax will be levied on the third party to which the virtual asset is transferred for free,” the ministry said.

The ministry is of the opinion that additional legislation is needed to exclude airdrops from the scope of donation tax. Although taxes are levied on virtual asset donations, it is difficult for tax authorities to grasp the details of transactions as many do not have a legal basis or lack sufficient infrastructure which makes taxation even more difficult.

According to the interpretation of the ministry of finance, the gift tax applies to all objects of economic value. It includes legal and de facto rights to economic benefits and property value that can be converted into cash.

The tax on the gift ranges from 10% to 50% and the tax return must be filed within three months, calculated from the end of the month in which the gift belongs.

Government for case-by-case examination

However, the South Korean government’s position is that the actual taxation of free virtual resources should be dealt with on a case-by-case basis, media coverage said.

The government of President Yoon Suk-yeol, who assumed power in May, postponed the proposed 20% capital gains tax to January 2025. It was initially supposed to be levied starting in January 2022, but the previous government postponed it by one year to 2023. However, the donation of virtual goods is still taxed.

The Ministry of Strategy and Finance stated: “Whether or not a specific virtual business transaction is subject to gift tax is a matter to be determined in consideration of the situation of the transaction, for example whether it is a consideration or whether the ownership and actual profits are transferred. “

South Korea is likely to introduce a new regulatory framework for cryptocurrencies and a local digital asset ecosystem next year. The Bank of Korea also plans to introduce its CBDC in the same year.