Residency rule for expatriates
An expatriate will be tax resident in Nigeria unless:
- the duration of stay is less than 183 days in any 12-month period; including period of annual leave or temporary absence;
- the employer is not resident in Nigeria;
- the non-resident employer bears the employee cost; and
- the employee’s income has been taxed in another country.
The Finance Act 2020 also introduced the significant economic presence rule for individuals. Expatriates placed on expatriate quota are liable to income tax in Nigeria; notwithstanding the duration of stay. On the other hand, frequent business travelers are not confined to an assignment policy, it is difficult to calculate their duration of stay and ascertain when they trigger tax risk.
Chargeable income for expatriate tax
Non-resident employees pay income tax on their worldwide income. Worldwide income means income received within and outside Nigeria; including any salary, gain, profit, benefit, and allowance arising from employment. When an expatriate receives non-cash benefit, for example, car or accommodation, instead of cash allowance, such item is a benefit-in-kind (BIK) and subject to PIT. BIK for asset is 5% of the cost of asset; otherwise market value if cost cannot be determined. Similarly, where an employer pays rent for the benefit of an expatriate, then BIK is actual rent paid. Statutory tax allowances and reliefs available to reduce the chargeable income are:
- Consolidated relief allowance: the higher of NGN200,000 per annum or 1% of annual gross income, plus 20% of annual gross income
- Premium on life insurance policy
- Contribution(s) to an approved pension fund, National Health Insurance Scheme, National Housing Fund
- Gratuities
PAYE tax rates
Statutory PAYE tax returns
- Form H1 shows the names, annual gross income, and PAYE taxes of employees in the preceding tax year. The due date for filing Form H1 is 31 January in the next year.
- Form A is an annual declaration of individual income and claims for allowances and reliefs form. 31 March of the current year is the due date for filing Form A.
Expatriate Employment Levy
Companies that hire expatriate employees in Nigeria are also required to pay the expatriate employment levy (EEL). The EEL card will serve as a passport for the lawful entry into and departure from Nigeria. However, the policy is yet to be implemented.
Next steps..
Employee movement usually creates compliance requirements for the individual in either one country or both countries. During tax audits, the tax authorities collaborate with the Nigerian Immigration Service to determine the actual days that a non-resident person stays in Nigeria. Hence, employers may create measures to spot business travelers and report data. Also, the nature of services that the non-resident employee renders in Nigeria should be analyzed cautiously to determine the tax residency. HR professionals and non-resident employees must recognize the attendant risk of international assignment. Therefore, companies should track assignees’ income and determine the payroll reporting for home and host locations. Speaking with a mobility expert is essential. This is where the assignment briefings come in.
Tax briefings are a positive, proactive, and useful tool to help the employee overcome a tough time in a new country. Detailed advice will make the transition easier. To discuss further on expatriate matters, reach out to our mobility team via the link below.