Investors who receive freely transferable cryptocurrencies- gift, including airdrops, will be subject to a current tax imposed by the South Korean government, with rates ranging from 10% to 50%. The airdrops will be examined by regulators on a case-by-case basis.
The South Korean government said it would impose a gift tax on investors who receive freely transferable cryptocurrencies, even airdrops, and must submit forms within 3 months of the gift, at a rate of 10-50%. https://t.co/Io8tDge474
— Wu Blockchain (@WuBlockchain) August 22, 2022
The government recently responded to an inquiry explaining the tax law as to whether a transaction in which the issuer of virtual assets provides a virtual property of the same or different kind to a member who owns a specific asset is permissible, according to the Ministry of Strategy and Finance on August 22nd. The transfer of virtual property is taxable as a gift.
The Inheritance and Reward Tax Act governs the transfer of assets through airdrops, and a federal government official stated that in the case of airdrops, “the current tax can be assessed on the third party to whom the digital asset is transmitted free of cost,” namely the airdrop recipient.
Position of the Inheritance and Gift Tax Act
The Inheritance and Gift Tax Act governs the transfer of assets through airdrops, and according to a government official, “the gift tax will be paid on the third person to whom the virtual asset is transmitted free of charge,” i.e. the airdrop recipient, the division reported.
According to a tax body representative, “In the case of a gift of digital property, the precept is the subject of taxation,” the representative continues.
“The government, however, believes that each circumstance should be taken into account before actually taxing presents. Whether a specific virtual asset sale is subject to gift tax is an issue that needs to be decided while examining the transaction situation, such as the examination of assets and whether the actual profit is transferable or not,” the Ministry of Strategy and Finance stated.
Free Transfer of Property
According to the Inheritance and Reward Tax Act, the free transfer of property qualifies as a “gift,” according to another Ministry of Finance spokeswoman. In this scenario, the third party to whom the digital item is given away for free may be subject to a present tax.
In the crypto world, a practice known as “airdrops” is fairly popular where a platform pays users who hold its native digital assets. Airdrops are particularly common when switching from one blockchain to another or when adding digital assets to a blockchain network. Staking in cryptocurrencies, which may be subject to a current tax, is another sort of cryptocurrency reward.
The action is yet another rule from South Korea. The country has delayed the implementation of a capital gains tax on the cryptocurrency market until 2025. Other regulation-related issues, such as regulating exchanges, are also being noted by officials.
The government, however, believes that each circumstance should be taken into account before actually taxing presents.
Furthermore, the system needs to be strengthened by the new law to specifically exempt airdrops, etc. from the gift tax. Even where taxes are a conundrum, it is challenging for tax authorities to understand the specifics of donating virtual assets.
It is difficult to tax virtual asset transactions since there are several new forms of transactions that need a legal foundation and the necessary supporting infrastructure.
South Korea is advancing with cryptocurrency regulation
The nation has adopted a variety of measures to stifle illegal activity in the cryptocurrency sector. During this crackdown, sixteen cryptocurrency sites could be suspended, according to regulators, several foreign platforms have not been registered domestically. Platforms like KuCoin, Phemex, and Bitglobal, to name a few.
When fines are not paid, the South Korean police force is experimenting with permitting crypto seizures. By the end of the year, it hopes to receive 1 billion won in unpaid fines.
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