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U.S. Income Tax Return Preparation and Advice for American Citizen (Expatriates) Living in Nigeria




At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Nigeria for over 3 years. Our clients hail from all parts of the country - Abuja and Lagos, Kano and Ibadan.





As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country. 


We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS


The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.


We have many clients living in Egypt and know how to integrate your U.S. taxes into the local income taxes you pay.  Any Egyptian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.

As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end.  (You cannot file using the calendar year as is standard in Egypt for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.

There are other forms which must be filed if you have foreign bank or financial accounts;  foreign investment company; or own 10% or more of a foreign corporation or foreign partnership.   If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form.  These penalties are due regardless of whether you owe income taxes or not.

We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.

Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.



Below we include information on the Nigerian Tax System for the American Expatriates.

Personal income tax rates in Nigeria are progressive up to 25%.

Taxable Income                        Tax Rate
N0 - N30,000                            5%
N30,001 - N60,000                    10%
N50,001 - N110,000                  15%
N110,001 - N160,000                20%
Above N160,000                       25%

 

Exempted Tax Allowances

Rent Allowance: Maximum of N150,000 per annum.
Transport Allowance: Maximum of N20,000 per annum.
Utility Allowance: Maximum of N10,000 per annum.
Meal Allowance: Maximum of N5,000 per annum.
Entertainment Allowance: Maximum of N6,000 per annum.
Leave Allowance: 10% of Basic Salary per annum.
Disability Allowance: 10% of Earned Income or N3,000 - whichever is lower.

 

Tax Reliefs

Personal Allowance: 20% of Earned Income + N5,000.
Children Allowance: N2,500 per child for maximum of 4 Children.
Dependant Relative Allowance: N2,000 per Dependant.
Life Assurance: 100% of sum paid (Evidence to be submitted before this relief can be granted).
Interest on Loan in respect of Owner Occupier premises: 100% - Subject to approval of the Board (FIRS).
Pension contribution: 100% of sums paid.

 

Possible future year personal tax rates and tax brackets in Nigeria:

Taxable Income                        Tax Rate
First N300,000                          7%
N300,001 - N600,000                17%
N600,001 - N1,110,000              15%
N1,100,001 - N1,600,000           19%
N1,600,000 - N3,200,000           21%
Above N3,200,000                     24%

 

Basis – Nigerian residents are taxed on their worldwide income. Foreign-source income of residents is taxable if remitted to Nigeria.

Foreign-source income in convertible currency arising from salaries, dividends, interest, rents, royalties, fees or commissions is exempt if brought into Nigeria through approved channels. Income brought into Nigeria through domiciliary accounts by athletes, playwrights, authors, musicians, artists and temporary guests who are professionals also is exempt. Nonresidents are taxed on Nigerian-source income, generally via withholding at source.

Residence – An individual is deemed to be resident in Nigeria if he/she spends more than 180 days in any 12-month period in Nigeria.

Tax Filing status – Each individual must file a return; joint filing is not permitted.

Taxable income – Employment income is generally taxable unless otherwise exempt. Business profits earned by an individual from a trade or profession and other investment income also are taxable.

Capital gains – Capital gains tax is generally levied at a rate of 10%. Gains from the disposal of shares are not subject to capital gains tax.

Tax Deductions and tax allowances – Deductions are granted for personal and dependent children allowances. Additionally, a certain proportion of earned income is tax exempt.

 

Other taxes on individuals:

Capital duty – No

Stamp duty – Stamp duties are charged by both federal and state governments on various commercial and legal documents, such as transfers of deeds, insurance policies and bills of exchange.

Capital acquisitions tax – No

Real property tax – States and local authorities levy "rates" on the occupation of real property.

Inheritance/estate tax – No

Net wealth/net worth tax – No

Social security – See under "Other taxes on corporations".


Administration and compliance:

Nigeria Tax year – Nigeria tax year is the calendar year

Tax Filing and payment of tax – An individual engaged in full-time employment is taxed under the pay-as-you earn system. The employer withholds personal income tax from the employee's salary or wages and pays it to the tax authorities within 14 days. An individual whose only source of income is employment income from a single employer must file a tax return unless his/her employment income does not exceed NGN 30,000 per year. Other individuals pay tax by self-assessment or direct assessment. Financial statements and schedules, when applicable, must accompany the selfassessment return. Payments may be made in full or, upon application, in instalments. Withholding tax suffered at source can be used to offset income tax due.

Penalties – Penalties and interest are levied for late payments or failure to file returns.

Nigeria Corporate Tax

Nigeria corporate tax rate for non-oil and gas companies is 30%.

Companies involved in petroleum operations pay Petroleum Profits Tax. For the first 5 accounting periods of a new company the Petroleum Profits Tax rate is 65.75%. For other accounting periods the tax rate is 85%.

 

Residence - The Nigerian Companies Income Tax Act uses the concept of a "fixed base" rather than residence. Any company doing business in the country and that has a fixed base as defined in the Act is subject to tax. A nonresident company operating through a fixed base or permanent establishment as defined in a tax treaty also will be subject to the Nigerian tax regime. A Nigerian company is one incorporated in Nigeria. All companies involved in petroleum operations as defined by the Petroleum Profit Tax (PPT) Act, wherever incorporated, are subject to Petroleum Profit Tax (PPT).

Basis – Nigerian companies are taxed on worldwide income, while companies registered in a foreign jurisdiction with a fixed base or PE are taxed only on Nigerian source income.

Taxable income – Taxable income is a company's income, less allowable deductions and losses. Income of a capital nature is not included in taxable income.

Taxation of dividends – Dividends received by a Nigerian company from another Nigerian company are exempt from corporate tax.

