Taxation of employment income in Nigeria is governed by the Personal Income Tax Act (PITA) Cap P8 LFN 2004 (as amended). It defines “employment” under Section 108 as any form of appointment or office, whether in the public or private sector, for which remuneration is paid.
For tax purposes, it is essential to distinguish between:
- Employees (who have a contract of service with an employer and are subject to Pay-As-You-Earn (PAYE) tax).
- Independent Contractors (who operate under a contract for service and are taxed through direct assessment as self-employed individuals).
This blog provides a comprehensive guide on the taxation of employment income in Nigeria, including types of personal income tax, PAYE rates, tax filing obligations, and taxation of expatriates.
Personal Income Tax (PIT) in Nigeria
Personal Income Tax (PIT) is a mandatory tax on individuals, communities, families, and trustees. It is regulated by the Personal Income Tax Act (PITA) Cap P8 LFN 2004, and taxpayers must remit it to the State Inland Revenue Service (SIRS) where they reside.
Who Collects PIT?
- State Inland Revenue Services (SIRS): Collects PIT from individuals based on their place of residence, regardless of where they work.
- Federal Inland Revenue Service (FIRS): Collects PIT only from:
- Staff of the Ministry of Foreign Affairs.
- Non-residents earning income in Nigeria.
- Police officers and military personnel.
Types of Personal Income Tax (PIT)
There are two main types of PIT in Nigeria:
- Pay-As-You-Earn (PAYE) Tax
- Applicable to employees whose taxes are deducted by their employers from their salaries and remitted monthly.
- Employers must remit PAYE tax by the 10th of the following month.
- Annual PAYE tax returns must be filed by January 31st.
- Direct Assessment
- Applicable to self-employed individuals, including business owners, freelancers, and independent contractors.
- They must file an annual income tax return by March 31st.
- Tax is assessed based on income earned in the previous year.
Taxable Income in Nigeria
Under Section 3 of PITA 2004, the following incomes are subject to tax:
- Salaries, wages, fees, allowances, and bonuses from employment.
- Profits from trade, business, or profession.
- Profits from property, including rent and lease payments.
- Dividends, interest, and other investment income.
- Pension, annuities, and retirement benefits.
- Other unspecified profits or gains.
PAYE Tax Rates and Minimum Wage Exemption
- PAYE Tax Rates
Nigeria uses a progressive tax system, meaning that higher income earners pay a higher percentage of tax.
| Annual Income (NGN) | Tax Rate | Tax Amount (NGN) |
| First 300,000 | 7% | 21,000 |
| Next 300,000 | 11% | 33,000 |
| Next 500,000 | 15% | 75,000 |
| Next 500,000 | 19% | 95,000 |
| Next 1,600,000 | 21% | 336,000 |
| Above 3,200,000 | 24% | 24% of excess |
- Exemption for Low-Income Earners
- The Finance Act 2020 exempts individuals earning NGN 30,000 or less per month (NGN 360,000 per year) from PAYE tax.
- A minimum tax of 1% of gross income applies to all other individuals.
How do Companies Pay Tax in Nigeria
Employers must:
- Deduct PAYE tax from employees’ salaries and remit it to the tax authorities by the 10th of the following month.
- File PAYE tax returns twice a year:
- Form H1 (Employer Declaration Form) – Due January 31st, detailing employee income and taxes paid.
- Form G (Employer Remittance Card) – Due January 31st, showing PAYE remittances made throughout the year.
- Form A (Annual Declaration of Individual Income and Claims for Allowances & Reliefs) – Due March 31st.
Failure to comply results in penalties and interest on unpaid taxes.
Taxation of Expatriates in Nigeria
Expatriates working in Nigeria are subject to Personal Income Tax (PIT) under Section 6 of PITA.
1. Who is Liable to Tax?
- A foreign individual earning business profits in Nigeria is taxed once they establish a fixed base or taxable presence.
- Under the Significant Economic Presence (SEP) rule, non-residents may claim tax relief under double tax treaties where applicable.
- Taxable expatriates must file returns and pay tax on worldwide income earned in Nigeria.
2. Tax-Exempt Benefits for Expatriates
The PITA Act excludes certain allowances from taxation if they are reimbursements without profit motives. These include:
- Medical or dental expenses incurred by employees.
- Cost of international travel for employment purposes.
- Child maintenance or education expenses (up to NGN 2,500 per child).
- Compensation for loss of employment.
- Employer-paid rent subsidies (up to NGN 150,000 per year).
- Transport allowance (up to NGN 20,000 per year).
- Meal, utility, and entertainment allowances (subject to specific limits).
- Leave grants (up to 10% of annual basic salary).
Conclusion
Taxation of employment in Nigeria is governed by PITA 2004, which outlines PAYE tax obligations, tax-exempt incomes, and expatriate taxation rules. Employers play a critical role in deducting and remitting taxes, while employees and self-employed individuals must comply with annual tax return filings.
With the Finance Act 2020 introducing new exemptions for low-income earners and the Significant Economic Presence (SEP) rule impacting expatriates, businesses and individuals must stay compliant with evolving tax regulations.
Failure to comply with tax obligations can result in penalties, interest charges, and reputational damage. Therefore, proper tax planning and adherence to filing deadlines are essential for both employers and employees.
For further guidance on tax compliance and planning strategies, you can contact for a free consultation. Contact us today.
