Crypto and Tax in Nigeria: A Practical Guide to the New Rules || Mitong Dapal || Alumni Retreat

Transcript

Everyone GMG, how are we all doing? Um, it's exciting to be here and it's exciting to be here simply because um, I'm also an alumni and quart I'm going to just walk us through something very important. Um also something very interesting. A lot of people um a lot of people always ask questions like I have a lot of people ask questions about this. A lot have reached out to me and quite beautifully I feel like this is the perfect conversation to take up. My work here is to give us an awareness.

The simple question that I know that is on everybody's minds is around these tax laws are coming. Um there seems to be a lot of energy around these tax laws. What do we need to do? So it's a practical guide to to this new rules that were that that are going to take effect from January next year. uh as you can see I think the the the last speaker before me who I absolutely believe is a senior colleague in the bar um spoke a lot about where developers can come in to help FIRS and help tax authorities and I think through my presentation you get to understand why why that why why that why that can be because um as much

as you seem to for most of us that are here we seem to understand the techniques of u smart contracts and and technology itself. Tax is a whole different new headache on its own. Um so yeah, but the goal of this workshop is to combine both the law and practical application of it. Um make it as suitable as it can be for everybody that is joining us. So um over this over this conversation I'm going to be talking about how to identify which crypto transactions effectively trigger tax obligations.

um just walk you through the tax rates and understanding how the tax rates work and also um help you how to understand how do you register, how do you report, how do you file and making sure that okay you're compliant with how you keep record like how you keep your records and also what what would the penalties look like and then how would you apply compliance strategies. So basically that is just going to be the gist. So why is this happening? Effectively, I think the speaker before spoke a lot about this.

We have made a lot of noise about the fact that Nigeria is this, Nigeria is that, Nigeria is doing this, Nigeria is doing that. So basically, these are just some statistics that we throw um in our face. Oh, according to chain analysis, we are ranked number two in global adoption. We are ranked number one in stable coins adoption globally. um between this time frame there there has been over 59 billion um dollars that has passed through crypto transactions within Nigeria. So all of those numbers would make the government begin to tingle. Okay, this is money that exists outside of the system. This is money that is not taxed. This is money that we are not seeing coming back and we need this monies so that we can increase the the tax bracket. I think the target for

the federal government is with the coming of these new tax laws, they're going to increase the tax brackets to up to 18% of the citizens getting taxed. So you realize that oh a lot of Nigerians are not taxed at all like we don't pay tax. The highest taxes that we pay mostly is is is VAT that we pay at the point of but then there are even some shops that don't even know they supposed to be collecting VAT and they don't collect VAT. So additionally also is that there's there's there's an actual need for regulatory clarity and also we are shifting from the ages of restrictions now to the age of regulation. I may interest you to know that in the whole of the continent of Africa where you look at the countries that have made progress in terms of um

regulations that has to do with crypto blockchain and web 3 in general Nigeria is number one. Nigeria has the most advanced um regulations. Even though yeah there are some um specific regulations that we still need. Uh there are some specific gaps that we need to close. But when you compare us to the entire continent um we are still an industry leader and the goal of all of this shift from restrictions to regulation is largely to balance um investor in um to balance innovation with investor protection. So how can we get investors to come in and how can we ensure that if investors are investing the laws are there and then there's also the general need to align with international standards. So for the like

the fat standard the financial action task force and the um IOC that's like international organization for security commission standard. So all of those things is why we have this laws. I'm just sort of like laying the background for why we have this laws and effectively um this is the legal framework that currently exists high level legal framework um I didn't include things like the um cyber crimes act the cyber crimes act is also a relevant one because it was the first one that first defined what um virtual asset service providers are but effectively these are the major ones that concern us in relation to today's conversation and even the general crypto regulations in Nigeria the finance act

even though now that section has been repealed but a key part is the percentage that's the rate that he that he gives us so introduced the 10% on of capital gains tax on digital asset disposals and the Nigerian tax code owed effectively of 2025 which includes the Nigerian tax act the Nigerian tax administration act and the other two acts but generally it's a very very comprehensive code so it's it repealed all existing tax frameworks and introduced a brand new one that effectively takes effect from 2026. So the tax act, the tax administration act, the investment and securities act is also important. And I think the speaker before me spoke about the need for um

regulatory clarity on token classification. For now, Nigeria has not fully defined it yet. Um to the extent of our existing laws that's not fully defined it yet. um how why we might as well not fully define it is simply every single type of um digital or virtual asset is classified as a security and for those of us who are developers who build you know that it's not everything that is good that that should be considered a security even though yes the Nigerian tax administration act is also contemplating the howi test to determine what securities are particularly in the fifth schedule but that that has not gotten mainstream yet in terms of mainstream the closest that we have is that every single thing that

you can think of as a digital or virtual asset is considered a security and then also we also have um SEC rules for digital assets. So it defines what virtual asset service providers are the different classes. Are they dig digital asset exchanges? Are they digital asset custodians? Are they um operating platforms? Are they interfaces? So these are all the different classes of of VAS that we get to have. And that law also provides for like the registration the rules provide for registration requirements, the capital thresholds and operational obligations of all of these valves. And lastly is the CBN guidelines that that came out in December 2023 for for persons for VAPS to be a for that

