In this article, we cover everything you need to know about PAYE calculation in Nigeria.
Paying taxes on personal income is a requirement for employees, self-employed individuals, and business owners in Nigeria. Among the various taxes, Pay As You Earn (PAYE) is crucial.
This tax is collected by the Federal Inland Revenue Service based on your state of residence. Personal Income Tax (PIT) follows the Personal Income Tax Amendment Act 2011 and the Finance Act 2020, effective from January 1, 2021. This guide will help you navigate the ins and outs of PAYE in Nigeria.
Key Words To Know About PAYE Calculation In Nigeria
- Gross Emolument: Includes salary, bonuses, fees, and Benefits in Kind.
- Allowances and Reliefs: Some are non-taxable, such as consolidated relief allowance, approved pension fund contributions, and life insurance premiums.
- Penalties: Non-payment results in a 10% annual penalty plus interest at the bank lending rate.
- Currency: PAYE is calculated in Nigerian Naira.
- Global Taxation: Nigerian residents are taxed on worldwide income, both within and outside Nigeria.
Who Pays PAYE in Nigeria?
Under the PITAM Act, taxes are based on source and residency rules. An employee is taxed if they:
- Work in Nigeria (full-time or part-time)
- Work for an employer based in Nigeria
- Work for an employer with a fixed base in Nigeria
Non-residents typically aren’t taxed in Nigeria unless:
- Their employer is not a Nigerian resident
- They stay in Nigeria for fewer than 183 days in a 12-month period
- Their employer bears the cost of employment
- They have already paid tax in another country
Foreign individuals earning business profits in Nigeria are taxed under Section 6 of the PIT Act. They can seek tax relief under a double tax treaty if applicable, but the Minister of Finance may define what constitutes a Significant Economic Presence (SEP).
What is Chargeable Income?
Chargeable income refers to all income sources minus non-taxable income, income on which no further tax is payable, allowable business expenses, and capital allowances. It’s also known as taxable income.
How to Calculate PAYE in Nigeria
PAYE rates in Nigeria range from 7% to 24%, depending on income:
- Annual income less than NGN 300,000: 7%
- Annual income more than NGN 3,200,000: 24%
Minimum wage earners are exempt from personal income taxes. The Finance Act 2020 defines low-income earners as those earning NGN 30,000 or less per month (NGN 360,000 annually). A minimum tax of 1% of gross income applies to others.
PAYE Tax Rates and Payment Deadlines
Here’s a breakdown of the PAYE tax rates:
- First NGN 300,000: 7% (NGN 21,000)
- Next NGN 300,000: 11% (NGN 33,000)
- Next NGN 500,000: 15% (NGN 75,000)
- Next NGN 500,000: 19% (NGN 95,000)
- Next NGN 1,600,000: 21% (NGN 336,000)
- Above NGN 3,200,000: 24% of the excess over NGN 3.2 million
Employers must deduct monthly PAYE from salaries and remit it by the 10th of the following month. Individuals must file returns by March 31 for the previous year. Employers must file PAYE returns twice a year, submitting the following forms:
- Form H1: Employee income and tax details (due January 31)
- Form G: Monthly remittances and reference numbers (due January 31)
- Form A: Annual income declaration and claims for allowances (due March 31)
FAQs About PAYE Calculation In Nigeria
- How much is PAYE on NGN 50,000? Use a free calculator to determine PAYE and other deductions like pension and health insurance.
- What are the PAYE rates for foreign persons working in Nigeria? Expatriates pay the same rates as residents.
- How can you prove an employer paid your tax? Use a Tax Clearance Certificate (TCC) from the Federal or State Inland Revenue Service or an extract of the Form H1 return.
- Must a company remit PAYE for a single employee? Yes, unless exempted by law, employers must remit PAYE for their employees.