Personal Income Tax is the charge on the income of individuals, trustees, and executors. In Nigeria, the two key legislation are the Personal Income Tax Amendment Act 2011 (PITAM) and Finance Act 2020 (https: //www.bomesresourcesconsulting.com/finance-ac 2020-nigeria-overview.html). The effective date of the Finance Act 2020 is 1 January 2021. This article provides a guide on the taxation of employees in Nigeria Employees pay tax based on residency. Thus, an employee will be a tax resident if the; 1. employee works fully (or partially) in Nigeria or 2. employer is in Nigeria or 3. employer has a fixed base in Nigeria, Also, an, expatriate employee (https: //www:bomesresourcesconsulting.com /expatriate-tax- nigeria html) may be liable to tax in Nigeria unless the; 1. employce stayed less than 183 days in any period of 12- Training months; 2. employer is not resident in Nigeria; Reserve a seat in our 3, non-resident employer bears the employee cost; and professional accounting 4, employee has paid tax in another country. and tax training (httas, /wwwbomesres ourcesconsulting.com/t raining) Significant economic presence for individuals Notwithstanding the four conditions for taxation of foreign employees in Nigeria, the Finance Act (FA) 2020 introduced the significant economic presence rule for personal income tax (PIT). The gains or yeeprofits of the trade or business will be taxable in Nigeria when an individual, executor, or trustee outside Nigeria provides technical, management, consultancy, or professional services to a person resident in Nigeria, ‘The withholding tax (WHT) on such income will be the final tax, Currently, the WHT rate for transactions of this nature is 5%. As SEP considers cross border activities, a non-resident person (NRP) may seek tax relief under a double tax treaty. Furthermore, the Minister of, Finance may issue an Order to define the activities that constitute a significant economic presence under PIT. Chargeable income Once an employee is a tax-resident in Nigeria, income tax will be payable on the worldwide income. Worldwide income refers to income received within and outside Nigeria. Meanwhile, income chargeable to PIT includes income from all sources minus all non-taxable income, income on which no further tax is payable, tax-exempt items, allowable business expenses, and capital allowance. In other words, the gross income of an employee who earns only emoluments will be as follows; + Employment income less non-taxable income, income on which no further tax is payable, and tax-exempt items. ‘The statutory tax allowances and reliefs are: 1, Premium paid in the prior year for a life insurance policy of a person or a spouse. 2. Contribution(s) to an approved pension fund (https: //www.bomesresourcesconsulting.com/tax-appeal- tribunal-affirms-exemption-voluntary-pension-contribution.htm!), National Health Insurance Scheme (https: //www-bomesresourcesconsulting.com/payroll-tax-social- security-contributions-nigeria.html), National Housing Fund (https: //www-bomesresourcesconsulting.com/president-declines- assent-national-housing-fund-bill-2018.html) 3. Gratuities (https: //www.bomesresourcesconsulting.com/tax- appeal-tribunal-gratuities-exempt html) 4. Consolidated relief allowance or CRA; that is the higher of NGN200,000 per annum or 1% of annual gross income, plus 20% of Recent Posts LIRS extends deadline for 2021 Form A returns (https: //www-bomesres ourcesconsulting.com/ lirs-extends-deadline- 2021 returns.html) (tibs Arty wnovessesourcesconsuin STUANS TMLRESTOND Calculate Nigerian PAYE tax online (https: //www.bomesres ourcesconsulting.com/ calculate-paye-tax- online-nigeria- 2021.html) FEBRUARY 42021 / (reds ww wsovesresourcesconsuinvc.c LIRS exten line filing-2020-employer- tax-returns.html) Fesauany 3, 2021 / {are rw uowesxesovrcesconsuinscg Finance Act 2020 Nigeria: An overview (https: //www.bomesres ourcesconsulting.com/, finance-act-2020- nigeria-overview.htm)) DVLA FTMBN SAH) *the gross income per annum, Note that the new definition of gross income is gross emoluments minus all statutory reliefs. ‘Tax rates Nigeria adopts a Pay-As-You-Earn (PAYE) system to calculate the personal income tax of employees. It is called PAYE tax. This tax rate