Author: FinTax

I. Introduction

In February 2024, Nigerian authorities detained two executives from the cryptocurrency exchange Binance—Tigran Gambaryan and Nadeem Anjarwalla—drawing widespread global attention. The incident stemmed from allegations by the Nigerian government that Binance facilitated the movement of $26 billion in "insufficiently identified source" funds in 2023, activities suspected of money laundering, currency manipulation (leading to the depreciation of the Nigerian currency, the naira), and tax evasion. The Nigerian government pressured Binance to pay hefty fines and submit information on the country's top 100 users along with their transaction history from the past six months. At the time, this incident was interpreted as Nigeria's unfriendly stance towards cryptocurrency assets.

However, in the face of the rapid development of the cryptocurrency market, the Nigerian government's attitude has shifted from strict restrictions to gradual acceptance, with regulatory frameworks and tax policies evolving accordingly. On one hand, regulatory agencies are committed to establishing a sound legal system to maintain financial stability and protect investors; on the other hand, tax authorities have begun to include cryptocurrency assets in the tax base to prevent tax base erosion. According to Chainalysis' "2024 Global Cryptocurrency Geography Report," Nigeria, as the country with the highest Crypto Adoption Index in Africa, presents significant research value regarding the evolution of its regulatory and tax policies for cryptocurrency assets. This article aims to explore Nigeria's tax regulations on cryptocurrency assets based on the latest legal documents and regulatory dynamics, focusing on the treatment of income tax, value-added tax, and other related taxes, while providing a comprehensive overview in conjunction with the regulatory framework.

II. Nigeria's Regulatory Framework for Cryptocurrency Assets

Nigeria's regulatory system for cryptocurrency assets has formed through a dynamic balance between the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC). Through legal bases and policy documents, a hybrid regulatory system has been gradually constructed, where the SEC holds statutory regulatory authority and specifically approves cryptocurrency-related businesses, while the CBN ensures financial stability and compliance through the banking system.

The position of the Central Bank of Nigeria (hereinafter referred to as CBN) stems from the "Central Bank Act 2007," which stipulates that only the CBN can issue currency, and other virtual assets cannot possess legal tender status. Based on this, on February 5, 2021, the CBN issued a notice to banks and financial institutions, explicitly prohibiting activities related to cryptocurrency trading, including account opening, payment processing, and cooperation with exchanges, and required the closure of identified related accounts. However, with the development of global virtual asset regulatory trends, the CBN's attitude subsequently changed. In December 2023, the central bank released the "Guidelines for the Operation of Bank Accounts for Virtual Asset Service Providers (VASP)," allowing banks to open accounts for VASPs, provided they meet SEC registration regulatory requirements, and proposed guidance standards for AML/CFT compliance, consumer protection, and risk management. This marked a transition for the CBN from a previous blanket ban to a conditional acceptance, with the cryptocurrency industry beginning to be incorporated into the formal financial regulatory system.

At the same time, the Nigerian SEC has been working to establish a regulatory path for digital assets since 2020. In September 2020, it explicitly stated that virtual assets would be treated as securities and proposed a draft rule that "digital asset issuance platforms, custody, and trading services" should be supervised by the SEC. Although its implementation faced obstacles due to the CBN's ban, the "Rules on Issuance, Offering Platforms and Custody of Digital Assets," officially released in May 2022, clearly categorized VASPs, DAOs, DACs, and DAXs. If digital assets are recognized as securities, issuers must register with the SEC and comply with governance, information disclosure, capital, and compliance requirements. This rule provides a preliminary regulatory framework for activities involving cryptocurrency assets within Nigeria, applicable to digital assets with securities attributes:

First, the rule defines "Digital Assets" and clarifies that it includes trading platforms for virtual assets with securities attributes and digital asset custodians, emphasizing that these entities should be regulated under the "Investment and Securities Act 2025" (ISA 2025);

Second, according to the rule, any project wishing to conduct an Initial Digital Asset Offering (IDAO) or publicly sell digital assets in Nigeria must submit an application to the SEC and obtain registration approval. Entities intending to operate digital asset trading platforms or perform custodial functions must also register or apply for the corresponding licenses as required by the SEC;