permit banks to be able to operate VA's accounts. So that's basically the the pillars of the of of Nigerian crypto laws. So let's just go into some basic definition. So what exactly is Nigeria taxing? So the first one that you can think of is um digital assets and virtual assets. Um what's crazy enough is the law as it stands is I'll be doing a lot of critic of the law is a bit is a bit I want to say not not necessarily confused but then you read some of these laws that I just finished explaining and they just talk about only digital assets and you read some of these laws just talk about only virtual assets and then

you read some that tells you digital or virtual assets. But then the thing is it's not more about um the English or the nomenclature within the law but it's the spirit behind it when it comes down to interpreting laws. So exactly Nigeria is going to be taxing your digital assets. So your crypto assets, utility tokens, security tokens, NFT derivatives, all of those are going to be taxed. Um Nigeria is also going to be taxing virtual asset service providers which are vast. Um so that is also an important thing for you to to know that will happen. And then also um as explained all digital assets are classified as securities under the ISC.

So in Nigeria you can't come and argue that oh this is not a security this is a utility or this is a commodity token or this is just um a gaming token or a gaming identity. Every single thing that you do that has to do with the blockchain is classified as a security. And then also um when does your tax liability arise under this new tax code? So these are just general we'll go into more specifics because the way I planned this is that we go into more specifics for individuals and then for companies themselves. The reason why we are doing for individuals is most of us on this call are individuals that are going to be subject to this new tax code that is going to go live in January next year.

And then many of us here are also building companies and that would also fall under that bracket. So generally what the government is looking to tax is the sale or exchange of your crypto um mining or staking rewards, air drops or bounties that you receive, payments for good or goods and services using crypto. So you see a lot of um I've seen one or two startups around here that are giving you cards that you can use directly to pay with USD that you can pay using USDT or USDC all of those. Um and then also transfer of virtual assets. So depending on the circumstances but basically all of these tax liabilities would raise

what is known as charable income. So the taxable income is sort of like the gain that um that the government is going to make of you paying your tax and it's basically income versus minus allowed expenses. But let me just go a little bit um simply technical to to give us now for individuals. So you as an individual taxpayer what are the things that you need to take note of? So individual um taxable transactions under this new tax code. So let's say for example you offramp you sell your crypto for NRA. Basically what the law is going to look at is okay how much did you sell the crypto and or how much is the selling price versus how much is the um

acquisition cost. So how much did you get the crypto as at the time that you got the crypto? So let's say for example if you got one um ETH today how much did you get that one ether versus how much did you sell it? So when you sell that the calculation is that it's going to be calculated generally under capital gains tax. If you just bought and hold there's no tax until the time that you dispose of it. So disposal is what we call selling on the times that you that you dispose of it you sell it. So if you do if you sell crypto for ner 10% capital gains tax from finance act 2023. If you do even a crypto swap, let's say you shift from from ETH to to to Solana, you move from Ethereum to Solana,

effectively that also applies at that point. What is the market value of the crypto that you are receiving versus what is the basis that it is giving? So, if you're recording a loss, then for example, you're recording a crypto loss. Um, one thing that you need to put at the back of your mind that you can only make that deduction from a crypto transaction. So maybe you have a day job and you also have crypto as a side hustle. um you cannot make losses in we'll come to deduct deductions much later but basically if you're swapping from one cryptocurrency to another cryptocurrency you are supposed to take record of that and then know that okay it is taxable generally right now all of the things I'm speaking is generally specific use cases like every case may

be unique in its own application of the law but then generally this is what will generally apply so it's taxable so if you're doing crypto swaps maybe so for every single Maybe you just even think, "Oh, I just need to move from USDC to USDT." As simple as that may be. Um, even though yeah, they're all stable coins, but the law envisages a moment where those are direct crypto swaps that will that may be taxable under capital gains tax and you are looking at generally 10% or of the gain that is coming from that. Then also, if you're paying with crypto, as we said, what's the market value? That's what's the narrow value of the goods or services that you're receiving. And then what's the cost basis in terms of the crypto scent and in terms of the application

within Nigeria I don't know if all of us who exist most of us we think of we think in terms of dollar terms um that's something that we always joke about when I retrieve it we say we don't call money in naira but effectively if you're going to be dealing with Nigerian um tax code and the Nigerian tax law you have to every single thing will be converted down to the narrow basis for it and the nar basis that to be converted to is using generally exchanges that already accredited with the securities and exchange commission the SEC. Those are the rates that usually would apply in this circumstance. And then also if you are receiving crypto as a salary or you receiving it as payments for example that would be that that would also be

something that would fall under tax consideration. So what what is the value of what you are receiving? So what you're receiving would be subject to personal income tax P. Uh we're going to look at the rates in the in the next slide. So also if you're involved in sticking that means if you're sticking your crypto for on on protocols or you are mining all of those things are also going to also be taxed also air drops and bounties. Um so the federal government ament is looking at um all of these things. Um yeah favor your hand is up. Okay. Um, I don't know. Can you just shoot the question? Even though there questions later, but just shoot the question.