progresses from 7 percent to 24 percent of taxable income. The taxable income band ranges from NGN300,000 to above NGN3.2 million in a year. ANNUAL RATE TAX PAYABLE PER ANNUM (NGN) TAXABLE INCOME (NGN) First 21,000 NGN300,00 Next 11% 33,000 NGN300,000 Next 15% 75,000 NGNS00,000 Next 19% 95,000 NGNS00,000 Next 21% 336,000 NGN1,600,000 Above 24% — Multiply only the excess amount over NGN3,200,000 NGN3.2 million by 24%, For example, an annual taxable income of NGNS million is (5-3.2) million * 24% NGN432,000. ‘Table showing the personal income tax rate in Nigeria ‘Top 10 Nigeria Tax Blog Posts in 2020 (https: //www-bomesres ourcesconsulting.com/ ‘igeria-tax- blog-posts-2020,htm)) Nigerian Senate passes 2021 Budget adds NS05b expenditure (https: //www-bomesres ting.com/ nigerian-senate- passes-2021-budget- S05bn.htm)) Decema 23,2000 / FIRS (https: //www-bomesres lting.com/ ourcesco: exempt-specific-sales~ tetrapak-firs html) EndSARS: FIRS Nigeria grants tax palliative (https: //www.bomesres ourcesconsulting.com/ endsar: igeri grant: palliative.html), NovensE 25,2020 / nA minimum tax of 1 percent of gross income will apply where an individual has no taxable income or where the PAYE tax is less than the minimum tax. However, a low-income earner is exempt from minimum tax in Nigeria. The Finance Act 2020 defines a low-income earner as a person who earns the National Minimum Wage or less. At the moment, the threshold in Nigeria stands NGN30,000 per month or NGN360,000 per annum. Related articles for yo » Calculate PAYE tax online Q) > Payroll contributions for employer and employee () » Other articles on Nigerian PAYE tax () ‘Tax Returns and Due dates Furthermore, an employer will deduct monthly PAYE tax from employees’ salary and remit the tax to the relevant tax authority through designated banks. The due date is within ten (10) days of the next month, ‘There are two annual PAYE tax returns that an employer should file on behalf of an employee. They are Form Hi and Form A. Another name for the Form Hi return is an annual employer's tax return. It shows the name, gross income per annum, and PAYE taxes of employees in the preceding tax year. In practice, a taxpayer files Form G alongside Form HI Form G shows details of the annual PAYE tax paid and the corresponding receipts. The due date for filing Form Hi is 31 January of the following year. On the other hand, Form A is an annual declaration of individual Categories Accounting (https: /wwwbomesres ourcesconsulting.com/c ategory/accounting) business (https: /www-bomesres ourcesconsulting.com/e ategory/business) Companies Income Tax (https: /wwwbomesres ourcesconsulting.com/c ategory/tax/companies -income-tax) Direct Tax (hits: /wwwbomesres ‘ourcesconsulting.com/ce ategory/tax /direct-tay) Economy. (hitps://www.bomesres ourcesconsulting.com/e ategory/economy) Indirect Tax (https://wwwbomesres ‘ourcesconsulting.com/e gory /tax/indirect~ tax) International Tax (https: /wwwbomesres ourcesconsulting.com/e ategory/tax/internation (https://www-bomesres ourcesconsulting.com/c ategory/mobility) PAYE Tax (https://www_bomesres ourcesconsulting com/e ategory/tax/paye-tax- tax)income and claims for allowances and reliefs form, 31 March of the current year is the due date for filing Form A. Conclusion Changes in the PIT law will affect the calculation and report. Employers and persons in a management capacity should assess the impact of the new law on their employees. For specific guidance, BRC can assist with a customized payroll tax solution. Download - BRC Article on PAYE tax in Nigeria (https://www.bomesresourcesconsulting.com/wp- content /uploads/2021/01/BRC-Article-PAYE-tax-in-Nigeria~ with-Finance-Act-2020.pdf), Updated: 29 January 2021 Please share this, NEWSLETTER Get the latest insights directly in your inbox Petroleum Profit ‘Tax (https://www_bomesres ourcesconsulting.com/c ategory/tax/petroleum =profit-tax Retirement benefits (https://www_bomesres ourcesconsulting com/e ategory/retirement- benefits) ‘Tax (https: /www-bomesres ‘ourcesconsulting.com/c ategory/tax) ‘Tox Highlights (https://www-bomesres ourcesconsulting.com/c ategory/tax-highlights) [ransfer Pricing (https: //www_bomesres ourcesconsulting.com/c ategory/transfer- pricing)