South Korea may levy up to 50% ‘gift tax’ on crypto airdrops under current law
South Korea's President Yoon Suk-yeol has delayed the levy of capital gains on crypto profits, but crypto airdrops are subject to a gift tax of up to 50% under current tax laws as the tokens are received for free.
South Korean officials have interpreted existing laws to mean crypto airdrops may be subject to “gift tax,” according to local media outlet Yonhap News Agency (YNA).
Officials at the Ministry of Strategy and Finance, which oversees the country’s financial and social development policies, said:
“In this case, a gift tax will be levied on the third party to whom the virtual asset is transferred free of charge.”
Crypto airdrops may be taxed at up to 50%
Based on a new economic roadmap championed by recently elected crypto-friendly President Yoon Suk-yeol, the government will not impose taxes on capital gains from digital assets until 2025. Suk-yeol said this was necessary to prepare “sufficient market infrastructure.”
However, according to tax authorities, the gift tax is “comprehensively levied on all objects of economic value” at present, with a rate as high as 50%.
“A person obligated to pay gift tax must file a gift tax return within 3 months from the end of the month in which the gift date belongs, and the tax is levied at a rate of 10-50%.“
Nonetheless, the position held by the Ministry of Strategy and Finance is far from established. Other government officials have said determining gift tax should be done case-by-case.
To some extent, the Ministry agreed by saying classifying an airdrop as subject to gift tax will be determined “in consideration of the transaction situation.”
The disparity between government agencies on the matter has highlighted the lack of a definitive crypto framework, which is made all the more complicated by the addition of tax law.
What are airdrops?
A crypto airdrop is the distribution of a digital asset token for free, which is primarily done to promote a new project,
A project’s team can offer a degree of fair token distribution among the grassroots community through airdrops. Moreover, giving away free tokens brings additional awareness, broadening the token’s appeal, and rewards early community members.
A recent high-profile example of this was the ApeCoin airdrop, which took place in March. As part of the airdrop, 62% of the total supply was distributed to holders of Bored Ape and Mutant Ape NFTs.
An individual holding one Bored Ape, and its accompanying Kennel Club NFT, received 10,950 Ape tokens. On the day of the airdrop, APE peaked at $28.00, meaning users who sold the top would have netted a cool $306,600.