Okay. Oh, maybe that was okay. It's a mistake. Oh, okay. Then let let me just move on. So, basically, these are the broad cases where um your individual crypto use can get taxed. So, but if you think about all of these things and you sum it that that basically means that almost every transaction that you do is a likely has likely tax implications. So even even if like the even if it is NFTs that you are dealing with even if you are just um disposing of any digital or virtual asset it can be considered as that is a crypto asset that is being sold either for nera or for for dollars or you are swapping between one crypto

asset to another crypto asset but generally these are the things that concern you um as as an individual. So let's just take okay um for this individual tax rates this is this is the tax rates that we're going to deal with um while I see your question I'm going to respond to it um towards the end I know it's a question like from seeing the question I I get it a lot so these are the individual tax rates that um apply to us as individuals so for the first 800,000 you are taxed at 0% and then for the next 2.2 2 million you are taxed at um 15%. So 801,000 to 2.2 million is taxed at 15%.

Uh one of the most interesting things is if you go through if you remember the last presentation the last speaker that spoke before me he said that we need people that can build protocols that work for tax and we are going to do a small experiment with that just here with looking at this individual tax rates. So um then for the next 9 million um for the next 9 million is going to be taxed at 18% 21% 23% and then the highest that you can find in Nigeria regardless of the level of income that you will have the tax rate is 25%. So that is still comp comparatively lower to some other countries that you see around the world. For example, I know that the UK has a progressive, this is called a progressive tax rate. And the progressive tax rate in the UK goes up

to as high as in some instances up to 45%. So, but in Nigeria, the highest that um our individual tax rates apply is 25%. And then this tax rate is annual cumulative income, so not monthly. So, it's not that, oh, if I'm earning 800,000 NRA monthly, then there's 0% tax. No, 800,000 NRA over an entire year. I think I was reading I was part of a conversation and someone was like everybody like a lot of people celebrate 800,000 but don't realize the implication. You could just pull up your calculator Andrew 800,000 divide by 12 then you realize okay the moment I'm earning above this money there's a particular tax that I must pay. So if you're earning anything total cumulative

over the 12 year period above 800,000. So even if you're earning 801,000 that's just barely I think if you do the calculation it's still below our minimum wage. It's a very very interesting law. Why say an interesting law is because I look at this tax rate I look at some of the exemptions under the tax under under this law you get to realize that oh some of these exemptions the way they get to work does not even correlate with some of the other provisions of the law. But that's also another headache that we'll come to look at much later. So I'm just going to give us a simple assignment. Um if you finish this calculation you can just put it you can just put your response in the chat box and we're going to look at that much later. So if you earn 15 million naira yearly how much

would your tax be just think about it and look at this. So this is more like personal income tax and you're earning 50 million naira annually. So every year when you're getting 50 million how much tax do you think you the government would want you to pay? Don't worry just just do it. I call it a teaser just so that so that you understand that there's a trap in there and that's where we need automated systems that can come and help us do the calculation and if you watch a lot of movies you get to realize that um dealing with dealing with with the tax can be quite can be quite taxing itself.

So uh an individual example now so an individual tax example this is a retail trader you're a trader that exist within within this ecosystem and so let's just take for example let's say your name is Chinedu and you bought Bitcoin worth um 2 million naira in March this year and then 8 months later which is like November next month you decide that you you want to sell it and then you end up selling for like 7 million naira that's the fact of the case now So we're looking at this as an individual example. I just want to put you so that you can begin to think in that mind. And so basically your chargeable gain what's what's what the law is looking at. Okay. Um John pay you two. Okay. We'll come to that. Uh so

basically your competition is the proceeds that you get. You bought it at 2 million. You sold it at 7 million. The proceeds that you get is um 7 million minus 2 million. That's that means your gain is 5 million. So on this gain capital gains tax because you sold this at 7 million and you made a gain of 5 million you owe the government 10% of of of this 5 million which is your capital gains. That's broadly speaking. Okay. So what you're expected to do is that you go to your state internal revenue service and then you file a capital gains return. And when you are filing that capital gains return what you go with to the state internal revenue service is the proof of purchase. So you

come with a receipt of okay this is how much I bought this I bought bitcoin and I bought it at 2 million naira this is how much I sold it at this is the gain that I made in between so these are the dates this is the amount and so that they when they assess you they tell you oh okay it's is 10% 500,000 is what you owe and you pay your 500,000 example number two is let's say Messi is a freelance developer and she receives payment 0.58. The worth might be definitely more than this, but just as an example, it's worth 1.2 million for a a a freelance work. Now, at the time of the receipt of the money, it was it was

worth 1.2 million naira. This 1.2 million NRA is taxable income subject to personal income tax. So, personal income tax at the rates that we showed previously where you looked at it progressed from 800,000 up to 50 million naira. Those are personal income tax rates. Now the so and like we said it can go up to 25% depending on the total income um or on the total income level. But now if Mercy that received this payment of 0.58 which is worth 1.2 million NRA at the time that she received it that means with a tax obligation of 300,000 naira uh at that rate. If she later sells it at 1.5

million naira, that means she held on to the 0.58 and then later decided that she was going to sell it and then she sold it for 1.5 million. That means it's appreciated. So she gained an additional 300,000 gain on it which is subject to it. this additional 300,000 that she gain is subject to capital gains tax because what is going to be calculated is okay look at um this and say hey 300,000 um 1.5 million minus 1.2 million 300,000 10% is your capital gains tax,000 so when you go to the tax office at the end of the reporting year and then you say oh okay the total income that I made this year is 0.5 at the time it was 1.2

2 million naira and then when I eventually sold it I sold it for 1.5 million. So I made a total is going to be calculated instead this 10% of the capital gains plus whatever applicable tax rates at the personal income um at the personal income tax rate. So that will now be combined and that will be the amount of tax that the person would already pay. So our brain teaser we said um if you earn 50 million naira how much would your tax be? So if you're looking at that and I think we have a we had a response in the chat and she said the tax is 2580.

