Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
By Sophie Martin
Bitcoin is a type of digital currency that created a revolution all over the world as a new financial system. Its disadvantage is that it is relatively decentralised and this coupled with the high return on investment made it a standard investment tool across the globe and Nigeria inclusive. However, new opportunities are also associated with new challenges, more specifically with taxation issues appeared due to the existence of such innovations as Bitcoin. As a result, the taxes arising from the sale of Bitcoin are complex depending on Nigeriaās Laws as well as having its own peculiarities arising from the nature of Bitcoin. This article extends this discussion by explaining all of these tax issues in detail and offering a guide for Nigerian Bitcoin investors. More and more people operate cryptocurrencies such as Bitcoin in Nigeria, the question of how this operation is taxed arises, especially when an individual decides to sell the Bitcoin. Currently, the Nigerian government has set down rules on the taxation of cryptocurrencies and thus, to avoid running into problems with the law as well as suffering penalties, it is necessary to adhere to these rules.
Tax Classification
Ā As at today, in Nigeria the use of cryptocurrencies as a legal tender is prohibited and is identified more as assets than as currencies. This means that any disposal of the Bitcoin or any other cryptocurrency is considered as disposal of an asset or capital control therefore attracting capital gains tax. The Nigerian FIRST has provided guidelines on the taxation of cryptocurrency operation and use following the rise of those activities in Nigeria. Technology is an important component of contemporary society and as such the Nigerian tax system, which is under the supervision of the Federal Inland Revenue Service (FIRS), is gradually coming to terms with the growing phenomenon of the bitcoins and related virtual currencies. Presently, there is no local law or act that is exclusively dedicated to the taxation of virtual or digital currency such as bitcoins. Nevertheless, taxation laws of the incumbent countries pertain to the operation of Bitcoin, primarily with regard to income tax, capital gains tax, and VAT.
Capital Gains Tax
The current rate of tax that is charged on capital gains in Nigeria is 10% of the excess amount made from the sales of an asset. To establish the gain, you deduct the cost of the asset (in this case, the Bitcoin) with the amount of money earned from it. For example:
Calculating Capital Gains: The capital gain is the selling price less the purchase price of the Bitcoin with the view of determining the profit made from the transaction.
Reporting Capital Gains: There is another way through which the investors of Bitcoin need to keep record of the price at which the bitcoins were bought, as well as those that were sold, as this is very useful in the computation of capital gains tax.
Value-Added Tax (VAT)
VAT in Nigeria is regulated under the Value Added Tax Act under which, everyone is subjected to a 7%. Advance tax of 5% on all supplies of goods and services. VAT is presently uncertain with reference to Bitcoin because it is not legally recognized as a good or service in Nigeria.
Goods vs. Services: In this case if the Bitcoin is classified as a good then the selling of the same would attract VAT. On the other hand, if it is categorized as a service, the particular transaction might trigger vat on the commission or service fee offered by a platform that brings about the sale.
Regulatory Uncertainty: Since there seems to be no direct elaborated legislation from the regulatory authorities regarding the use of Bitcoin, it would be prudent for the traders in this currency to seek the assistance of tax advisers when ascertaining the most appropriate transactions to classify under the VAT law.
Tax Obligations
If you sell Bitcoin or other cryptocurrencies in Nigeria, you are required to:If you sell Bitcoin or other cryptocurrencies in Nigeria, you are required to:
- Report that gain on your tax return.
- Make payments of capital gains tax to the gain.
The following documents should be kept as records of the transaction involving proof of purchase and sale. Non-compliance of these obligations can attract a penalty, fines and even prosecution. The FIRS also has the functions of auditing or investigating the taxpayers and seeing that they complied with the existing tax laws. To save the taxes you can run a Trade Bitcon in Nigeria.
Ā
Compliance and Reporting Requirements
In order to operate legally within the Nigerian legal structure, bitcoin investors have to keep all transactions as records which are required by the Nigerian taxation bureau. This includes:
Transaction Details: Alphabetically listing down the date, value, and the form of the transaction whether it is for purchasing of the Bitcoins, selling the Bitcoins or mining the Bitcoins.
Supporting Documents: Maintaining acknowledge records such as receipt vouchers, invoices, bills, etc., to support such transactions.
Exchange Rates: Recording the exchange rate that has been realized at the time of each transaction where transactions are in foreign currency.
This is very important because if one fails to file tax returns either in accuracy or time, they may incur penalties. People and companies pay taxes on their Bitcoin by including their income and gains from such dealings in their tax returns.
Penalties for Non-Compliance
If tax laws are not followed, there are rip hp effects that organizations have to pay for. FIRS levies fines, and in addition, interest charges on the unpaid taxes and other cases, the offender may be charged with criminal offenses. It is, therefore, necessary for those who invest in Bitcoin to know or estimate their tax obligations and to adhere with the Nigeria tax laws.
Tax Exemptions
It is noteworthy that some tax exemptions have been granted regarding operations with cryptocurrencies in Nigeria. For example:
If Bitcoin or any other digital currency is held for one year or more, and sold, then the profit made can be exempted from tax.
Some of the trading taxes that are also applied in this business include capital gains tax but registered traders or cryptocurrency exchanges may not be subjected to these taxes.
Laws regarding these exemptions may change, therefore the common citizen should seek advice from a tax consultant to be on the right side of the law.
Record Keeping
The record-keeping of the cryptocurrency transactions in Nigeria should be accurate. You should keep records of:You should keep records of:
- Purchase and sale dates
- Volumes of buyer and sellers in cryptocurrencies
- Cryptocurrency valuation at the time of buying and selling
- Submission of proof of payment and or receipt
These records will assist you to determine your capital gains tax obligation and demonstrate your conformity to the laws on taxes.
Tax Returns
Taxpayers in Nigeria are required to file annual tax returns with the FIRS. If you have sold Bitcoin or other cryptocurrencies during the year, you must declare the gain on your tax return and pay any capital gains tax due.
Conclusion
When trading Bitcoin or any other crypto-currency in Nigeria, one will be subjected to such taxes as the following:. Thus, if one will not learn the laws and regulations guiding on taxes he or she may land into a lot of legal and financial troubles. maintain proper records of all your profits, report your earnings and remit the amount of tax that is required as per the Nigerian tax laws. It is also important that you speak to a tax consultant to make sure that you are meeting all the specifications as required. While Nigeria remains an overwhelmingly prospective market for Bitcoin and other cryptocurrencies, the government is still in the process of fine-tuning its stance on crypto regulation Therefore, it will always be almost essential to keep abreast of these changes in an attempt to achieve the optimal risk-reward ratio for Bitcoin investment in the country. Through such measures, it is possible to foresee a more sustainable use of Bitcoin and other such financial entities in the world of digital currencies while following specific taxation laws that regulate the trade, consumption and other related activities.
Note: This post is for informational purposes only and should not be considered tax advice. Consult a qualified tax professional for specific guidance on your situation.
Author bio
Sophie Martin is a research-based content writer passionate about crafting engaging and informative articles. Her expertise spans various niches, allowing her to bring a diverse perspective to her content. Her writing provides insightful and informative articles that help readers stay informed and empowered. She got the privilege of writing for numerous platforms on topics like Crypto Exchange, Crypto Scams & Frauds, Crypto Mining, Crypto Trading Process and Anti Money Laundering in crypto. Her priority is to cover the Nigeria Region in all aspects whether its Trade Bitcoin in Nigeria or anything relevant to other crypto domains.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.