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Pay your team in Nigeria
Setting up payroll in Nigeria
Income tax and social security in Nigeria
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As the most populous country in Africa and the largest economy in the region in terms of GDP – in 2021, Nigeria’s GDP reached a value of $441.54 billion – Nigeria is the perfect gateway to the African continent for international organizations. Its abundant natural resources, a dynamic private sector and a fast-growing financial sector are further reasons for businesses to establish a local presence.
However, conducting business and hiring employees in Nigeria isn’t without challenges, notably when it comes to processing local payroll. There are various registration processes organizations need to complete before they can even start to run payroll in Nigeria and the variety of rules which apply to the country’s different social security schemes make it hard for employers to know which contributions to pay and when.
Before they can process payroll in Nigeria, businesses must complete the following registrations:
Registration with the Federal Inland Revenue Service (FIRS) and the respective State Internal Revenue Service (SIRS) for Nigeria’s Pay-As-You-Earn (PAYE) system
Registration with the Federal Mortgage Bank of Nigeria (FMBN) for the National Housing Fund – both employee and employer must be registered
Registration with the Nigeria Social Insurance Trust Fund (NSITF) for the Employee Compensation Fund scheme (ECF)
Registration for the Industrial Training Fund (ITF) – only necessary for employers with more than 5 members of staff and an annual turnover of more than NGN 50 million
Registration for National Health Insurance Scheme (NHIS)
Registration for the Contributory Pension Scheme with the National Pension Commission (PENCOM)
It is further necessary to open a local bank account which can be used for payments to local employees and authorities.
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Nigeria’s tax system is based on progressive tax rates, the top rate being 24%. The social security system consists of different funds and insurances, and contributions are split between employee and employer. The latter is also responsible for ensuring monthly income tax withholdings and social security contributions are paid on time.
Income in Nigeria is taxed at progressive rates ranging from 7% to 24%. The first NGN 300,000 of an individual’s annual income are taxed at a basic rate of 7%. The highest tax rate (24%) applies to annual income exceeding NGN 3,200,000. However, individuals not earning more than the national minimum wage are exempt from paying income tax and are therefore not required to participate in the PAYE system.
Taxable income from employment includes basic salaries and wages, insurance premiums as well as allowances of any sort (e.g. transport, housing, food or clothing allowance). Employee-paid contributions to the National Housing Fund, health insurance, pension insurance and life insurance, on the other hand, are exempt from income tax. The same applies to charitable donations, health expenses and mortgage interest payments.
Furthermore, individuals can benefit from a personal allowance equal to 20% of their gross income plus the higher of NGN 200,000 or 1% of their gross income. This tax deduction is known as Consolidated Relief Allowance (CRA).
Residents are taxed on their worldwide income – some exceptions apply. Non-residents are taxed on Nigerian-source income only, which includes employment duties carried out in Nigeria – unless the work is carried out for an employer based outside of Nigeria and the wages and salaries are paid from outside the country and income earned from the employment is subject to income tax in another country under a double tax treaty (DTT).
Residency is primarily determined by an individual’s physical presence in Nigeria during more than 183 days in any given 12-month period. In addition, the Nigerian Ministry of Finance employs the concept of an individual’s “significant economic presence” in order to determine which parts of their income are subject to Nigerian income tax.
2022 Tax Bands
Corresponding Tax Rates
Nigeria operates a Pay-As-You-Earn (PAYE) system for personal income tax. This means that income tax on employment income is withheld at source by the employer who then remits the withheld amount to the respective state branch of the Nigerian tax authority, which is the State Internal Revenue Service (SIRS).
The SIRS in charge is always the one located in the state where the employee is based. For non-residents receiving income in Nigeria, the tax authority in charge is the Federal Internal Revenue Service (FIRS). The due date for income tax remittance is the 10th of the month following the payroll run.
At the end of each fiscal year, the employer must remit an annual declaration which contains detailed information on earned income, paid taxes and deductions for each employee. The deadline for submitting the declaration is 31 January. Employees must also receive an annual paid income tax certificate detailing the PAYE deductions that have been made by the employer over the course of the year.