Well um someone might say okay why is that? We looked at the the the several tax rates just a while ago and I'm looking at 15 million. 50 million is within this this bracket is within this tier. It's under tier four. So under tier four of the next 30 million up to 25 million is charged at 21%. But basically that is not how tax calculation works. So let me just scenario example of how tax calculation works. Um I remember when I when when I was in the university I were doing I were taking this course. This was like the most this was a very confusing type of mathematics. But let's try our best.

Let me try my best to sort of like just walk us through how you calculate your tax as it relates to this individual thresholds. Um I know you shared in the chat a a simple calculator, but sometimes you might need to do the calculations on your own simply because you need to do some deductions on it. So this is how it works. So let's assume an individual has a charitable income of 50 million naira per year. Here's how the tax will be calculated for the first 800,000 in that 50 million. So we take out 800,000 from that 50 million is going to be charged 0%. So you're going to be charged 0 NRA. So the next tier now because he still has a balance that is left we move to the next tier. So wherever that calculator that the

platform that you went to that did that calculator this is the algorithm that is working behind it. So for the next 2.2 million up to 9 million is charged at 15%. So they they remove out of the remaining balance of dischargeable income. They remove out of the remaining balance and say okay 15% of that balance that is left is 330,000 naira. That is that is the 15% out of that fraction. What is now left also moves to the next year. And in this next year is this next year is charged at 18%. And this 18% now is drawn up to the 1.6 million. I'm just giving a very very basic explanation but these are some

things that we can easily do and impute into into smart contracts. So the remaining portion falls under tier 4 that is 30 million up to um 25 million. So this income is up to tier three. So if you do 800,000 plus 2.2 + 9 million gives you 12 million and the chargeable income is 15 million. So that means the person still has a balance of 3 million that is going to be taxed at 21%. And then this 3 million at 21% is going to give you 630,000. So tier five and tier six does not apply because there's nothing left for it to be charged at that tier. So the total tax payable by that person is not going to be 1% of this chargeable income of 15

million. But it's going to be okay at each of these rates cumulative to it. So zero from tier 1, 330,000 from tier 2, 1.6 from tier three, and then 630 from tier from tier 4. So cumulatively, if you have a chargeable income of 15 million, your tax your tax liability is 2.580. So basically this is how we calculate tax. So here you can think of it in terms of if you're trying to be prudent in your head, you can say okay, I know that if I just think about it as 21%, 21% is definitely more than this 2.5. So if I can just leave out 21% of my income, I can pay my taxes and I'll still have small change that that comes from my taxes. Yes, that you can do and

that is something that um I I strongly advise and recommend. Think about it that way so that when you not pay your tax, you always come back with change in your pocket and you're not left with extra penalties for you to pay. So deductions, exemptions and penalties. So this is not for individuals. So for individuals you are basically allowed to deduct from your taxable income not from the tax rate from your taxable income. If for example you consider platform transaction fees you're allowed to deduct it. So if it comes down to okay this is the final money that you get how much did you how much did you pay for transaction fees you can deduct it. If you paid somebody let's say you paid me as your lawyer now I say oh let me do some legal work for you that relates to

this particular income you can deduct that also from your taxable income and then also what what other cost so let's say for example if you are mining what's the cost of you getting electricity what's the cost of you getting internet so all of the cost directly related to that crypto income you can deduct but you cannot deduct from another um another income source so let's say for example if you're also um a doctor that works in a hospital and then you also have crypto income. You cannot take you cannot make deductions based on things on expenses that are related to your hospital salary. Just as an example, another exception which is also very interesting is if you have personal like personal chart so cash that that

wouldn't really be factored in that after you pay the tax on personal that is less than 5 million naira you're allowed so sort of like the law allows you to hold a personal cash of like 5 million naira max and then also gift if someone gives you a gift you get drop air drops are gifts or or you win bounties bounties are gifts generally those bounties and those air drops are not do not incure tax liability upon earning them. So let's say for example um a a new protocol comes in and then they do an air drop and after the air drop you get a certain percentage you get some money from that air drop you are not going to pay immediately on that particular air drop until the moment

that you dispose of it. So when we talk about disposal event is until the moment you swap it for another crypto or until the moment you sell it for naira until the moment you use it to pay for a service. Those are the times where you would now have to keep track of that conversation or keep track of that transaction and then uh make your make your deductions off it. Also the law also allows you to make this is an exception. So it's a special exception principal residence exemption. Now this this can be quite complicated but then it's a it's a it's a once in a lifetime ex um deduction that you can make on your income. Now this principal residence exemption applies to if you if you get a new house uh the law allows