Third, the rule establishes a specific category for "Digital Asset Custodians" and requires custodians to be legal entities with minimum capital requirements, technical capabilities, internal control mechanisms, and to fulfill information disclosure and regular audit obligations. Custodians must separate client assets from their own assets and value the custodial assets daily;

Fourth, the rule introduces a regulatory sandbox mechanism. The SEC encourages relevant fintech companies to participate in a regulatory sandbox pilot mechanism led by it to test new digital asset products and services within a limited scope. The rule states that the sandbox mechanism provides an experimental environment for innovative projects with high uncertainty or no existing regulatory path;

Additionally, the rule stipulates that all regulated digital asset institutions must establish and implement internal control systems for anti-money laundering and counter-terrorism financing, including mechanisms for customer identity verification (KYC), suspicious transaction reporting (STR), and record-keeping. These requirements are implemented in conjunction with the "SEC Capital Market Participants Anti-Money Laundering and Counter-Terrorism Financing Regulations (2022)," providing compliance references for activities related to digital assets.

It is important to note that in Nigeria's regulatory framework, "digital assets" and "cryptocurrency assets" are often used to describe blockchain-based value representations, but they have an inclusive and included relationship in official definitions. Digital assets are generally used as a collective term encompassing various tokens (including cryptocurrency assets) and appear in the names of relevant regulations. For example, in the "Statement on Digital Assets and Their Classification and Treatment" released by the Nigerian SEC in 2020, digital assets are divided into four categories, including cryptocurrency assets. At the same time, Nigerian regulations clearly distinguish between these "two types of assets": according to the "Rules on Issuance, Offering Platforms and Custody of Digital Assets" issued by the SEC in 2022, virtual assets are defined as "digital representations of value that can be used for payment or investment purposes, capable of digital transfer and trading," excluding digital representations of legal tender or traditional securities. This definition actually encompasses cryptocurrency assets like Bitcoin. In contrast, the rule limits digital assets to "a digital token representing rights to the issuer's debt or equity." Thus, in the Nigerian regulatory context, cryptocurrency assets typically refer to virtual assets used as mediums of exchange or investment targets, while digital assets more often refer to securities or rights digitized in token form (similar to on-chain representations of traditional stocks and bonds).

III. Basic Research on Nigeria's Cryptocurrency Tax System

Although Nigeria's regulatory framework for cryptocurrency assets is becoming increasingly clear, specialized tax laws and regulations for cryptocurrency assets are still under development. Currently, the Federal Inland Revenue Service (FIRS) of Nigeria has not issued comprehensive tax guidelines for cryptocurrency assets, but Nigeria's "2023 Finance Bill" and "2025 Nigeria Tax Law" have included digital assets within the tax scope. Therefore, their tax treatment is primarily based on the general principles of existing tax laws, combined with the regulatory agency's classification of digital assets. The following will explore the tax treatment rules and practical logic for different types of cryptocurrency assets from the perspectives of income tax, goods and services tax (GST, i.e., value-added tax), and other taxes.

(A) Income Tax

Nigeria adopts a principle of combining resident tax jurisdiction with territorial jurisdiction for income taxation. All global income of Nigerian tax residents, or income obtained within Nigeria, regardless of source, must be declared and taxed. This principle also applies to income related to cryptocurrency assets, meaning that individuals or businesses that earn income from cryptocurrency trading or operations in Nigeria must pay taxes according to current income tax laws. According to existing tax laws, individual income is subject to a progressive tax rate, with a rate of 7% for annual income up to 300,000 naira and a maximum rate of 24% for annual income exceeding 3.2 million naira; the corporate income tax rate is 30%. The following will analyze the treatment from the perspective of income tax based on the different functional attributes of cryptocurrency assets:

1. Tax Treatment of Payment-type Cryptocurrency Assets

Payment-type cryptocurrency assets (such as Bitcoin) are primarily used as mediums of exchange for goods and services. Although the Central Bank of Nigeria explicitly denies their status as legal tender, as a tradable form of digital value, they are typically treated as assets or property when generating income and may still face income tax obligations.

When individuals or entities dispose of payment-type cryptocurrency assets and realize gains, these gains are generally considered capital gains and are subject to capital gains tax, while also being regarded as the tax base for personal income tax. If a business frequently engages in trading payment-type cryptocurrency assets and its activities constitute a commercial operation, the profits generated may be considered business income and taxed at the applicable corporate income tax rate.

