Airdrops: What are airdrops, what types are there and how are they treated for tax purposes?

Airdrops: An overview

Airdrops are a common method in the cryptocurrency sector in which free tokens or coins are distributed to a large number of wallet addresses. This method is often used to generate awareness, promote new projects or increase the distribution and adoption of a particular cryptocurrency. Below you can find out more about what airdrops are, what different types there are and how they are treated for tax purposes in Germany.

What are airdrops?

An airdrop is the free distribution of cryptocurrency tokens or coins to a certain number of wallet addresses. The recipients usually have to fulfill certain conditions, such as holding a certain cryptocurrency or participating in marketing campaigns such as sharing posts on social media.

Main goals of Airdrops:

1. Marketing and raising awareness: New projects use Airdrops to attract attention and expand their community.
2. Network effects: Distributing tokens can increase the use of and interest in a project or platform.
3. Decentralization: The broad distribution of tokens promotes greater decentralization and participation.

Types of airdrops

There are various forms of airdrops, which differ in their objectives and requirements:

Standard Airdrop

• Description: A broad distribution of tokens to a large number of users, usually without major requirements.
• Conditions: None or simple conditions such as registration on a website.

Bounty Airdrop

• Description: Users receive tokens in exchange for completing certain tasks or providing services in return.
• Conditions: Tasks can include sharing social media posts, writing blog posts or inviting friends.

Holder Airdrop

• Description: Tokens are distributed to users who already hold a certain cryptocurrency in their wallet.
• Conditions: The snapshot of a wallet is taken at a specific time and the tokens are distributed based on the stock held.

Exclusive Airdrop

• Description: Tokens are distributed to a select group of users, usually based on their participation in the community or previous investments.
• Conditions: Only certain, selected users receive the tokens, based on previously defined criteria.

Tax treatment of airdrops in Germany

The tax treatment of airdrops in Germany depends on various factors and can be complex. Here are some basic guidelines:

Income tax

• Taxation on receipt: Airdrops that are received without consideration and without personal capital expenditure can be treated as other income in accordance with Section 22 No. 3 EStG. The value of the tokens received on the day of receipt is taxable.
• Valuation: The value of the airdrop is converted into euros at the time of receipt and recognized as income.
• Holding period: If a token received in an airdrop is later sold, the holding period (one-year period) may play a role. If the tokens are held for longer than one year, the capital gains may be tax-free.

Trade tax

• Commercial activity: If airdrops are received as part of a commercial activity (e.g. regular trading in cryptocurrencies), the income is subject to trade tax.

Value added tax

• No VAT: The receipt of airdrops is generally not considered a service in return for payment, so no VAT is payable.

Documentation and obligation to provide evidence

In Germany, it is important to document all transactions and the receipt of airdrops precisely. The burden of proof lies with the taxpayer. It is advisable to record the following information:

• Date of receipt
• Value of the token at the time of receipt
• Proof of fulfillment of conditions (if required)
• Transaction details and wallet addresses

Summary

Airdrops are a popular method of distributing cryptocurrency tokens to a broad user base and publicizing a new project. There are different types of airdrops, which have different requirements and objectives. In Germany, airdrops are generally subject to income tax and must be carefully documented.

Important note

This information serves as a general guideline and cannot replace individual tax advice from our experts. The tax treatment may vary depending on your specific situation and the current tax regulations. It is strongly recommended that you contact our lawyers to clarify your personal tax situation and comply with the legal requirements.

Get in touch with us

If you have any further questions about Airdrops or would like detailed advice, please do not hesitate to contact us. We are here to help you!