Airdrops: Everything you need to know about free tokens and coins

Airdrops: An Overview

Airdrops are a common method in the cryptocurrency space where 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 will find more information about what airdrops are, the different types that exist, 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 specific number of wallet addresses. Recipients usually have to meet certain conditions, such as holding a particular cryptocurrency or participating in marketing activities like sharing posts on social media.

Main goals of airdrops:

1. Marketing and brand awareness: New projects use airdrops to gain attention and grow their community.
2. Network effects: Distributing tokens can increase the use of and interest in a project or platform.
3. Decentralization: The widespread distribution of tokens promotes greater decentralization and participation.

Types of Airdrops

There are different types 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 many 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 may include sharing social media posts, writing blog posts, or inviting friends.

Holder Airdrop

• Description: Tokens are distributed to users who already hold a specific cryptocurrency in their wallet.
• Conditions: A wallet snapshot is taken at a specific point in time, and the tokens are distributed based on the holdings.

Exclusive Airdrop

• Description: Tokens are distributed to a select group of users, usually due to their participation in the community or previous investments.
• Conditions: Only certain, selected users receive the tokens, based on predefined 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 upon receipt: Airdrops received without consideration and without personal expenditure of assets can be treated as other income according to § 22 No. 3 of the German Income Tax Act (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 recorded as income.
• Holding period: If a token received in an airdrop is later sold, the holding period (one-year limit) can 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.

VAT

• No VAT: Receiving airdrops is generally not considered a service for consideration, therefore no VAT is charged.

Documentation and proof requirements

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

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

Summary

Airdrops are a popular method for distributing cryptocurrency tokens to a broad user base and raising awareness of a new project. There are different types of airdrops, each with varying requirements and objectives. In Germany, airdrops are generally subject to income tax and must be carefully documented.

Important NOTE

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

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If you have any further questions about airdrops or would like detailed advice, please don't hesitate to contact us. We're here to help!