In Nigeria, the Personal Income Tax Act requires all eligible individuals to file their personal income tax returns by March 31st of each year. The deadline is fast approaching, and it is important for individuals to understand the requirements and consequences of not meeting the deadline.
Personal income tax is a tax imposed on individuals’ income, including salaries, wages, profits, and other sources of income. Individuals’ resident in Nigeria are taxable on their worldwide income. The tax is a significant source of revenue for the government, and failure to file tax returns could result in penalties and fines.
The tax returns should include all sources of income, including salaries, wages, profits, dividends, rent, royalties, and any other income earned during the year. Deductions such as pension contributions, National Housing Fund (NHF) contributions, and National Health Insurance Scheme (NHIS) contributions can also be claimed.
The penalties for failing to file tax returns by the March 31st deadline can be severe. According to the Personal Income Tax Act, an individual who fails to file a tax return on time will be liable to pay a penalty of N5,000 for the first month and an additional N100 for every day during which the failure continues or imprisonment of six (6) months or both. Furthermore, the tax authorities can impose a penalty of up to 10% of the tax due on any undeclared income or understated tax liability.
It is important to note that individuals who fail to file their tax returns may also be barred from participating in government contracts or obtaining tax clearance certificates, which could impact their ability to conduct business.
To avoid the penalties and consequences of failing to file tax returns, individuals should take steps to ensure that they meet the March 31st deadline. This includes gathering all necessary documentation, such as pay slips and receipts, and consulting with a tax professional if necessary.
In conclusion, the March 31st deadline for filing personal income tax returns in Nigeria is a crucial date that should not be overlooked. Failure to file tax returns on time could result in significant penalties and consequences. Therefore, individuals should ensure that they meet the deadline and comply with the requirements of the Personal Income Tax Act.
N:B Employees who earn not more than the national minimum wage (currently NGN 30,000) are not liable to tax or deduction of monthly pay-as-you-earn (PAYE).
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There have been instances whereby people move from a different country to another for different reasons. This is due to Globalization and trans-border migration. As a result, these people move across various national borders for permanent migration, tourism, and work.
Moreover, it should be noted that such persons who find jobs abroad or overseas are usually referred to as expatriates. There are several countries in the world where expatriates migrate to another country for the sake of a new life and greener pastures. However, when it comes to recruiting or employing expatriates, Nigeria is included, especially in the sphere of oil and gas and also the mining industries.
Regardless of their respective countries, every expatriate in Nigeria is bound by the Federal Republic of Nigeria’s laws, which also include the various tax laws that exist in the country. There are certain tax obligations on expatriates and Nigerian nationals based on income and others.
Importantly, every expatriate must get familiar with his/her tax obligations by the various tax laws which are done to abide by the tax laws imposed.
Who Are Expatriates?
Expatriates are those people who chose or have been chosen to live in another country other than where they legally reside for employment or tourism. On the other hand, they are citizens of other nations who have chosen to live in other places of the world. They are also known as expats, who sometimes form their communities in their foreign country.
Tax Obligations of Expatriates in Nigeria
Generally, all expatriates are subject to similar tax laws as Nigerian citizens based on their income. Every expatriate should note that their assessable income for taxation about the income from their employment is the amount of the income of the particular year of assessment.
However, any expatriate whose employment duties are done wholly or partly in Nigeria will not be seen to derive the income from their employment in Nigeria where;
If the duties are executed on behalf of an employer in another country, and the remuneration of expatriates is not borne by a fixed base of the employer in Nigeria; and
If the expatriate is not in Nigeria for 183 days, including annual leave or a temporary period of absence.
The employee’s income is taxed in the other country under a treaty preventing double taxation in that country.
The personal income tax of an expatriate is paid to the relevant tax authority in their state of residence. Therefore they must pay their income tax for any particular year of assessment to the State if they have been there for that particular year. An expatriate’s place of residence must necessarily be the place that is available for his domestic use for a relevant day. Note that the place of residence does not include hotels or other temporary lodging places.
However, if an expatriate is a temporary worker, he must remit income tax to any state where he is found during the year. Any income tax that the expatriate may have paid to the tax authority of another State during a specific assessment year would be applied as a tax credit against the tax due.
What Portion of an Expatriate’s Income is taxable?
Every expatriate is taxed based on the aggregate amount of their yearly income, which may come from salary, fee, wage, allowance, or other employment gain or profits, which include bonuses, compensations, premiums, benefits, or other favors granted by the employer to the expatriate.
Income Tax Rates
When it comes to taxation, Nigeria works on a progressive tax rate system whereby people are required to pay taxes based on total taxable income. Therefore, Consolidated Tax Relief Allowance is granted to those who pay taxes before the income and application of the tax rate band. The relief is granted as high as N200,000 or One per cent of the Annual Gross Income, including 20 per cent of the Annual Gross Income.
It should be noted that the Annual Gross Income serves as the total gross emoluments less all tax exemptions, deductions, and statutory reliefs. Below are the Annual Total income and Marginal Rate;
Total Annual Income (NGN)
Marginal Rate
First N300,000
7%
Next N300,000
11%
Next N500,000
15%
Next N500,000
19%
Next N1,600,000
21%
Above N3,200,000
24%
Deduction of Personal Income Tax
The personal income tax of an expatriate under paid employment must be deducted at the source from any remuneration paid or from the payment made on account of the remuneration by his or her employer based on the Pay-As-You-Earn (PAYE) Scheme.
Additionally, the employer must submit a return detailing all remuneration given to the expatriate by January 31st of each year with regard to the year prior. This return must be submitted to the appropriate State tax authorities.
Frequently Asked Questions
Which items are Exempted from Taxes?
The dividends, interests, rents, and royalties earned abroad and brought into Nigeria through channels approved by governments are exempted from Nigerian tax.
What Taxation System does Nigeria Use?
Nigeria uses a decentralized tax system that works in a way that each level of government is independently responsible for the administration of taxes within its jurisdiction. The revenues generated to fund government expenditures are sourced from a pool of taxes from each tier of government.
Is Foreign Income Taxable in Nigeria?
Once a fixed base/taxable presence is established, foreign persons making business profits in Nigeria are subject to taxation under Section 6 of the PITA, subject to any applicable treaties.
Conclusion
The Personal Income Tax Act outlines what income is subject to taxation, what deductions are permitted by law, and who is responsible for collecting personal income tax in Nigeria as a method of determining how much tax is owed by people or employees. For this purpose, expats in Nigeria need to have a fundamental awareness of their tax obligations.
For more information, inquiries and filings about the taxation of expatriates in Nigeria, kindly reach out to us.
