Navigating Nigerian Blockchain & Crypto Regulatory Landscape for International Crypto Companies
The burgeoning Nigerian Blockchain and Crypto market presents exciting opportunities, but also necessitates a clear understanding of the evolving regulatory landscape. This article delves into the local and international guide, and their implications for crypto and blockchain businesses operating in Nigeria.
The following regulations will be broken down in this article -?
Understanding Significant Economic Presence (SEP) and 2019 Finance Act
The SEP (under the Companies Income Tax Act (CITA) Section 13(2)(C) establishes a framework for determining a NRC’s (Non-Resident Company) tax liability in Nigeria while the Finance Act 2019, elaborates more on the SIgnificant Economic Presence (SEP) Order 2020.
Find below key areas as it relates to Blockchain and Cryptocurrency Businesses in Nigeria:
Determining if you have a Significant Economic Presence in Nigeria-?
If your company earns more than N25 million (or its equivalent in other currencies) in a year from various digital services provided to Nigerians. This includes streaming or downloading digital content like movies and music, collecting and transmitting data from and to Nigerian users, offering goods or services through digital platforms, or acting as an intermediary between suppliers and customers in Nigeria.
2. Nigerian Domain or Website
If your company uses a Nigerian domain name (.ng) or registers a website address in Nigeria.
3. Targeting Nigerian Market
If your company purposefully and continuously interacts with people in Nigeria by customizing your digital platform for them. This can include setting prices in Nigerian currency or offering payment options in Nigerian currency to cater specifically to Nigerian customers.
Tax Implication of having a Significant Economic Presence in Nigeria-?
Following the establishment of SEP and its elaboration in the 2019 Finance Act, the tax implications for blockchain and crypto companies operating in Nigeria are as follows:
This applies to profits generated from activities like facilitating crypto transactions, offering crypto-related services, or earning interest on Nigerian user deposits and is taxable at the current Income Tax Rate in Nigeria.
2. Value Added Tax (VAT)?
VAT is applicable on digital services provided to Nigerian users. This could includes Platform fees associated with crypto transactions, Commissions earned on facilitating trades and any other service offered digitally to users within Nigeria. This is taxed at the current VAT Rate in Nigeria
3. Withholding Tax
For transactions involving Non-Resident Blockchain and Crypto companies, a withholding tax of 2.5% is applicable on the consideration paid to the Non-Residents. This means a portion of the transaction amount is withheld as tax before being paid to the Non-Resident Company.
New Securities and Exchange Commission Regulations
Nigeria's Securities and Exchange Commission (SEC) revamped its regulations for Crypto-Asset Service Providers (CASPs)/Virtual Assets Service Providers (VASPs). The update builds upon the initial SEC framework, aiming to provide greater clarity and stricter controls for the burgeoning crypto industry.
The following are? requirements for VASPs/CASPs in addition to the requirements in the SEP Order?
VASPs (Virtual Asset Service Providers) NEED to be incorporated in Nigeria, MUST be registered with the Nigerian SEC and maintain a physical office within the country. The CEO or managing director of the VASP must reside in Nigeria. The documents required for this are: A formal application for VASPs registration with SEC, Business incorporation documents proving registration in Nigeria, Lease agreement or proof of ownership for a physical office in Nigeria and a sworn undertaking that the VASP will operate a fair, orderly, and transparent market for securities and derivatives offered on its platform.
2. Financial Requirements
VASPs/CASPs must have at least ?1 billion (around $675,000) in capital and provide a current Fidelity Bond covering at least 25% of the minimum paid-up capital. The documents required for this are: Proof of meeting the minimum paid-up capital requirement of ?1 billion (through bank balances, fixed assets, or investments in quoted securities) and evidence of a current Fidelity Bond that covers at least 25% of the minimum paid-up capital.
Blockchain and/or Cryptocurrency Companies that fall in this category include Decentralized Exchanges, Centralized Exchanges, Decentralized Crypto Wallets, Custodials, DeFi Platforms, Platforms for purchase and sale of NFTs, Peer-to-peer platforms, Over-the-counter (OTC) desks, amongst others.
Global Landscape: Crypto-Assets Reporting Framework and Amendments to Common Reporting Standards
While Nigeria is not currently a CARF signatory, domestic crypto businesses should still be aware of these developments. Firstly, Nigeria might adopt CARF in the future, so understanding it now allows businesses to prepare. Secondly, even without adopting CARF itself, Nigeria could be indirectly impacted by the CRS amendments, especially when Nigerian-incorporated Crypto & Blockchain businesses serve Clients in CARF-compliant-Jurisdictions . Finally, CARF promotes a more standardized global approach to crypto regulation, which can benefit Nigerian businesses operating internationally.
Here are the CARF Four Building Blocks:
Crypto-Assets Service Providers (CASPs) as listed in the beginning of this article.
This include Exchange (Converting Crypto-Assets to Fiat Currency (cash) or vice versa), Swaps (exchange of one Crypto-Assets to another) and Transfers (Movement of Crypto-Assets, including Airdrops, Staking rewards, Loans involving Crypto-Assets, Payments, etc).
Self-certification stating tax residency to be checked against other information collected by CASPs during AML/KYC procedures for Individuals and Entities, as well as information on Controlling persons for Entities.
Here are key Amendments to the CRS:
The Path to Compliance: Why Expert Guidance Matters
While this article provides a general overview, navigating the intricacies of the various Regulations, tax implications, and the evolving regulatory landscape can be a daunting task.? Partnering and Consulting with the right professionals experienced in crypto and blockchain regulations is essential for:
Don't navigate Nigeria’s complex regulatory terrain alone. Contact us today to schedule a consultation with our team of experienced Professionals specializing in the crypto and blockchain space at Convexity . We can help you achieve compliance, mitigate risks, and ensure the continued success of your business in the potentially profitable Nigerian Blockchain and Crypto market. Also visit Chainkeeping for all your Nigeria Crypto Tax services.