The Ministry of Strategy and Finance of the South Korean government has said that virtual asset airdrops are subject to gift tax as per existing tax laws.
Gift tax has to be paid when free virtual assets with economic value are paid out, media reports said.
Gift Tax on Airdrops
Recently, the South Korean finance ministry was asked by a tax law interpretation inquiry to provide its interpretation of whether an airdrop is subject to gift tax or not. In its response, the finance ministry said the free transfer of virtual assets is a gift under the Inheritance and Gift Tax Act, and therefore, it should be taxed.
“In this case, a gift tax will be levied on the third party to whom the virtual asset is transferred free of charge,” the ministry said.
The ministry is of the view that for the exclusion of airdrops from the ambit of gift tax, additional legislation is required. Despite taxes being levied on virtual asset donations, it’s difficult for tax authorities to grasp the transaction details as many don’t have a legal basis, or there is a lack of sufficient infrastructure that makes taxation all the more difficult.
As per the finance ministry’s interpretation, the gift tax applies to all objects of economic value. It includes legal and de facto legal rights to economic benefits and property value that can be converted into money.
The gift tax ranges from 10% to 50%, and the tax return must be filed within three months, calculated from the end of the month to which the gift belongs.
Govt for Case by Case Consideration
However, the South Korean government’s position is that the actual taxation of free virtual assets should be dealt with on a case-by-case basis, media coverage said.
President Yoon Suk-yeol’s government, which assumed power in May, has deferred the proposed 20% capital gains tax to January 2025. It was originally to be levied beginning in January 2022, but the previous government postponed it for a year to 2023. However, the gift of virtual assets is still being taxed.
The Ministry of Strategy and Finance said, “Whether a specific virtual asset transaction is subject to gift tax or not is a matter to be determined in consideration of the transaction situation, such as whether it is a consideration or whether actual property and profits are transferred.”
South Korea is likely to introduce a new crypto regulatory framework and local digital asset ecosystem next year. The Bank of Korea is also planning to introduce its CBDC in the same year.