2. Tax Treatment of Security-type Cryptocurrency Assets

Security-type cryptocurrency assets represent the digital form of traditional securities (such as stocks and bonds), granting holders rights such as ownership, dividends, and voting rights. The Nigerian SEC has clarified in the "Rules on Issuance, Offering Platforms and Custody of Digital Assets" that such tokens should be regulated as securities and should be treated for tax purposes similarly to corresponding financial products.

First, the issuance of security-type cryptocurrency assets to raise funds (commonly referred to as STO) is typically regarded as a securities issuance activity, similar to a company issuing stocks or bonds. The funds raised from the issuance are considered capital income for the issuer and are not included in taxable income (equivalent to the formation of equity or debt). Second, the income earned by investors during their holding period of security-type cryptocurrency assets (such as profit dividends, interest, etc.) should be taxed according to conventional investment income: the dividend portion may be subject to withholding tax, with Nigeria's withholding tax rate on dividends generally being 10%; interest income is also taxed as interest income. Finally, when investors sell security-type cryptocurrency assets and realize capital gains, they are required to pay a 10% capital gains tax.

Overall, the income tax treatment of security-type cryptocurrency assets is treated similarly to traditional securities for tax purposes, with equity subject to dividend and capital gains tax rules, and debt subject to interest and bond tax rules, ensuring that cryptocurrency investments with securities attributes align with the requirements for traditional investments.

(B) Value-Added Tax

According to Nigerian law, all taxable services provided within Nigeria are subject to a standard tax rate of 7.5%, unless explicitly exempted by law. As early as 2020, the then Nigerian Finance Act expanded the definition of "services" to clearly state that "services" refer to any matters other than goods, currency, and securities. Services related to cryptocurrency assets are not listed as exempt from value-added tax (VAT) by law, and therefore, in principle, fall under taxable services and should be subject to a 7.5% VAT. The Nigerian Finance Acts of 2019 and 2020 also explicitly included the supply of digital services and intangible assets within the scope of VAT collection, such as e-commerce and non-resident digital services. Thus, it can be understood that VAT is only levied on the service fee portion, and the transaction amount of the digital assets themselves is not directly included in the VAT tax base. For example, in the case of buying and selling Bitcoin on a cryptocurrency exchange, if the exchange charges users a fee or commission, that fee must be subject to VAT at 7.5%, while the price of Bitcoin itself is not subject to VAT. Tax authorities view these fees as consideration for providing brokerage/trading services, thus qualifying as taxable service income.

At the level of tax authorities, the Federal Inland Revenue Service (FIRS) of Nigeria has also made clear statements regarding the taxation of cryptocurrency trading services in recent years. According to announcements and media statements from Nigerian tax authorities in 2024, the FIRS has required cryptocurrency platforms to charge 7.5% VAT on service fees collected from Nigerian users. Based on Nigeria's current VAT law and official guidelines from the FIRS, service fees related to cryptocurrency assets are legally subject to a VAT rate of 7.5%.

It is important to note that when cryptocurrency assets are used as a means of payment for general goods and services, the treatment of VAT may be contentious: using cryptocurrency to purchase goods or services still requires VAT to be levied according to the nature of the goods or services. For instance, if someone buys a computer with Bitcoin, the seller should issue a VAT invoice (7.5%) based on the value of the computer, and the payment method being Bitcoin does not affect the VAT due on that transaction. According to guidelines released by the FIRS in recent years, services that purely involve the transfer of cryptocurrency assets may enjoy VAT exemptions to reduce transaction costs and encourage the development of digital assets. In other words, if a service only involves assisting customers in transferring cryptocurrency between wallets, the income from that service may be considered exempt from VAT as a financial service. However, this exemption is still in the observational stage, and the legal basis may stem from equating the transfer of virtual currency with funds transfer services, thus including it in the VAT law's list of exempt financial services.

In summary, in general transaction scenarios, the circulation of cryptocurrency assets themselves is not subject to VAT, while related service charges must be taxed normally. For the buying and selling of payment-type cryptocurrency assets, if they are considered goods, VAT should theoretically be levied. However, considering that many countries exempt cryptocurrency assets from VAT by treating them as currency or financial instruments, Nigeria's final stance remains to be officially clarified. Currently, there are no explicit official documents indicating that transactions involving cryptocurrency assets themselves require VAT payment, nor are there clear official documents stating that "cryptocurrency transfer services" are generally exempt from VAT, which needs further clarification from the authorities.