Capital gains – Capital gains tax is generally levied at a rate of 10%. Gains from the disposal of shares are not subject to capital gains tax.

Losses – Losses may not be carried back but may be carried forward indefinitely (except insurance companies, which are limited to a 4-year carryforward).

Surtax – No

Alternative minimum tax – A minimum tax is levied to ensure that, unless exempt, every company pays a certain amount of corporate income tax. The minimum tax is payable by a company where, in any year of assessment, the total assessable profits from all sources results in a loss or no tax being payable or tax payable that is less than the minimum tax. When turnover is NGN 500,000 or less, the minimum tax is the highest of 0.5% of gross profits or 0.5% of net assets, or 0.25% of paid-up capital or 0.25% of turnover. When turnover is higher than NGN 500,000, an additional tax is payable, calculated at the rate of 0.125% of turnover exceeding NGN 500,000.

Agricultural and agro-allied companies, companies with at least 25% foreign equity and any company in the first 4 years of commencement of business are not required to pay the minimum tax.

Foreign tax credit – A unilateral credit is not available to corporate taxpayers. However, income tax paid in non-treaty countries is deductible if Nigeria also taxes the income.

Participation exemption – No

Holding company regime – No

Tax Incentives – Various investment incentives are available to foreign investors, including import concessions, tax exemptions for exported products, tax reductions for qualifying companies and tax deductions for R&D expenses.

 

Withholding tax:

Dividends – Dividends are subject to a 10% withholding tax whether paid to resident or nonresident recipients unless the rate is reduced under a tax treaty.

Interest – A withholding tax of 10% is imposed on payments of interest to both residents and nonresidents unless the interest is exempt. Exempt interest includes interest on savings accounts, provided the amount deposited is under NGN 50,000.

Royalties – Tax must be withheld at a rate of 10% in respect of royalty payments to companies and individuals, unless the rate is reduced under a tax treaty.

Other – Payments, such as management consulting fees and fees for technical services and commissions, are subject to withholding tax at rates of 10% for corporate recipients and 5% for individuals. A 10% withholding tax applies to all rental payments and director's fees. These withholding taxes are final for nonresident recipients, but they may not be final for residents.

Branch remittance tax – No

 

Other taxes on corporations:

Capital duty – No

Payroll tax – No

Real property tax – States and local authorities levy "rates" on the occupation of real property.

Social security contributions– Employers are required to make a compulsory pension contribution at a minimum of 7.5% of an employee's basic salary, transport and accommodation allowances. An employee also contributes a minimum of 7.5% of earnings. While there is no maximum limit to the amount that may be contributed by an employer, the minimum total contribution is 15%.

Stamp duty – Stamp duty is charged by both federal and state governments on various commercial and legal documents, such as transfers of deeds, insurance policies and bills of exchange.

Transfer tax – No

Other – Petroleum Profit Tax or PPT, rather than corporate tax, is imposed on petroleum companies. Income for PPT purposes refers to the value of the oil and related substances extracted, except gas, plus any other income of the company. Various deductions are allowed. The tax rate is normally 85%.

Education tax at a rate of 2% is payable by all resident companies. The tax base is calculated on the company's adjusted/assessable profits for corporate income tax or PPT purposes before the deduction of capital allowances. The tax is payable by self-assessment or assessment notices issued by the federal tax authorities and is an allowable expenditure for Petroleum Profit Tax purposes.

 

Anti-avoidance rules:

Transfer pricing – There are no specific transfer pricing rules, but transactions are required to be conducted at arm's length.

Thin capitalisation – There are no specific thin capitalisation rules, but transactions are required to be conducted at arm's length.

Controlled foreign companies – No

Other – The arm's length principle applies to all transactions.

Disclosure requirements – Annual tax returns must be accompanied by signed, audited financial statements.

 

Administration and compliance:

Nigeria tax year – Nigeria tax year is 12 months on a preceding year basis except for the commencement of a new business, a change of accounting date and cessation of business where special rules apply.

Consolidated returns – Consolidated tax returns are not permitted; each company must file a separate tax return.

Tax Filing requirements – A corporate taxpayer must file an annual return, based on its income for the accounting year. The return is due within 6 months after the end of the accounting year. The taxpayer's audited financial statements must accompany the return.

Penalties – A taxpayer failing to file a return will be assessed by the tax authorities to the best of their judgement. Penalties may apply for late filing of tax.

Nigeria vat (Value Added Tax) Rate

Nigeria VAT rate is 5%. Exempt goods and services include basic foodstuffs, medicines, medical devices and medical services, and exported goods and services. Some items are zero-rated.

Taxable transactions – VAT is payable on taxable supplies of goods and services,
including imports.

VAT Registration – Most businesses are obliged to register for VAT purposes. An exemption applies to individuals and small-scale traders, who may register voluntarily so that they can recover VAT they pay on business related purchases.

Filing and payment of VAT – VAT returns are filed on a monthly basis, along with any payments due. The returns cover the VAT paid (input VAT) and VAT received (output VAT) in the previous month. If the input VAT paid by the taxpayer exceeds the output VAT charged to the taxpayer's customers, the taxpayer may apply for a refund. Input VAT does not include VAT paid on revenue expenses, which are otherwise charged to the profit and loss account. Various penalties and interests are charged on VAT law violations.

The tax is collected on behalf of the Government by businesses and organizations which have registered with the FIRS's Integrated Tax Office for VAT purposes nearest to them or their operating bases. Branches of such businesses and organizations are to register independently in their own areas of operation and they are classified as "registered persons". A consumer will pay 5% on goods and services purchased but, can claim credit for input tax when sold.