Nigeria’s growing economy has attracted a considerable number of expatriates who come to work in various sectors, contributing to the nation’s development. While working in Nigeria is rewarding, it also comes with tax obligations that expatriates must understand and adhere to. The Federal Inland Revenue Service (FIRS) provides guidelines for foreign workers to ensure tax compliance. In this article, we will explore these guidelines and offer insights to help expatriates fulfill their tax obligations while working in Nigeria.
Residency Status and Tax Liability:
Expatriates should be aware of their residency status in Nigeria, as it determines their tax liability. The two main categories are:
- Resident: An individual is considered a resident for tax purposes if they spend 183 days or more in Nigeria in any 12-month period or earn income from Nigerian sources.
- Non-Resident: If an expatriate does not meet the criteria for residency, they are classified as a non-resident for tax purposes.
Tax Obligations for Expatriates:
- Personal Income Tax: Resident expatriates are subject to Personal Income Tax (PIT) on their worldwide income. Non-residents are only taxed on income earned in Nigeria.
- Tax Identification Number (TIN): Expatriates should obtain a TIN from FIRS to facilitate tax transactions and compliance.
- Filing Tax Returns: Resident expatriates must file annual tax returns, even if their income is tax-exempt. Non-residents may also be required to file returns.
Tax-Exempt Income for Expatriates:
Certain types of income earned by expatriates in Nigeria are tax-exempt. These include:
- Foreign Diplomats: Income of foreign diplomats accredited to Nigeria is generally exempt from Nigerian tax.
- Income from Diplomatic and Consular Posts: Income derived from diplomatic and consular posts is exempt from tax.
- Income of International Organizations: Income of international organizations and their employees may be exempt under international agreements.
Employers in Nigeria play a crucial role in ensuring expatriate tax compliance:
- Payroll Taxes: Employers are responsible for withholding and remitting payroll taxes, including PIT, on behalf of their expatriate employees.
- Tax Records: Employers should maintain accurate records of expatriates’ income and tax withholdings for FIRS reporting.
- Tax Equalization: Some employers offer tax equalization programs to expatriates, ensuring they do not incur higher tax liabilities than they would in their home country.
Seeking Professional Advice:
Expatriates should consider seeking professional tax advice or engaging accounting firms with expertise in Nigerian tax laws to ensure compliance and optimize their tax position. Professionals can provide guidance on allowable deductions, tax exemptions and tax treaties that may apply to expatriates’ specific situations.
Navigating Nigerian tax regulations as an expatriate can be complex, but understanding and complying with FIRS guidelines is essential to avoid potential penalties and legal issues. By knowing their residency status, tax obligations and available exemptions, expatriates can ensure tax compliance while working in Nigeria. Additionally, employers should fulfill their responsibilities in terms of tax withholdings and accurate record-keeping to support expatriate employees’ compliance efforts. Proper tax planning and compliance contribute to a smooth and legally sound experience for expatriates in Nigeria.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.