you to within a tax year to make deductions for the cost that it took you to set up your house. So if you're setting up a house the that as your principal place of residence you can make deductions to reduce your tax income because you are contributing to housing. So that's like the rational behind it. But basically um the law only allows you to do that once in your entire lifetime. So it's not that oh you say okay I'm building 10 houses for each of those 10 houses that happen in 10 different years I'm going to be making deductions. No no you're not going. just once for one property and then once in your lifetime. That's that's that's what the law understands. Then now the penalties. So if you fail to to file your tax returns. Now let me let me just

put it this way. It it is everybody's personal responsibility to pay tax. So it is not the government does not need to send you a reminder or send you an email or threaten you or send um or send lone sharks to be calling you or post your picture on Facebook. The government does not need to do that for you to pay your tax. You are expected as a as a citizen to every at the end of every assessment period at the end of every financial year. Nigeria's assessment period is January to January to December. I'll discuss more of that in um towards the end. At the end of every assessment period, you are expected to go by yourself and file your tax returns so that you get your own tax clearance

certificate as an individual expected to do that. So you should do it to re for you to remain compliant in in front of the law. Simply simply put that way. If you don't do that, there are penalties. So the failure for you to go and file your tax is you pay 50k as a general fee plus 25k for every month of default. So if you've not been paying for 3 years, they calculate okay um 3 years is 36 months. 36 months um 36 * 25k. So for every single month that you refuse to pay um there's a 25k penalty on it. And then for the tax rates that you are supposed to pay that you didn't

pay, there's going to also be a 10% interest that the government is going to charge on the fact that if you had paid us, what the government is saying is if you had paid us at the time that you had paid us, we would have made 10% off of the money that you paid us. But since you didn't pay us, now you have to pay the 10% interest rate on it. And also, if you go to file your tax returns and you file false information, um the fine for filing false information is is 10 million naira. So you're expected to take note of all of your income, your expenses and then keep all of those transaction records. But then when you now file information and you file wrong information, the fine is 10 million naira. And also it is also a criminal offense for you to make wrong reports or

for you not to also file. It can attract criminal liability and attracting criminal liability you could get up to three years in jail. So um if you don't pay tax there are instances where after collecting the fines you still do jail. So but just remember that every deduction that you're doing lowers your taxable income and does not affect your tax rate. So that is that that basically is it for individual um tax liabilities. Now I'm going to talk for companies because many of us are going to sort of like have companies. Um, but before we do, I think let me see if I've answered the question in the chat box at here.

It's a good place to to pause and then look at one or two questions before we continue. So, my wife is asking, "How do the tax regulators track all these crypto income if crypto wallets are not connected to banking and payment systems?" Good. Um, I'm going to come to I'm definitely it's definitely part of my presentation. I'm going to answer your question on that. Okay. The tax is calculated based on annual income, but it's paid or filed monthly. No, it's filed yearly. Your your personal tax except if you work, you're expected to keep records of it and then you pay at the end of the year. You can also choose to go monthly, but if you work for a company, the company is also supposed to receive monthly from you and then put it together and then pay on behalf of

everybody. Um there are a lot of things around that. Then also if you file monthly, yeah, you can you have the option of filing monthly instead of you drawing up a a a yearly deal. But it all depends on you. Good. This is a very good question. What if there is no gain? In case there is a loss, if there is a loss, the law allows you to make deductions. So let's say for example um you have you have you have Bitcoin, you have Ethereum, you have Solana. All of those are tokens that you have and then you made losses on maybe let's say okay bitcoin crash ethereum crash and then you made losses on those on those two two transactions you are allowed to make deductions if you made a gain from Solana for example so if you made a gain from Solana since it's still within the

same crypto um space you are allowed to make your make deductions up until so losses are deductions that you can remove so if you made losses you can deduct them from any other gain that you did if you don't make any gain within a financial year and you have records to prove that okay throughout this financial year I was in red I never made any profits I never made any gains this financial year I only I only racked up losses you the law allows on special constitutions where you can carry over losses for a certain period of years you can carry over losses into another new year um for for for for a certain period of years that that's something that that that is also allowed. Um,

okay. So, what what about crypto transactions and personal income that happened before January 2026? So, something that you need to know is that right now this is the financial contemp. So, basically um it's every like applies to the extent of like the law is getting uh gets into effect in 2026. it will start working from 2026. Laws generally do not apply retroactively. They apply progressively.

