NigeriaTax Obligations Detailed

In Nigeria, employers have various tax obligations related to their employees' payroll and income.

Pay-As-You-Earn (PAYE)

PAYE is a system where employers deduct income tax directly from their employees' salaries and remit it to the relevant tax authority.

• Rates: The PAYE tax rate is progressive, ranging from 7% to 24% of taxable income. Taxable income bands are:
  • ₦0 to ₦300,000 annually (7%)
  • ₦300,001 to ₦600,000 annually (11%)
  • ₦600,001 to ₦1,100,000 annually (15%)
  • ₦1,100,001 to ₦1,600,000 annually (19%)
  • ₦1,600,001 to ₦3,200,000 annually (21%)
  • Above ₦3,200,000 annually (24%)
• Minimum Tax: A minimum tax of 1% of gross income applies if an individual has no taxable income or the PAYE is less than the minimum tax.
• Due Date: PAYE tax must be remitted by the 10th of the month following the salary payment.

Pension Contributions

• Contribution: Employers with 15 or more employees must contribute 10% of an employee's gross salary (basic + housing + transport). Employees also contribute 8%.
• Employer's Full Contribution: If an employer covers the entire pension contribution, the minimum amount is 20% of the monthly salary.

National Housing Fund (NHF)

• Contribution: While voluntary for the private sector, employees can choose to contribute 2.5% of their basic salary to the NHF. Employers then remit this amount to the Federal Mortgage Bank of Nigeria within one month of deduction.

Annual Returns

• Form H1: By January 31st each year, employers must submit the annual tax return (Form H1) detailing all employee emoluments, PAYE deductions, and remittances for the preceding year. It also includes projected emoluments for the current year.
• Penalty for Non-Compliance: Failure to file returns attracts a penalty of ₦50,000 for individuals and ₦500,000 for companies.

Withholding Tax (WHT)

• WHT applies to certain payments made to residents and non-residents. Specific rates and regulations were updated as of January 1, 2025. These include exemptions for small businesses meeting specific criteria and reduced rates for low-margin sectors like agriculture and manufacturing.

Other Relevant Taxes

• Industrial Training Fund (ITF): Companies with 5 or more employees contribute 1% of their annual payroll to the ITF for employee training and development.
• National Health Insurance Scheme (NHIS): Employers with 10 or more employees contribute 10% of their employees' basic salaries, while employees contribute 5%, towards health insurance.

This information is current as of February 5, 2025, and might be subject to change. Consulting with a tax professional is recommended for specific situations and updated guidance.

In Nigeria, employers deduct various taxes from employee salaries, including Pay-As-You-Earn (PAYE) income tax, National Housing Fund (NHF) contributions, and pension contributions. These deductions are remitted to the appropriate government agencies.

PAYE Income Tax

PAYE is calculated on a progressive scale, ranging from 7% to 24% of taxable income. Taxable income bands range from ₦300,000 to over ₦3,200,000 annually. A minimum tax of 1% of gross income applies if no taxable income exists or if the PAYE is less than the minimum tax. Employers must remit PAYE deductions within 10 days of the following month.

National Housing Fund (NHF)

Employees earning ₦30,000 or more annually contribute 2.5% of their monthly income to the NHF. Employers deduct this amount and remit it to the Federal Mortgage Bank of Nigeria within one month.

Pension Contributions

Employees contribute 8% of their basic salary, housing allowance, and transport allowance to their pension funds. Employers contribute an additional 10% of the same earnings.

Other Deductions and Allowances

• National Health Insurance Scheme (NHIS): Employees contribute 5% of their basic salary, while employers contribute 10% (for companies with 10 or more employees).
• Consolidated Relief Allowance (CRA): This allowance reduces taxable income. It's calculated as the higher of ₦200,000 or 1% of gross income, plus 20% of gross income.
• Other Tax-Exempt Deductions: Employee contributions to health insurance, life insurance, charitable donations, health expenses, and mortgage interest payments are tax-exempt.
• Benefits in Kind: Some benefits provided by employers, such as company cars (taxed at 5% of the car's cost) and accommodation (taxed at the annual ratable value), are considered taxable income. However, canteen meals are typically not taxable.

Deadlines and Procedures

• PAYE: Remitted within 10 days of the following month.
• NHF: Remitted within one month of deduction.
• Annual Returns: Employers file annual tax returns by January 31st each year. Self-employed individuals file by March 31st.

Withholding tax (WHT) regulations underwent revisions effective January 1, 2025, although core principles remain largely unchanged. Telephone, internet, and airline ticket charges are now exempt. A standardized remittance template is also introduced. Additionally, as of today's date (February 5th, 2025), more recent tax reforms passed in late 2024 might impact future tax obligations. Staying informed about these evolving regulations is crucial.

Value Added Tax (VAT) in Nigeria is a consumption tax levied on goods and services, with a standard rate of 7.5%.

