Levy on digital asset airdrops sought in South Korea

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South Korea’s Ministry of Strategy and Finance (MOSF) has clarified that digital assets obtained by way of airdrops are subject to the Inheritance and Gift Tax Act. This tax regime requires recipients of gifts, donations, and inheritance with economic value to pay between 10% to 50% levy on their windfall.

Responding to an inquiry about imposing a levy on airdropped digital assets, the MOSF clarified that the free transfer of digital assets is a gift under the Act and hence should be taxed, Yonhap News Agency reported.

“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.

An airdrop is a term with several connotations in the digital asset space. One usage is for new tokens given to holders of the tokens of a blockchain when it splits. The term also refers to a marketing tool used by digital asset platforms to reward their users with digital assets for completing tasks or holding specific amounts of a given digital asset.

The ministry further explained that the gift tax applies to all objects of economic value, including legal and de facto legal rights to economic benefits and property value that can be converted into money. The law dictates that the recipient of the gift files the tax return within three months of its reception while calculating the value from the end of the month it was received.

However, the government notes that it is still handling the enforcement of the tax regime on a case-by-case basis for airdropped digital assets. It added that airdropped digital assets can only be excluded from the tax regime by additional legislation.

South Korea amping up digital assets regulatory clarity

The Finance Ministry is not the first government agency to pay attention to the payment of gift tax on digital assets. The National Tax Service (NTS) began pushing to include digital assets in the Inheritance and Gift Tax Act earlier this year, promising to go after gift tax evaders.

Recently, the NTS reiterated its resolve to tighten digital asset taxation and general taxation loopholes that exist in the country due to the non-taxation of the industry. Since last year, South Korea has been stalling its introduction of a proposed 20% capital gains taxation regime for digital assets.

With a new government favorable to digital assets, the tax regime has been postponed until 2025, when the enforcement of the Digital Assets Basic Act (DABA) is expected to kick in.

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