Okay. So if the assessments the assessments that will be done in 2026 is for the financial year of 2025 and that is when the new law would come into place. So for every single assessment that happens within this financial year can be carried over. I may be wrong on this but I to the best of my knowledge this is how it's going to apply. So your income for this year will be carried over into the as at the time that the law gets applied. Then now for companies, so for all of us who have startups who have companies that are registered within Nigeria, this is tax implications for companies. General overview. So generally companies either an exchange, you are a custodian, you are um an operating platform, you are even if you own a mining league, all of

them are considered as VAPS. So you're a virtual asset service provider and as a virtual asset service provider you're subject to what is known as company income tax CIT on all of your profits. Okay. And the standard rate for CIT is not progressive the same way that we have for personal income is standard at 30% unless you're a small company. So with the moment you you hit the minimum requirement for you to be able to pay tax as a company 30% of your profit is your tax. So um we will definitely come to practical examples on that um in subsequent slides. Then um number two, capital gains tax is also applied if you as a company. So let's say for example now um where three bridge as a company

owns some some ETH or or Bitcoin the day that three bridge decides to dispose of those assets you are going to definitely pay capital gains tax on it as a company. So it also applies. Then the standard rate I said is 30%. And then small companies. Now the law classifies people who have a turnover a yearly turnover that is less than 50 million to be small companies. So if your turnover for for that particular year is less than 50 million um you pay zero um company income tax. But if your turnover is more than 50 million um then the standard 30% apply. But then additional to the application of the 30% is also an additional levy known as 4 4%

development levy that every company in Nigeria pays. So what this money the law expressly states that is used for three reasons for education to develop our education. Part of it is what goes to like pet fund that you see in Nigerian tertiary institutions tertiary institutions and then also technology development. So for the company for the country to be able to have money to fund um technology R&D and then also security development those are the reasons why you pay this additional levy. So outside of the 30% so for every company basically when you are paying 30% effectively you're paying 30 plus 4. So 34% as your standard company income tax that's what you are paying every year um except you are a small company. Then now for compliance purposes um so you need

to just know every person that operates as a VAS or even if you don't operate as a vas but then you're operating within Nigeria and then you do anything that touches on what the law defines as responsibilities for VAS you must register or incorporate your company with the CAC you must register with the FIRS um you must also register with EFCC and you must also reg obtain your licenses and your certificates also from the securities and exchange commission the SEC So this just takes us into a straight example of or of of a company. So let's say for example you digital asset exchange platform and then this crypto exchange platform um let's let's say maybe let's call it blockage limited for

example um you're a Nigerian crypto exchange and then you earn 100 million naira um in trading last year. So after deducting 60 million which is like your operating cost and expenses for doing your business um you're left with an accessible profit of 40 million. Now the company income tax that applies which is 30% is 12 million naira. So from the accessible profit this is before you begin to share dividends to your shareholders and everybody. Um because um dividends is not part of your expenses. You're not you cannot deduct dividends before paying tax. You deduct dividends from what is left after you've paid your tax. So um the accessible profit is 40 million. You remove 12 million that belongs to the government.

You also remove an additional 4% which is 1.6 million that also belongs to the government. So your total tax as a company that um made a revenue of 100 million within a financial year is like 13.6 million. This is general rough estimates. I'm just giving that um as an example so we so that we just have an idea of or of of how this thing works. Like I said every particular every particular situation, every case, every individual, every tax um every tax limits that you have, there are some peculiarities for every person on on an individual basis. A second example is if you're a startup that has mixed crypto and fiat income. So let's say you're doing a business that okay people pay

you in crypto and people also pay you in in fiat and then what you are doing you're providing in this particular situation let's say you're providing um blockchain consulting so you're a consulting firm and then you earn um 30 million naira and then 20 million also as as advisory fees and you also realized a 5 million naira gain from you holding Ethereum. So your total accessible profit is 55 million. Then now you look at okay how much um expenses did I make? How much capital allowances? So capital improvements I made within my office how much capital allowances am I allowed to the extent of the profits that I made. So we say 35

million 2 million this is just an assumption you deduct that from this and then you have what is left as a total taxable profit of 80 million. So when you do the calculation of the company income tax plus the levy that's 30 + 4 with the tax that you are going to pay to the government it's about 6 million out of the um 80 million uh profit that you made. So for you as a company now for the person that asks how do the government know this one are the obligations that all VABs now this is very this is going to what I'm going to say now going to be very crazy is that as far as you are registered in Nigeria as a virtual asset service provider you're expected to to maintain all of

these records. So for every single person that is operating in Nigeria as a as a virtual asset service provider you're expected to maintain transactional logs. So the dates, the types, the value, the counterparties, the fair market value as at the time for every single transaction and the fees that you collect. That's that's one first record that you must keep and maintain. The second record that you must keep and maintain is you must maintain public addresses and then custodial and non-custodial um wallet addresses that you have and also what are balances. So if you are a platform that um that that that the wallets are not cost to the higher cost but you must just keep your you must keep all the

public addresses of the wallets that that your place and the balances of of those wallets that deal with your platform. Then also for you as a company that is a that is a vase you must do robust KYC. Now previously we used to advise people to do KYC simply for AML and CTF compliance. So anti-moneyaunderry and and counterterrorism financing compliance that's what we usually um advise people to do. But with the coming of this new tax code this um the Nigerian tax act and the Nigerian tax administration act you are now doing KYC for the purpose of tax also you are not doing KYC strictly for AML and CTF compliance. You're doing KYC for all your customers. You must do