VAT Registration

Businesses are required to register for VAT regardless of their turnover. Non-resident suppliers (NRS) making taxable supplies to Nigeria are also required to register if their supplies exceed ₦25,000,000 (approximately USD 32,500 as of today's date) within a 12-month period. Registration involves completing Form 001 and obtaining a Tax Identification Number (TIN). Penalties apply for failure to register. Non-resident businesses must register even without a physical presence if providing taxable supplies.

Filing and Payment

VAT returns (Form 002) are filed monthly, due on the 21st of the following month. Payment must also be made by this deadline through an approved bank. Nil returns are required for months with no transactions. Late filing penalties apply. Returns can be filed online or manually and must include a list of all VATable supplies made and received. Non-resident companies must also remit VAT monthly in the currency of the transaction, even with zero taxable supplies.

VAT Rates and Exemptions

The standard VAT rate is 7.5%.

• Zero-Rated Supplies: These include goods and services purchased by diplomats and those for humanitarian donor-funded projects, and non-oil exports. Input VAT on these can be reclaimed.

• Exempt Supplies: These include: basic food items (bread, cereals, cooking oils, etc.); medical and pharmaceutical products; educational materials; baby products; fertilizers, locally produced agricultural and veterinary products; all exports; machinery and goods for use in Free Trade Zones; machinery and equipment for gas utilization in downstream petroleum operations; equipment and services for CNG and LPG expansion; electric vehicles and related components; biogas and biofuel equipment; tractors and other agricultural implements; services by microfinance banks and mortgage institutions; performances by educational institutions; proceeds from disposal of short-term government securities; military hardware and locally made uniforms for security agencies.

VAT on Digital Services

Digital services are subject to VAT unless specifically exempt. Non-resident digital service providers must register, charge VAT, and remit it to the Federal Inland Revenue Service (FIRS). Nigerian customers may be responsible for self-accounting for VAT if the NRS fails to collect it. Banks and digital platforms can potentially act as collection agents for the FIRS.

Withholding Tax (WHT)

New WHT regulations effective January 1, 2025, repeal existing regulations, though no major changes are expected. Telephone charges, internet data, and airline tickets are exempt from WHT. A specific format for remittance and returns is prescribed.

It is important to note that tax regulations are subject to change. The information provided here is based on the latest available data as of February 5, 2025. It's recommended to consult with a tax professional for specific guidance.

Nigeria offers a range of tax incentives to stimulate investment and economic growth.

Tax Incentives for Businesses

• Tax Holidays: Pioneer companies in specific industries can enjoy a three-year tax holiday, extendable by two years. Small and medium-sized companies engaged in primary agricultural production are eligible for a four-year tax-free period, potentially extendable for two more years.
• Export Incentives: Companies operating within Export Processing Zones (EPZs) and Free Trade Zones (FTZs) are exempt from tax and foreign exchange restrictions. Export-oriented companies outside EPZs may qualify for a three-year tax holiday if certain conditions are met.
• Rural Location Incentives: While previously available, incentives for companies located in rural areas have been discontinued since September 1, 2023. Existing claims can still be processed.
• Gas Utilization, Tourism, and Interest Incentives: Specific incentives are available for investments in these sectors, but details require further research.
• Investment Allowances: The specifics of these allowances need additional investigation.
• Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme: This scheme needs to be reviewed for more details.
• Research and Development: Tax deductions of up to 120% of expenses can be claimed by companies doing R&D in Nigeria related to their core business activities.
• Startups: Qualifying startups can benefit from various tax exemptions and credits as per the Nigeria Startup Act 2022. These include a 4-year tax exemption, additional relief of 5% of taxable profits for up to 5 years (for eligible startups that meet employment criteria), a 30% investment tax credit, and a 35% personal income tax exemption for employees for two years.

Tax Reforms and Updates (as of February 5, 2025)

• Corporate Income Tax (CIT): The CIT rate is expected to be reduced from 30% to 27.5% in 2025 and 25% in subsequent years. Small businesses with an annual turnover of ₦50 million or less may be exempt from CIT. A 4% Development Levy may also be introduced, gradually reducing to 2% over five years.
• Value Added Tax (VAT): Planned phased increases of the VAT rate are expected, reaching 12.5% in 2026 and 15% by 2030. VAT exemptions on essential items like food, education, healthcare, rent, public transport, and renewable energy have been proposed. Businesses may be able to claim tax credits for VAT paid on assets and expenses.
• Personal Income Tax (PIT): Workers earning ₦800,000 or less annually may be exempt from taxes.

General Tax Reliefs and Allowances

• Deductions for contributions to approved pension schemes, life insurance premiums, and the National Housing Fund.
• Tax reliefs for individuals with disabilities or dependents.
• Deductions for certain investment income or business expenses.
• Loss relief and capital allowances for businesses.
• Tax exemption on compensation for loss of employment (up to ₦50,000,000).

Other Potential Incentives

• Exemptions from VAT and customs duties on imported inputs for goods destined for export.
• Specific incentives for expatriate employees in certain sectors.

Note: This information is current as of February 5, 2025. Tax laws and regulations can be complex and subject to change. It's essential to consult with a tax professional for personalized guidance on specific circumstances.