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Cryptocurrency Taxation in Nigeria: Everything you need to know
Swen Keller
This article covers everything you need to know about cryptocurrency taxation in Nigeria.
We discuss various aspects of tax on crypto such as if you need to taxes on digital assets including NFTs, when Capital Gains Tax applies, the effect of the Finance Act passed by the administration of President Muhammadu Buhari on cryptocurrencies with regards to the applicable tax on crypto, and much more.
Do I Need To Pay Crypto Tax In Nigeria?
The taxation of crypto in Nigeria is still a grey area due to several irregularities in the regulatory framework around crypto assets.
In February 2021, the Central Bank of Nigeria banned banks and all regulated financial institutions from providing account services to crypto exchanges
The Central Bank of Nigeria also directed all commercial banks to close bank accounts belonging to crypto exchanges and businesses transacting with cryptocurrencies in the country.
All banks that failed to adhere to the directive were subject to strict penalties.
All commercial banks adhered to the CBN directives and froze the accounts of businesses and individuals transacting with cryptocurrencies.
Despite the Central Bank’s stance, in May 2022, the Securities and Exchange Commission (SEC) recognized crypto as securities and released a set of regulations guiding the exchange, issuance, and custody of digital assets in Nigeria.
This included the registration of any entity involved in the sale of digital tokens, this is to prevent investors from any injurious activities.
That said, prior to his departure from office in 2023, the Nigerian government announced the introduction of a 10% tax on the gains of digital assets including NFTs and cryptocurrencies.
This was a surprising move because the President Muhammadu Buhari-led government antagonized cryptocurrency trading in the country.
According to the Finance Act, crypto traders are expected to pay a 10% tax on profits on digital assets.
However, the introduction of this tax on cryptocurrencies has had little or no impact on the Nigerian crypto community. The introduction of crypto taxes is ridden with lots of glaring inconsistencies which has raised a lot of questions in the crypto community.
Most crypto enthusiasts in Nigeria aren’t taking the new law seriously because cryptocurrencies are still “outlawed” by the Central Bank of Nigeria.
Most believe that if the government is interested in implementing the new law, it needs to first legalize banks to facilitate crypto services and allow exchanges to open offices in Nigeria.
Currently, commercial banks have not received any instructions from the Central Bank of Nigeria to resume transactions with crypto exchanges and any related crypto businesses.
Until this is resolved, there is no way to accurately tax cryptocurrencies in Nigeria.
Information from a source at THE Federal Inland Revenue Service (FIRS) indicated that the guidelines and procedure to enforce tax in the country are still in the works.
At the time of writing, there has been no implementation of the tax on cryptocurrencies in Nigeria.
That said, by law crypto traders are expected to pay a 10% tax on crypto.
Can the FIRS track Crypto?
The Federal Inland Revenue Service (FIRS) is the agency responsible for accessing, collecting, and accounting for tax in Nigeria.
Following the introduction of the Financial Act, the Nigerian government considers cryptocurrency a taxable asset.
That said, the FIRS does not yet have a formal approach to track crypto ownership and usage in Nigeria.
Currently, the FIRS relies on individual crypto users to self-report their involvement in cryptocurrencies for tax purposes.
This is, however, a flawed approach as the majority of crypto users have consistently shunned the FIRS or its activities in the crypto space.
That said, the FIRS is collaborating with international agencies to identify and penalize tax defaulters.
One of the measures being used is the implementation of the Know Your Customer (KYC) policy and Anti Money Laundering measures.
Also, following the directive from the Central Bank of Nigeria, commercial banks are obligated to notify the CBN of any crypto-related transactions.
The FIRS had the authority to oversee bank transactions associated with crypto trading and investments.
How Do You Calculate Crypto Taxes in Nigeria?
According to the Financial Act, there is a 10% tax on crypto assets.
Globally, 2 methods are used to determine the value of capital gains: First In First Out (FIFO) and Average Costs Basis (ACB).
Using the FIFO method, you sell your oldest acquired coin first.
The cost for the coin is calculated according to the crypto price when you bought the coin.
Under the ACB method, however, the average cost is taken into account instead of the time of buying.
That said, you can accurately calculate your crypto tax in Nigeria using crypto tax calculators.
Crypto Capital Gains Tax in Nigeria
Capital gains tax is a tax on the profit made from the sale of an asset.
Cryptocurrencies are classified as assets in Nigeria, since the introduction of a new Finance Act by the government, companies and individuals are required to pay the capital gains tax on any profits incurred when trading or investing in them.
