Expatriate tax - Nigeria

Work visas are required to carry out employment duties in Nigeria and there are penalties and interest for breaching of the visa conditions. There are two types of employment visas in Nigeria – Temporary Work Permit (TWP) & Subject to Regularisation (STR) Visa. 

However, we would recommend consultation with an immigration specialist for proper advice (Grant Thornton Nominees Limited- An affiliates of Grant Thornton Nigeria). 

The Nigeria fiscal year runs from 01 January to 31 December.

Nigeria operates a self-assessment system where every taxpayer is expected to file annual personal income tax returns by disclosing all the income earned and derived within a tax year to the relevant State Internal Revenue Services (SIRSs) on or before 31 March of every year.

Nigeria operates a progressive tax rate system where individuals are liable to tax according to total taxable income.

Consolidated Tax Relief Allowance is granted to every taxable individuals before the taxable income and application of the tax rate band. The relief is granted as the higher of ₦200,000 or One Percent of Annual Gross Income, plus 20 per cent of the Annual Gross Income.

Note: Annual Gross Income is the total gross emoluments less all statutory reliefs, tax exempt income and deductions.

Resident & Non Resident Tax Rates Band

Tax residents of Nigeria are taxed on worldwide income while non-residents (Foreign residents) are taxed on income received or derived in Nigeria PITA S.10(3).

An individual is a resident of Nigeria if he resides in Nigeria for a duration that is not less than 183 days in any 12 months including the period of annual leave or temporary absence, the employer is resident in Niveria, and doesn’t pay employee’s income tax in another country. The expatriate is taxable to employment’s tax to the State Tax Authority where he/she resides.

Taxable income from employment are salaries, wages, bonuses, allowances, and other benefits arising under the employment except for reimbursement for expenses incurred by the individual when discharging his/her employment duties.

Employment income is expected to derive and accrue in Nigeria, so it is taxable in the state of residence of the individual.

Employee’s fringe benefits are valued and added to the annual employee’s emolument, both are subjected to Pay-As-You-Earn (PAYE). Benefits-in-kind includes living accommodation and motor vehicle PITA S.3(1)(b). This will not apply to the provision of meal or luncheon vouchers for the general staff and the provision of any uniform or protective clothing.

Expatriates are also allowed to enjoy consolidated relief allowance on their employment income.

Nigeria has Double Taxation Treaty (DTT) with other countries. An individual liable to tax in Nigeria and any other country in which Nigeria has a DTT will be taxed based on the provision of the DTT. Where foreign tax has been paid this shall be taken as a credit and restricted to the lower of the foreign tax suffered against the tax payable in Nigeria PITA 38(1).

The taxpayer should seek advice on the application of the DTT.

All tax deduction against employment incomes is allowable if it is wholly, necessarily, exclusively and reasonably (WREN) made for the purpose of the employment income PITA S.20(1).

Individuals working in Nigeria are subject to Personal Income Tax Act. The employer shall withhold tax on commission, fees and any money paid to an expatriate and remit monthly to the state tax authority where the employer’s office or business operates PITA S.73. All employers are required to file annual report of PAYE withheld with the relevant state tax authority on or before 31 January of every year.

Nigeria has a capital gains tax regime; Nigerian residents are liable to gain on chargeable assets worldwide. Chargeable assets include options, debts, incorporeal property, currency other Nigerian currency and any form of property and gain created by the disposing of it (CGTA S.3). Any gain made from a chargeable asset is treated separately and liable to capital gain tax at 10% CGTA S.2(1).

Temporary and non-residents are liable to capital gains tax on gain that arise in Nigeria and gain or part of gain received or brought into Nigeria CGTA S.4.

Payroll tax is a state tax, and rules vary with each state. Generally, tax is levied on salaries and wages, allowances, superannuation, and fringe benefits provided to employees located in that state.

The key obligations are:

• Employer must register for tax purpose with the relevant state authority and also register its staff for payroll tax PITA S.81.
• Payroll tax is collected and paid monthly, and annual returns will be done at the end of the year on or before 31st of January.
• Penalties and interest charges apply to late submission of calculations and payments.

Superannuation is a form of compulsory employer pension, which is currently at the rate of 10% and 8% of Basic Salary, Housing and Transportation Allowance for employer and employee respectively (Pension Reform Act S. 3(4)(1)). The employees have the right to choose their superannuation fund administrator and can move their account from one pension fund to another fund.

Note:

• Superannuation is calculated, withheld, and remitted monthly to the Pension Fund Administrator (PFA) not later than seven working days from the day the employee is paid his/her salary.
• Expatriates may not maintain pensions in Nigeria.
• Pension contribution is non-taxable income.

When employee is disengaged and unable to find work after four months and he is less than 55 years, he can apply for 25% of his pension contribution while the Fund retains 75% of the pension until the employee reaches 55 years.

Benefits from employment related to share or option are liable to personal income tax. The employers are expected to deduct the PAYE on the difference between the market price and the excise at the excise date and remit to the relevant state tax authority (Lagos State Internal Revenue Service (LIRS), Public Notice on Taxation of Employee Share/Stock Option.

Expatriate should seek proper advice because the income may be exempted from Nigerian tax.

Employers are required to insure against compensation claims by its employees for personal injuries or disease sustained in the course of their employment. ECA, S.33(1). The employers are required to make monthly contribution of 1% of their total monthly payroll into the employees’ compensation fund under the management of Nigeria Trust Fund Management Board and regulated by the Federal government.