18 Feb HOW ARE AIRDROPS TAXED IN LUXEMBOURG?
The term “airdrop” is simply a matter of certain tokens (coins) being distributed for free. A cryptocurrency holder receives additional units of a cryptocurrency without any action on his part. Thus, he does not have to pay for the cryptocurrency obtained through an airdrop. Often, a reference coin and a reference ratio (such as 1:1) at a certain snapshot point in time is used as a basis for the distribution of the received coins.
Often, a reference coin and a reference ratio (such as 1:1) at a certain snapshot point in time is used as a basis for the distribution of the received coins (crypto currency).
One of the best-known and allegedly also one of the largest airdrop programmes was the airdrop of the Stellar Lumen Token (XLM) in 2018. Currently, the NEM Foundation’s airdrop (NEM airdrop) for the new blockchain symbol (XYM) of the NEM Group is scheduled for February 2021.
Technical requirements for obtaining airdrops
To be able to receive airdrops at all, you need a suitable wallet that should be able to receive as many different cryptocurrencies as possible. Wallets that function on the basis of the Ethereum blockchain prove to be particularly practical, because behind many airdrops are ERC-20 tokens based on this very blockchain. For example, cryptocurrencies can be credited to the wallet on which the beneficiary holds a certain amount of the cryptocurrency Ether (ETH).
Likewise, it is possible to get access to a new cryptocurrency by proving that one holds a certain amount of cryptocurrency on another blockchain, e.g. Bitcoin. The cryptocurrencies issued via airdrop are either created directly in the recipient’s wallet or are transferred from a pool of the issuer to the recipient’s wallet.
Why are airdrops given away?
There are many reasons for giving away cryptocurrencies. Often it is to draw attention to a new cryptocurrency, i.e. for marketing reasons. For example, many start-ups use airdrops to promote their cryptocurrency. Crypto exchanges such as Binance also use airdrops to reward customers for their loyalty. This is effectively a bonus programme.
Are airdrops subject to taxation in Luxembourg?
Within the scope of an airdrop, the user receives cryptocurrencies without having purchased them or having performed any other service for them. The cryptocurrencies are not transferred from the legal sphere of a third party to the user. Rather, they begin their “existence” in the user’s assets in the first place. The cryptocurrency is created directly in the user’s wallet, whereby the wallet must fulfil certain criteria. In this respect, airdrops are similar to winning the lottery or a windfall profit.
There are various tax opinions on the taxation of airdrops. One frequently held tax opinion is that, in the absence of a taxable acquisition transaction, there is no taxable disposal transaction under Article 99 of the Luxembourg Income Tax Act (LEStG). Thus, taxation of Airdrops in Luxembourg would not be applicable due to the lack of a service provision on the part of the user. Thus, the sale of airdrops would be tax-free.
Another tax perspective is the so-called profiscal method. According to this method, the cryptocurrencies received from an airdrop should be considered an acquisition for tax purposes. However, the value of the cryptocurrencies received is set at EUR 0.00, so that a taxable acquisition is given but a taxable income is generated. However, it should be noted that taxes may be triggered in the event of a later sale of these cryptocurrencies received within the speculation period. This would have to be analysed in more detail by a tax advisor in each individual case.
No matter what your tax opinion is, we at jinfa.tax always recommend our clients to disclose facts such as airdrops transparently and fully in their tax return so that the tax office in Luxembourg cannot assume any tax evasion. We assist and support you in your tax return and in the transparent presentation of your Airdrop in order to avoid unnecessary disputes with the tax office in Luxembourg in advance.
Our advisory services in Luxembourg for airdrops
We support you in
- analysing whether your airdrop should be assessed as a tax-free inflow or as a gift,
- the representation of the tax assessment vis-à-vis the tax office in the event of a dispute, as well as
- the preparation of your tax return in Luxembourg for your cryptocurrencies.
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