The Capital Gains Tax rate is 10% for individuals and 20% for companies.
This means if you bought crypto worth N200,000 and sold it for N300,000, your capital gain is N100,000.
As an individual, you will be required to pay N10,000 as capital gains tax while a company will be required to pay N20,000 as capital gains tax.
That said, crypto taxation in Nigeria is still new, hence there are several aspects of the implementation of the taxation that are still unclear.
This includes the timeline for the remittance of the tax, and in what currency will the crypto tax be remitted, especially since taxes in Nigeria are remitted in the underlying transaction.
Since the government and tax authorities in Nigeria have not publicized wallets or platforms for receiving crypto payments, it is unclear if the tax will be remitted in the naira equivalent of the amount traded in crypto or if remittance will be made in the cryptocurrency traded.
There is also the problem of how to effectively track crypto in Nigeria.
Until a structure is put in place to ensure the seamless execution of the Finance Act, the execution of the tax on digital assets and crypto capital gains in Nigeria is flawed.
Nigeria Crypto Taxes Threshold
Since the introduction of a 10% tax on digital assets, the government has not released any information on the threshold for capital gains tax on digital assets.
But going with the available information, currently, there is no crypto tax threshold. This means you do not have to earn a certain amount in crypto before you pay tax.
You owe tax on any amount of profit or income from any crypto-related transaction regardless of the amount.
Since crypto taxation in Nigeria is new, it is not yet clear if the government intends to introduce a threshold for crypto taxes in the future.
Business Income Tax in Nigeria
In accordance with the Companies Income Tax Act, companies in Nigeria are mandated to pay a tax on profit from all sources.
Profits that are not derived from business or trade activities carried out by the company are exempted from CIT.
The tax rate for large companies is 30% of the total profit of the company.
Large companies are companies with a gross turnover greater than 100 million Naira.
The CIT rate for companies with gross turnover greater than N25 million and lower than N100 million (medium companies) is 20%.
Small companies with gross turnover of N25 million or less are 10%.
The gross turnover is assessed on a preceding year basis and the tax is charged on profits for the accounting year ending in the year preceding assessment.
The minimum tax is payable by companies that have profits below the minimum tax or companies whose tax on profits is below the minimum tax.
The Minimum tax payable is calculated as 0.5% of gross turnover.
That said, the due date for filing returns varies.
Existing companies are required to file returns within 6 months from the end of the accounting year.
Newly incorporated companies, on the other hand, are required to file returns within 18 months from the date of incorporation and not later than 6 months after the end of their accounting period.
Crypto Income Tax
With the introduction of the Finance Act, there is a 10% tax on crypto assets.
This doesn’t just apply to capital gains, it applies to all crypto income.
The income tax applies to all income generated from crypto-related activities, this includes cryptocurrency mining and all earnings obtained through mining operations.
Crypto Capital Loss
The only law that makes digital assets or cryptocurrencies described as incorporeal property taxable in Nigeria is the Capital Gains Tax Act, which subjects every gain earned by a taxpayer from the disposal of digital assets to the Capital Gains Tax of 10%.
That said, taxable individuals in Nigeria can reduce the amount of tax on crypto because of the recent Finance Act signed into law by former President Muhammadu Buhari that stated capital losses are now deductible against chargeable gains.
Section 5 of the Capital Gains Tax Act was amended to state that losses accrued from the disposal of digital assets shall be deductible from gains gotten from disposing of that digital asset provided that the losses can only be deductible against the same asset type.
Also, where the taxable individual’s aggregate capital losses incurred in a tax year exceed the aggregate chargeable gains, the losses might be moved forward for up to 5 years right after the year where the loss was incurred.
The amendment to the Act will enable taxpayers to offset capital losses from capital gains and decrease the impact of the Capital Gains Tax that is meant to be payable on gains from the disposal of digital assets.
Tax on Lost or Stolen Crypto
In Nigeria, there is no tax on digital assets (which crypto falls under) that have been reported as stolen, lost, or destroyed.
However, if the capital sum is received within 3 years as compensation or insurance and another digital asset is acquired then the owner will be liable for tax on crypto based on the Capital Gains Tax Act.
Simply put, the loss must be reported and only the disposal of crypto assets without losses count as taxable capital gains.
Taxes on NFTs Trading in Nigeria
NFT trading is subject to Capital Gains Tax on digital assets as the Nigerian government views it as a digital asset.
To clarify, for something to be effectively classified as a digital asset by the Nigerian government it must have the potential to create value by being used in a way that generates value for the owner.