The tax year corresponds to the calendar year. Individuals are required to file a yearly tax return if their annual income exceeds NGN 360,000. The return must be submitted within 90 days after the end of the financial year for which the tax return is filed. Joint filing is not permitted.
Nigeria requires employees and employers to make monthly contributions to different social security schemes. However, there are different rules regarding employee count and annual turnover which determine whether an employer must contribute to a specific fund, or not.
The main share of the applicable social security contributions goes towards pension and health insurance. Employers with 15 or more employees are required to contribute at least 10% to the Contributory Pension Scheme, which is administered by the National Pension Commission (PENCOM). Employees, meanwhile, are required to make a minimum contribution of no less than 8% of their salary. Contributions are due no later than 7 days after the salary payment and must be paid directly to the fund administration.
Employers with 10 or more employees – and employees of businesses with 10 or more members of staff – are further required to make a monthly contribution to the National Health Insurance Scheme (NHIS). The contribution rate is fixed at 15% and is split between employee (5%) and employer (10%) – unless the employer decides to pay the NHIS contribution in its integrality.
All employees earning more than NGN 3,000 per year must further make a 2.5% monthly contribution to the National Housing Fund (NHF). It is the employer’s responsibility to deduct the amount from their employees’ earnings and remit the payment to the NHF authorities. Payments must be made within one month after the deduction.
There also are two additional levies on employers, which are the Industrial Training Fund (ITF) levy and the Employee’s Compensation Fund (ECF) levy. Both contributions are levied at a rate of 1% of the business’s total monthly payroll - minus certain additional payments made to employees such as overtime pay or bonuses.
ECF payments must be made to the Nigeria Social Insurance Trust Fund (NSITF) within one month after the respective payroll run. An annual statement declaring the total sum of employee earnings for the year must be submitted no later than 28 February, along with an estimate for the current year.
ITF contributions are only levied on employers with more than 5 members of staff and an annual turnover of more than NGN 50 million. If applicable, they are payable on an annual basis, no later than 1 April. The ITF also requires employers to submit an annual declaration.
* Only applies to employers with 15 or more employees.The calculation base is the sum of the employee’s basic salary, the Housing Fund contribution and other allowances.
** Only applies to employers with 10 or more employees. The calculation base is the employee’s basic salary.
*** Only applies to employees whose basic annual salary exceeds NGN 3,000.
**** Only applies to employers with more than 5 employees and an annual turnover of more than NGN 50 million.
Employees in Nigeria are entitled to various benefits. These include:
Annual leave and public holidays: at least 6 paid days off per year after completing 12 months of service; plus 11 public holidays
Maternity leave: 12 weeks of maternity leave paid at a rate of at least 50%
Paternity leave: no legal provisions concerning employees in the private sector, but some states have introduced their own paternity leave regulations
Parental leave: no legal provisions
Sick leave: 12 paid sick days per year
For more information on employee benefits and other employment requirements in Nigeria (including severance pay and termination procedures), check out our Global Hiring Guide.
Employees must be paid at least the national minimum wage which currently stands at NGN 30,000 per month – i.e. NGN 360,000 per year. An exception applies to businesses with fewer than 50 employees which are exempt from paying the national minimum wage.
There is no legal obligation for employers to pay their employees a 13th month salary, but many businesses offer their staff performance-based bonuses. As for overtime, it is up to the employer and the employee to come to an agreement regarding limits and pay rates for additional hours worked.
It is mandatory to pay employees in Nigeria at least once per month, with weekly, bi-weekly and monthly payments being the most common pay periods. Payments can be made either in cash, in cheque or via direct deposit. International organizations paying employees in Nigeria should be aware of the tightened regulations for foreign exchange control.
Employers should provide their employees with payslips after each payroll run. Payslips can be issued either in paper form or electronically. It is further mandatory for the employer to keep detailed payroll records for each employee. The minimum retention period for payroll records is 6 years.
Learn about tax reporting, compensation laws, registration requirements and more in our free Payroll Guide for Nigeria.
This country guide is for informational purposes only and should not be construed as legal advice. The content of this guide contains general information, and although we update this guide regularly, it may not reflect current legal developments. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this country guide.
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