Tax Guide for US Expats Living and Working in Nigeria
Who Is Liable For Income Taxes in Nigeria
Residents are generally subject to tax on their worldwide income. However, foreign earnings derived by Nigerian residents are exempt from tax if the earnings are repatriated into Nigeria in convertible currency through a domiciliary account with an approved Nigerian bank. Income earned by a Nigerian from employment with the Nigerian government is considered Nigerian-source income, even if services are performed abroad. Nonresidents are subject to tax on Nigerian-source income only.
Individuals are considered residents if they are in one of the following categories:
- Nigerians residing in Nigeria, regardless of their length of stay
- Expatriate employees of a resident company who are present in Nigeria for employment purposes
- Expatriate employees of a nonresident company who are present in Nigeria for more than 183 days in a 12-month period
Income subject to tax
Employment income. Taxable income includes salaries, wages, fees, allowances and pensions from past employment, as well as other gains or profits from employment, such as gratuities, bonuses, premiums, benefits and other perquisites. Rent up to N150,000 paid by an employer directly to an employee’s landlord for housing is exempt from tax.
Gratuities paid to an employee are fully exempt from tax. Compensation for loss of office is also fully exempt from tax.
Self-employment and business income. Resident individuals who carry on a trade, business, profession or vocation are subject to tax on income derived from activities in and outside Nigeria. Self-employment income derived by nonresidents is subject to tax in Nigeria if the trade, business, profession or vocation is carried on even partly in Nigeria. However, only the gains or profits attributable to the part of the operations carried on in Nigeria are taxable.
Partners are taxed on their shares of partnership income, regardless of whether the income is distributed.
For both residents and nonresidents, a 5% tax is withheld from contract payments, payments with respect to construction-related activities and commissions, as well as from consulting, professional, management and technical fees. The recipient must include the income in his or her tax return, but may claim a credit for the tax withheld.
Taxable income is calculated by deducting allowable expenses, reliefs and losses from gross income. Resident and nonresident self-employed individuals are taxed at the rates.
Investment income. Withholding tax at a rate of 10% is imposed on dividends, interest, royalties and income from the rental of movable or immovable property. For nonresidents, the withholding taxes are final taxes. For residents, the withholding taxes on dividends, interest and royalties are final taxes, but the withholding tax on rent is treated as an advance tax payment.
Investment income earned abroad and brought into Nigeria through the Central Bank of Nigeria, or through any other authorized dealer appointed by the Minister of Finance, is exempt from tax.
Directors’ fees. Companies paying directors’ fees must withhold tax on the fees at a rate of 10%. For a resident, final tax is assessed when the individual files a tax return including income from all sources. For nonresidents, the 10% withholding tax is a final tax.
Capital gains. Capital gains consist of the disposal proceeds of an asset, less its cost and disposal expenses. Capital gains are taxed separately from ordinary income at a rate of 10%.
Amounts derived from the disposition of capital assets are taxable. These assets include the following:
- Land and buildings
- Options, debts and other property rights
- Any currency other than Nigerian currency
- Any form of property created by the disposing person or otherwise coming to be owned without being acquired
- Movable assets including motor vehicles
If these assets are located in Nigeria, they are taxable in Nigeria, regardless of where the beneficial owner is resident. Assets located outside Nigeria are taxable in Nigeria if the beneficial owner is resident in Nigeria or if he or she is a foreigner who is present in Nigeria for a period, or for an aggregate of periods, exceeding 183 days within a 12-month period. Capital gains derived from the disposal of capital assets located outside Nigeria, and administered by a trustee of a trust or settlement with a seat of administration outside Nigeria, are taxable if the seat of administration is transferred to Nigeria during the year of assessment and if the disposal of the asset occurred while the seat of administration was in Nigeria. For capital assets located outside Nigeria, a capital gains tax is levied on the proportionate amount of gain remitted to or received in Nigeria by nonresidents. For example, if 40% of the sales proceeds is remitted to Nigeria, 40% of the capital gain is subject to tax in Nigeria.
The taxation of gains accruing from the disposal of trade or business assets, including real property, may be deferred if the assets are replaced within one year before or after disposal.
Deductions
Deductible expenses. The following expenses are deductible from employment income:
- Dues paid to professional organizations whose membership is vital to the individual’s employment
- Approved pension funds
- Mortgage interest, including interest on a loan to develop an owner-occupied residential house
Personal allowances. Nigeria provides the following personal allowances.
Relief for losses. Business losses of a self-employed person may be carried forward for four years. Loss carrybacks are not allowed.
B. Inheritance and gift taxes
Nigeria does not impose inheritance and gift tax.
C. Social security
Contributions. The mandatory minimum contribution to the Nigerian Pension Scheme is 15% of an employee’s total income. Employers and employees each make contributions equaling 7.5% of total income, resulting in a total contribution of 15% of total income. Total income is defined as the sum of basic salary, housing allowance and transport allowance.
Double tax relief and tax treaties
Foreign tax paid on income brought into Nigeria through the Central Bank of Nigeria, or through any other authorized dealer approved by the Minister of Finance, may be credited against tax payable in Nigeria on the same income. Nigeria has entered into double tax treaties with the following countries.
Belgium
Netherlands
South Africa
Canada
Pakistan
United Kingdom
France
Romania
To learn more about the history, culture, economy and other information about Nigeria
We have been preparing US income tax returns for US Citizens and permanent residents living in Nigeria for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Nigeria and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Nigeria.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email