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
PAYE tax rates
Nigeria uses Pay-As-You-Earn (PAYE) system to calculate personal income tax which is PAYE tax. The annual PAYE tax rate progresses from This tax rate progresses from 7 percent to 24 percent of taxable income. The taxable income band is from NGN300,000 to above NGN3,200,000 in a year. However, a minimum tax of 1% of gross income applies where an individual has no taxable income or the PAYE tax is lower than the minimum tax. This rarely occurs for foreign employees.
Statutory PAYE tax returns
An employer is responsible for deducting monthly PAYE tax from employees’ salary and remitting same to the relevant tax authority within 10 days of the next month. Two annual PAYE tax returns which an employer should file are Form H1 and Form A.
- Form H1 shows the names, annual gross income and PAYE taxes of employees in the preceding tax year. The due date for filing of Form H1 is 31 January of 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.
Employee movement usually creates compliance requirements for the individual in either one country or both countries. During tax audit, the tax authorities collaborate with the Nigerian Immigration Service so as to determine the actual days which a non-resident persons spent in Nigeria. Hence, employers may set-up processes to spot business travelers and report data. Also, the nature of services that the non-resident employee renders in Nigeria need to be analysed cautiously so as 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, pro-active and useful tool that help the employee to overcome a tough time in a new country. A detailed advice will make the transition easier. Get your Nigerian taxes done with guidance from our international tax experts.