(C) Capital Gains Tax

In 2023, Nigeria amended the Capital Gains Tax Act to explicitly include "digital assets" in the definition of taxable assets for the first time. According to the "2023 Finance Bill," any individual or business that realizes capital gains from the disposal of digital assets within a tax year, after deducting allowable costs, must pay a 10% capital gains tax on the net gains. Here, "assets" encompass options, debts, digital assets, and general intangible assets; in other words, profits from selling virtual currencies like Bitcoin and Ethereum, or from transferring NFTs and security-type cryptocurrency assets, are all considered capital gains and are subject to a 10% tax.

The implementation of the "2023 Finance Bill" makes Nigeria one of the first countries in Africa to clearly tax gains from cryptocurrency assets. According to the general principles of capital gains tax, taxpayers can offset capital gains with capital losses incurred during the year when filing their annual tax returns. However, the Finance Act does not provide more detailed regulations regarding cryptocurrency assets, which may lead to uncertainties in tax treatment. For example, a key aspect of calculating capital gains is determining the cost basis of the cryptocurrency assets, which typically includes all costs paid when purchasing the asset, including the purchase price and any transaction fees. For cryptocurrency assets obtained through mining or airdrops, determining the cost basis may be even more complex, necessitating the FIRS to issue more detailed guidelines for clarification.

(D) Other Taxes

In addition to the main taxes mentioned above, other taxes that may be involved in the cryptocurrency sector are currently not prominent. Nigeria does not have a specific consumption tax for cryptocurrency assets, nor does it impose any net wealth tax or inheritance tax on the holding of cryptocurrency assets. Additionally, stamp duty that may be involved in transaction processes primarily targets statutory documents and certain transfer procedures, and is not directly related to peer-to-peer cryptocurrency transactions. If cryptocurrency transactions are conducted through banking channels, ordinary bank transfers may still incur minor stamp duties, but this is unrelated to the cryptocurrency assets themselves. It is worth noting that Nigerian tax authorities are strengthening the reporting and auditing of cryptocurrency transactions. The FIRS has developed technical means to monitor on-chain transactions and requires taxpayers to maintain detailed transaction records, including dates, amounts, and counterparties, to calculate tax liabilities. Enforcement actions against unregistered cryptocurrency exchanges in 2024 indicate that authorities will crack down on tax evasion in the cryptocurrency sector to solidify the tax base. Therefore, although there are currently no newly tailored taxes for cryptocurrency assets, comprehensive record-keeping and compliance reporting obligations effectively constitute important tax management requirements. Taxpayers should ensure timely reporting and payment of relevant taxes to avoid penalties or even criminal liability.

IV. Conclusion

Nigeria is undergoing a dynamic evolution in the regulation and taxation of cryptocurrency assets. From initial strict restrictions to gradually establishing a standardized regulatory framework, the Nigerian government is striving to find a balance between financial innovation, risk control, and tax equity. The Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC), as the main regulatory bodies, have clarified the operational norms for Virtual Asset Service Providers (VASPs) by issuing guidelines and amending laws, and have formally included digital assets within the scope of securities regulation, laying the groundwork for subsequent tax administration.

In terms of taxation, Nigeria's taxation of cryptocurrency assets primarily focuses on capital gains tax and value-added tax. According to the "2023 Finance Bill" and the "2025 Nigeria Tax Law," capital gains arising from the disposal of digital assets are subject to a 10% capital gains tax, providing a clear legal basis for taxing investment returns from cryptocurrency assets. Additionally, service fees charged by cryptocurrency trading platforms are explicitly subject to a 7.5% VAT. However, there is still a lack of detailed official guidelines from the Federal Inland Revenue Service (FIRS) regarding the specific handling of these tax administration details and other theoretically related taxes concerning cryptocurrency assets.

From a longer-term perspective, Nigeria's exploration and practice in this field will provide valuable experience and references for other emerging market countries. As international regulatory experiences accumulate and domestic practices develop, Nigeria's cryptocurrency tax policies are expected to be further refined, achieving a better balance between encouraging digital economic innovation and ensuring reasonable tax burdens.

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