The Ministry of Strategy and Finance of the South Korean government has stated that virtual asset airdrops are subject to gift tax following the existing tax laws. Media reports state that gift tax has to be paid when free virtual assets with economic value are distributed.

Recently, the South Korean finance ministry was asked by a tax law interpretation inquiry if an airdrop is subject to gift tax or not. The finance ministry responded that the free transfer of virtual assets is a gift under the Inheritance and Gift Tax Act, and therefore, it is subject to gift tax.

The ministry’s view is that additional legislation is required for the exclusion of airdrops from the ambit of gift tax. Despite taxes being levied on virtual asset donations, it is difficult for tax regulatory authorities to grasp the transaction details as many don’t have a legal basis. There is also a lack of sufficient infrastructure that makes taxation more difficult.

As per the finance ministry’s interpretation, the gift tax applies to all substances of economic value. It includes legal and de facto legal rights to economic privileges and property value that can be converted to money. The gift tax percentage ranges from 10% to 50%, and the tax return must be filed within three months, calculated from the end of the month the gift was given.

However, the South Korean government’s view is that the taxation of free digital assets should be done on a case-by-case basis. President Yoon Suk-yeol’s administration, which assumed power in May, has deferred the proposed 20% capital gains tax to 2025. It was originally to be levied from January 2022, but the previous government postponed it to 2023. However, virtual asset gifts are still being taxed.

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