Nigeria payroll and tax overview.

Nigeria is the most populous nation in Africa and its second-largest economy. Situated on the continental west coast and bordered by Benin, Niger, Chad, and Cameroon, Nigeria represents a gateway to Africa, facilitating trade links with partners across the Atlantic Ocean and the rest of the world. Classified as an emerging economy, Nigeria went through a period of financial mismanagement in the 20th century but after government reforms, experienced rapid growth in the 21st century - driven by abundant natural resources, including valuable oil reserves. Beyond its oil sector, Nigeria is diversifying its economy: agriculture, mining, manufacturing, real, estate, telecommunications, and financial services have all become important sectors while Nigeria itself has become one of Africa’s major banking markets, drawing a range of international investment interests. Although Nigeria still faces challenges characteristic of African economies - such as high capital costs, corruption and supply shortages - the government is laying foundations for economic development, through membership of OPEC, the UN and the MINT group of countries. Nigeria’s economic reforms have had positive effects: in 2019, Nigeria’s GDP reached an estimated $446.5 trillion, with a growth rate of 2.3%, and the country was ranked 131 on the World Bank’s Ease of Doing Business Survey 2019.

Why Invest in Nigeria?

Interested investors should find a range of reasons to target Nigeria, including:

• Economic potential: Although Nigeria has faced economic adversity, it’s growth figures have been impressive - reaching over 10% in the 2010 to 2015 period. Despite a recent slowdown, Nigeria is considered a source of future profitable investment: Goldman Sachs has named it in the N11 group of countries - each with the potential to become the world’s largest economies in the 21st century.
• Government incentives: The Nigerian government is engaged in efforts to stimulate the private sector and encourage investment. Amongst policies designed to strengthen the free market economy, incentive schemes have been introduced, including the ‘Companies Income Tax Act’, which provides tax relief to potential investors and entrepreneurs.
• Infrastructure improvements: Nigerian businesses are benefitting from a range of infrastructure improvements to communications, transportation, and utilities networks. Four of Nigeria’s airports now offer international flights, while the country has a number of domestic private passenger and freight carriers.
• Natural resources: Nigeria’s abundant natural resources continue to provide business opportunities. Beyond its traditionally strong oil industry, many natural resources in Nigeria are yet to be exploited, including rich minerals like coal, tin, and iron ore. The agricultural sector also holds investment value - offering products like palm oil, coconut, cocoa, and groundnuts.
• Strategic location: Nigeria is located on Africa's west coast, and offers businesses trade links to the United States, Canada, Europe and South America. The country is also a gateway to Africa: Nigeria has a domestic market of over 155 million people, but offers road and air links to markets across the rest of the continent.

Foreign Direct Investment in Nigeria

Nigeria has substantial resources, most of which are yet to be fully exploited. They include mineral, agricultural and human resources. The Government has created a favourable climate for business and industrial ventures. Administrative and bureaucratic procedures have been greatly streamlined. The Government has put in place policies and programmes that guarantee a free market economy.

Registering a Company and Establishing an Entity in Nigeria

The company is required to have a legal entity established in order to process a payroll. There are various types of entity available including:

• Private or Public Limited Liability Company
• Unlimited Liability Company
• Company Limited by Guarantee
• Foreign Company (branch or subsidiary of a foreign company)
• Partnership/Firm
• Sole Proprietorship
• Incorporated Trustees
• Representative Office

The incorporation of local companies in Nigeria normally involves the following procedure:

• Taking instruction from the promoters/clients
• Preparing the incorporation documents
• Stamping incorporation documents
• Filing the incorporation documents with the Corporate Affairs Commission ("CAC" or the "Commission") and obtaining the certificate of incorporation.

Business Banking in Nigeria

It is mandatory to have an in-country bank account in Nigeria to process payroll. Generally, banks are open to the public from 0800 to 1600 hrs, and closed on Saturdays and Sundays.

What Are the Working Days and Working Hours in Nigeria?

The working week in Nigeria are Monday to Friday. The working day for commercial offices is usually eight hours, typically from 0800 to 1700. Lunch breaks range from half an hour to one hour.