KYC for all of your customers. And the law is explicit in the type of things in type of information that you must collect from your customers. You must collect their personal details. You must collect their basic information. Now when this gets in place, yes, when this gets in place, all of these you are supposed to keep those records for at least 7 years. 7 years preceding that date. So if the law is taking effect from next year, you start keeping records for at least seven years. And if we look at for example like Nigerian data protection act the um NDPA the NDPA also gives us the rights to if if you if if you for most of the products are building you see okay under terms of service sometimes you see terms of use

and there is a privacy policy. In privacy policy you will see where companies will tell you that you have a right to data erasure but then your right to data erasure is only within the allowed limits of the law. So usually for most circumstances the rights to data evasure happens for for you to keep records in some cases for three years in some cases for five years in some cases for seven in some cases for 12 depending on the industry that you are working in. For the crypto industry what the law sets is that you have to keep all user records particularly their KYC records for seven years. So even if someone um even if out of your own personal right to data erasure you write to the company you tell the company hey I don't I want you to delete the data that you have

about me from your platform the company by law is mandated to keep it for seven years before it is finally deleted. Um so you also keep financial records so audited statements, asset registers, capital allowances and then you also keep your compliance records. So your tax returns, your SEC certificates, your school certificates, um your CAC clearances, you keep all of those things. Now to answer the question of how the government can be able to track all of these things. That's one of the main reasons why we see a lot of crypto platforms are leaving Nigeria is because part of the Nigerian law that says okay for you to be able to apply for you to be able to work in Nigeria, you need to keep these records and then you also not just need to keep the records you also need to submit those records to the

government. So for you as a company that is collecting KYC information from your customers, you are expected to submit those KYC records to the government. Um, I think I was talking about this when this thing first came out. I was talking about it on Twitter and I was I was saying the one way that the government is going to be able to track all of us that deal with crypto is through all of the startups that we are building because yes, the government knows that if we are independent and there's no system and they might not be able to find you. They might not know your wallet address and trace you. But simply because all these platforms that you are dealing with that keep that are mandated to keep KYC records for them to have licenses to operate within Nigeria. Keep your records. The government can be able

to do a tracing between this is this wallet address from this platform, this platform, this platform. This wallet address belongs to this person. This is the transaction history of this person across all of these platforms. So they can be able to do independent assessment. Yeah, it's a whole chunk of data that they are collecting and to the best of my knowledge I don't know if the government is building any systems that will help them to be able to do analysis of this data to be able to provide but then if there's anything I don't put past Nigerian government is when you owe the government money Nigerian government knows how to follow you to collect their money so that is one of the main reasons why this law exists and when you look at companies that say oh we cannot do this the company will send you a notice and

tell you we're discontinuing our service in Nigeria we cannot operate in Nigeria because of ABCDE E. Now it is good to operate in Nigeria but then these are all the downsides that you need to consider and then we begin to explore things like okay if CK comes in because all of this information that collecting about people really it is so much information that be so much information so much personal information that we really don't need to have at the hands of companies that will now be transmitted to government but then that's a whole lot other conversation where we talk about blockchain and and privacy that everybody's complaining about globally but basically if you want to register your company as a as a virtual asset service provider for it to be able to get a license to operate either as an

exchange or as a custodian or as a as an operating platform or as an interface. So basically anything that you are building that has to do with crypto you're expected to get a VA license from the SEC and for you to be able to do that these are all of this like a simple rundown of the steps that involved it's a very complex process but then as simply as put this is it. So the first step is to incorporate your company with the CAC. So you include that you you include crypto business in your objectives. Now this one disconnect I'm going to speak now from practical experience. This one the disconnect between all of these different agencies that we have in Nigeria and the fact that these agencies though they exist in Nigeria. I know that we are streaming this platform and we are streaming this

conversation and it's going to be available publicly. I'm going to say this because it's a pain point, but then as much as a pain point, it's also something that people are that that we're missing out a lot on. If you attempt to incorporate a company in Nigeria right now, I say it authoritatively, and you include that you're doing anything crypto or or or blockchain related in your business objectives, CC is going to reject that application. And that is one thing that has been helping people except you go specially to CC. But if you're doing the general route where every other person registers companies, CNC used to query those applications and send it back.

They tell you you cannot incorporate companies with this this as part of their objectives. But then the law has come in to say okay you are supposed to include crypto business in your objectives. The reason why you need to do that so in most circumstances where we have to do that for people who really need a VAPS license you have to actually approach the CAC directly and submit a formal um application for registration not through the normal routes. So extremely complex. It's supposed to be easy but it's extremely complex. Then from your from your incorporation with the CAC, you register with the um Federal ILA Revenue Service. Even though right now it has changed from Federal ILA Revenue Service to the Nigerian Revenue Service take effect from January next year. So it's no more FIRS, it's

now NRS. Nigerian revenue um service. So you register with them. You get a tax identification number, a TIN number. And then with your TIN number, usually um okay, sorry, I made a mistake. Step six is supposed to come before step three. You obtain your school certificate. This certificates is going to be get it from the EFCC. So you obtain your school certificate that shows that you're AML and CFT compliant. Then you now approach the SEC through the ARIP portal for an initial assessment of your company and most and these documents that you already have gotten from all of these different government agencies. And when you when you approach the platform and you make your submissions, you get you obtain an approval in principle and