In addition, the owner of the digital asset must then be able to transfer their ownership to someone else through gifting, purchase, or any other means.
This means that all digital assets which include NFTs and cryptocurrencies are considered as property and are viewed by the law as chargeable assets thereby subjected to taxes under the provisions of the Capital Gains Tax Act.
So every individual or company registered in Nigeria or as a Non-resident Company that makes any gains on the disposal of digital assets including NFTs is subjected to tax in Nigeria.
The Capital Gains Tax is a flat rate of 10% which applies to all gains after all permitted deductions and expenses incurred in the process of the disposal of the assets have been calculated and adjusted.
Most importantly the buyers and sellers of NFTs have the obligation to report every NFT trading transaction and disposal made by them in the particular year of assessment.
Tax on Crypto Gifts and Donations in Nigeria
Tax on crypto gifts and donations in Nigeria vary depending on the particular situation and fall under the Personal Income Tax Act.
For example, crypto gifts received by employees of a company from their employer form part of the taxable income of such individuals.
The crypto gifts, if received, are considered as additional benefits which are subjected to the Pay-as-You-Earn Tax.
So income received as a crypto gift must form part of the taxable income of the employee.
Also, if income is derived from a crypto gift or donation then the digital asset is subject to the provisions of the Personal Income Tax Act as well as the Capital Gains Tax Act.
Is any Crypto Tax-Free in Nigeria?
All crypto assets in Nigeria are taxable under the newly established taxation rules which require individuals and companies to pay 10% Capital Gains Tax upon the disposal of digital assets.
This is primarily because all cryptocurrencies are viewed as digital assets which are taxable under the amended Finance Act.
What is a Crypto Tax Calculator?
A cryptocurrency tax calculator is a software or program that allows taxable individuals in Nigeria and other countries to import their digital asset transaction history in order to calculate realized profits and income.
You can then generate the appropriate reports to send to your tax accountant or forward them to the appropriate authority.
How to Use a Crypto Tax Calculator?
To use the crypto tax calculator you simply need to upload your crypto trading transaction history on a particular exchange or wallet.
Next, you would need to review your transactions and then generate your tax reports.
This is typically done with a couple of clicks.
Best Crypto Tax Calculators in Nigeria
There are several tax calculators in Nigeria, however, the best crypto tax calculator is the Binance crypto tax calculator.
This is because it is free and allows you to calculate your tax on crypto for up to 100,000 transactions.
You can also generate your tax report with just a couple of clicks using the Binance crypto calculator.
That said, other popular crypto tax calculators in Nigeria include CoinLedger crypto tax calculator, cryptotaxcalculator.io, and Koinly.
Final Thoughts
Tax on crypto in Nigeria is still evolving and there are a lot of grey areas in the law regarding the subject.
However, what is clear is that cryptocurrencies and NFTs in Nigeria are viewed as digital assets in the eyes of the law and are taxable under the Capital Gains Act.
In accordance, 10% of all gains made on cryptocurrency transactions are taxable by the government.
Also, crypto gifts and donations are taxable if given by an employer or traded for income under the Personal Income Tax Act.
FAQ
Most frequent questions and answers
In Nigeria, cryptocurrency is taxed when there is the disposal of digital assets for gain.
That said, cryptocurrency regulation in the country is still evolving and in time more laws are expected to be passed regarding the taxation of digital assets.
There are various platforms (cryptocurrency exchanges and wallets) that offer a great experience for crypto trading in Nigeria.
Some of such platforms include the Binance cryptocurrency exchange, NairaEx, Patricia Exchange, Luno wallet, Crypto.com, Trust Wallet, Exodus Wallet, and much more.
That said, the best platforms depend on various parameters that are individual to each trader.
For example, you would need to consider the trading fees of each crypto platform, the number of available assets, staking rewards, available crypto tax report tools, local payment methods supported, and regulations.
In February 2021 the government of former President Muhammadu Buhari banned commercial banks in Nigeria from engaging in any cryptocurrency transactions.
However, there is no law expressly banning the use of cryptocurrency in Nigeria.
Since the 2021 ban on commercial banks from facilitating cryptocurrency transactions, Nigerian crypto traders have had to find other names for converting their cryptocurrency to cash.
Some of such methods include exchanging cryptocurrency for gift cards and then selling those gift cards for the Nigerian naira or selling cryptocurrency on peer-to-peer platforms that allow traders to transact with each other.
Platforms used for such transactions include CoinCola and Binance P2P.
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