Basic Facts about Nigeria

General Information:

Nigeria lies on the northwest coast of continental Africa, neighbouring Benin, Niger, Chad, and Cameroon. Civilisation in Nigeria dates back to prehistory, but in the 18th and 19th centuries the country was colonised by European powers, and became part of the British Empire in the early 19th century. In 1960, Nigeria declared its independence, and went through a period of political turmoil, including rule by military junta, until it emerged as a democratic nation in 1999. Since its democratisation, Nigeria has emerged on the world stage as a member the Commonwealth of Nations and the United Nations, and a founding member of the African Union. Thanks to its proximity to the equator, Nigeria is covered in lush, tropical rainforests and swamps, and by desert landscapes close to the Sahara region. Nigeria’s climate varies between a wet season and a dry season but temperatures remain high throughout the year.

Full Name: The Federal Republic of Nigeria

Population: 200.96 million (UN midyear data, 2019)

Capital: Abuja

Largest City: Lagos

GDP: $2028 (World Bank)

Main Industries: Oil & Gas

Main Language: English

Monetary Unit: 1 Naira = 100 Kobo

Internet Domain: .Ng

International Dialling Code: +234

The Tax Year in Nigeria runs from 1st January to 31st December.

All companies are required to register with tax authorities and obtain TIN (Taxpayer Identification Numbers). The registration process takes two to three weeks to be completed.

The contributions payable in respect of each month shall fall due on the last day of the month concerned.

You must register with the following statutory authorities:

• Registration with Federal Inland Revenue Service (FIRS)
• Registration with Lagos State Internal Revenue Service (LIRS) – Provided operations will predominantly be in Lagos State.
• Registration with National Pension Commission (PenCom)
• Registration with Nigeria Social Insurance Trust Fund (NSITF)
• Registration with National Housing Fund (NHF)
• Registration with Industrial Trading Fund (ITF) - (this can be put-off to a future date as the Minimum threshold for an employer to become liable under this scheme is when the employer has in its employ a minimum of 5 employees and/or if its annual turnover is in the region of N50 million.)

Note that some of these processes can overlap, i.e; they can be processed concurrently, excluding registrations with FIRS and LIRS where the former is a prerequisite for the latter.

Also, please note that some of these registrations may attract statutory fees that are not expressly stated.

Income Tax in Nigeria

Income tax is imposed on employees in Nigeria, and includes any salaries, wages, gains or profits - including bonuses, premiums and benefits - derived from employment. Income tax is processed using the PAYE system and reported each month to the State Internal Revenue Service (SIRS). All Nigerian tax ‘residents’ are liable for income tax - that is, employees with duties of employment performed wholly or partly in Nigeria for up to six months per year. Nigerian tax residents are taxed on all income sourced from Nigeria, and all worldwide income.

Tax rates in Nigeria are graduated across income bands, ranging from 7-24%. Income thresholds are as follows:

• Up to 300,000 naira: 7%
• Up to 600,000 naira: 11%
• Up to 1,110,000 naira: 15%
• Up to 1,600,000 naira: 19%
• Up to 3,200,000 naira: 21%
• Over 3,200,000 naira: 24%

Both employer and employees contribute to approve provident funds. In some cases, employees do not make any contribution to pension funds. The eligibility of a worker to benefit from pensions, retirement or gratuity schemes varies from one employment to another. Invariably, the terms are contained in contracts of employment. Social security schemes are approved by the Joint Tax Board and subject to renewal annually.

An employee is required to contribute a minimum of 8% of their earnings.

Reporting Tax in Nigeria

The deadline for filling of annual returns is 31st January of the following year. The penalty for non-compliance by an individual and a corporate body is N50,000 and N500,000 respectively.

New Employees in Nigeria

A new employee is expected to register in his state of residence either directly for a self-Employed person or through his employer as a payee agent.

Leavers in Nigeria

Once an employee leaves the employment of a company, the tax authority must be advised accordingly.

Payroll in Nigeria

Employers in Nigeria have withholding obligations towards their employees as part of the payroll process - and must deduct income tax and social security contributions at source. Tax and social security contributions may be process using a PAYE system, and reported to the relevant State Internal Revenue Service.

Income tax: Income tax deductions in Nigeria are made at a rate graduated across income bands. Income tax rates range from 7% to 24%.

Social security: Social security contributions in Nigeria cover benefits for retirement, disability, sickness and maternity. Employees contribute a minimum of 8% of their salary, while employers must contribute around 10% to the various benefit schemes.

Employees must be provided with payslips for each pay-cycle (these may be provided online), and payroll reports must be kept for a statutory minimum period of 6 years.