Crypto exchange KuCoin imposes 7.5% VAT on transaction fees for Nigerian users

Global cryptocurrency exchange KuCoin has announced plans to introduce a 7.5% value-added tax (VAT) on transaction fees for its Nigerian users, effective July 8th, 2024. This move comes amidst increasing regulatory scrutiny of cryptocurrency operations in Nigeria.

The details

• The VAT will apply to transaction fees for all trade types on the KuCoin platform. Only users whose KYC information is registered in Nigeria will be affected, the exchange said in a July 3 email to customers.
• The tax will be calculated based on the fee, not the total transaction value.
• For example, if a user buys 1,000 USDT worth of BTC, a 1 USDT fee applies (0.1% fee rate). The VAT will be charged on the fee, amounting to 0.075 USDT (7.5% of the fee)

Key quote

The email reads:

“We are writing to inform you of an important regulatory update that impacts our users from the Republic of Nigeria. Starting from July 8th, 2024, we will begin collecting a Value-Added Tax (“VAT”) at a rate of 7.5% on transaction fees in each trade for users whose KYC information is registered in Nigeria.”

What they’re saying

• KuCoin told Mariblok via email:

“We have sought the assistance of domestic experts to guide us through the intricacies of Nigeria’s VAT regulations. Their invaluable expertise leads us to meet regulatory requirements while continuing to offer our users a seamless and secure trading experience.”

Context

• This development follows a series of regulatory actions targeting cryptocurrency exchanges in Nigeria.
• In May 2024, KuCoin suspended P2P trading and fast buy services via naira card for Nigerian users in response to regulatory concerns.
• At the time, the exchange said it was proactively adjusting its operations to align with local tax regulations.

What we don’t know

• It’s unclear the grounds on which KuCoin is imposing this VAT charge. The company didn’t mention if the move is part of its proactive measure to be regulatory compliant or a response to direct regulatory pressure.
• Of note: Tax evasion is one of the charges brought against Binance in the ongoing legal action against the exchange in Nigeria. In February, Nigerian authorities detained two Binance executives, alleging that the company failed to pay taxes on transactions conducted through its platform.
• It’s also unknown how KuCoin intends to remit the collected VAT to Nigerian authorities, especially given the current restrictions on Nigerian banks working with crypto exchanges.
• The exchange did not respond to Mariblock’s question regarding its process for remitting the value-added tax.

Background

• Earlier this year, the Nigerian government began cracking down on peer-to-peer trading of cryptocurrency, amid concerns that the unregulated nature of the market makes the naira susceptible to speculation.
• Binance, founded by Changpeng ‘CZ’ Zhao, has been the poster child of the crackdown. Nigerian authorities launched an investigation into the crypto exchange, alleging it of economic sabotage.
• The Binance case is currently being heard in a Nigerian court, with a company executive held in custody since the first quarter of 2024.