which is valid for 12 months. In that 12 months is usually where they make a sandbox of your business before you transition into um full registration. So they s like they give you approval in principle you can operate. We're looking at your business and after 12 months we'll decide if we want to give you full a full license or if you do not meet for us to give you a full license. So that's basically it for the steps. Now in terms of like filing deadlines and procedures when and how to file your returns um for companies you're supposed to file returns within 6 months of the accounting year. And then for individuals even if you file even if you pay your tax smoothly you still definitely need to go and file an annual returns. So if you if you pay your tax monthly people

it's not you're not going to get a a yearly tax clearance certificate that that's really given annually. So you keep getting the receipt of payment of your tax up until the end of the year. And then when you now come and you submit all of those um individual receipts of your returns you get your tax clearance certificate. And usually for individuals is the accounting year is January to December but then you have a filing period between January to March 31st um or of the following year. Then for VAPS you expected for VAPS to file with the SEC monthly returns or um there are monthly reports that you file within your 12 month assessment period or even afterwards. And then also because of

your CTF, your CTF rather um CTF and antimoney lottery compliance, you're expected to to make reports on any large transaction that happen within your platform. So it may be a large transaction or a suspicious transaction. If it is for suspicious transactions, you're supposed to make um you're supposed to file within 48 hours. But it's for large transactions, you can leave it to file um at the end of every month. And then for you when you're going to file you need your audited statements you need your tax computation you need the evidence of payment of your tax and then you need attestation by the principal officer. So that's usually for companies. Now um for individuals also you just need mo mostly your statements

um so your statement of income and your statement of expenses and how you are calculating it. If you go to all of the states um in internal revenue services they're going to help you do assessments. Um I just realized I didn't cover residencies in this particular slide. That's another whole conversation for to determine where exactly you should pay your tax. If you are a nomad, you move a lot. Um the law requires that if you stay in one particular place for up to 100, I think it's 163 days, you should that is the place that you should pay your tax for that particular year. Um then consequences of late filing. So also for companies as well as for individuals their penalties as we've discussed for the individuals their interest they can be diverse for companies depending on your revenue and

your annual turnover and then also their potential um criminal prostitutions. So basically for you as an individual and even as a startup business I'm rounding up now these are common mistakes that you should avoid. Number one you should avoid ignoring cryptoto crypto exchange exchanges as taxable events. I know that's one of the easiest things that many people would forget that they supposed to take note of and take record of. So if you swap um ETH for USDT before you bring it to Naira, you're supposed to take note of there's a tax event that was there there's a special tax event that was created at the time that you swap from ETH to USDC. And there's also another tax event that was

created at the time that you swap from USDC or USDT to Naira. So there are two separate tax events. It may be in the sequence of one money that you're trying to move across so that you finally have it in your in in your account. But then you begin to realize these are all of the stress of moving money from from DeFi to to to traditional finance. It's one of the biggest challenges. Um also if you use incorrect valuation methods or unofficial rates it's also a mistake that you should avoid. So you're looking at official rates you should look at um rates from I think Quiddax Quidax as a license from the SEC you should you should look at rates that Quidax is offering as just as an example platform. Um also you should avoid mixing personal and business crypto

transactions. So if you're an individual, you have a company, you have a startup, please and please avoid mixing your own personal money with your business money and also avoid mixing your business money with also your customers money. If you are in you custodial services, so you are holding those money on behalf of those persons. Another mistake you should avoid to do is inadequate record keeping. Okay, so your your docu your documentation is not up to date, not standard. You should avoid doing that also. Another thing you should also avoid doing is you should avoid the mistake of not reporting staking air drops or mining income. I know you look at most of most of the time we look at those things as bonus or passive incomes and they were please avoid the mistake of you not basically you're expected to go and report. If you

don't report that is when they can decide to come for you or then now you now miss your filing deadlines. we realize that okay you might be mandated to pay interest pay fines on on on you missing your missing the deadlines and then also for businesses also avoid operating without an SEC license. So basically as we said what happens if you don't comply um for businesses tax audits happen currently by the FIRS but then from next year is going to be the NRS and then also financial penalties 10% of tax plus interest and administrative fines that can go as 10 million naira I said that also and then finally um also criminal prosecution of up to 3 years imprisonment with up to 20 million fine this is usually mostly in

terms of company situations and then also um you can have SEC C enforcement where they suspend or revoke your license and ban your ban your business. So you're operating, you have a successful business. Every day you're on Twitter announcing, "Oh, our business made a traction or we just processed 10 million US dollars in transactions. The SEC is watching particularly they're just waiting for you when when it comes for for the for tax master to knock on your door. I'm very sure that for next year we are going to see a lot of interesting situations that are going to happen. And then also um because you now have that special SEC license that allows you to be able to open bank account based on the CBN guidelines of December 2023. Um you can have where your assets get seized. So your bank

accounts can get frozen, your BVN can get frozen across platforms. Um you can also have where people are existing as VAS and then in where where the platform is also a custodial platform. You can you the authorities can commit a court order for you to freeze users funds in in their wallets. Those are extreme circumstances but then they can happen. Also the you can also gain reputation loss by the government putting you in newspapers or announcing you on social media as somebody that is not paying his tax as a company or as an individual that is not paying the tax. Mostly companies get to suffer but individuals you might not. So thank you so much for listening to me. Thank you so much for for for giving me this opportunity.