12. What are the main laws regulating employment relationships?
The main laws regulating employment relationships are the:
Other than the Immigration Act (which regulates the employment of foreign employees) and the National Housing Fund Act (which, in practice, is not applied in relation to foreign employees), all the other laws listed above apply to both Nigerian and foreign employees.
None of the laws listed above apply to Nigerians working abroad for foreign employers.
Nigerian courts will generally uphold the parties' choice of law and jurisdiction. However, in certain limited circumstances, the courts will assume jurisdiction regardless of an express choice of foreign jurisdiction. The factors that the Nigerian courts consider in determining whether to assume jurisdiction include:
The court has discretion in applying these factors.In addition, the National Industrial Court (NIC) has original exclusive jurisdiction in civil cases and matters relating to or connected with labour and employment, trade unions, industrial relations, and matters arising from the workplace and conditions of service (including health, safety, welfare of labour, employee, worker, and any matters incidental or connected to these matters).13. Is a written contract of employment required?
A written contract of employment is required for workers to whom the Labour Act applies (that is, employees who perform manual labour or clerical work).The contract must state (among other things):
Some of the implied terms in contracts of employment include the employer's duty to:
Collective agreements only apply to employment relationships where the:
14. Do foreign employees require work permits and/or residency permits?
Foreign employees require a work permit to work in Nigeria. This permit can be either a:
15. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as changes in control, redundancies and disposals)?
Employees are not generally entitled to management representation.If the employees are workers or members of a trade union, and the proposed reorganisation will lead to either redundancies or a transfer of employees, the employer must consult and negotiate with the workers' representatives or trade union officials. Although there is no obligation to consult or negotiate with non-workers that are not members of a trade union, employers generally tend to do so.Apart from the above, there is no obligation to consult employees in relation to corporate transactions such as disposals.
18. In what circumstances is an employee taxed in your jurisdiction?All resident employees are taxed in Nigeria. For resident employees, personal income tax is imposed on the employee's total assessable income from all sources in the year of assessment (see Question 19, Tax Resident Employees). An employee will be regarded as resident in Nigeria if the employee:
A foreign employee of a Nigerian company is subject to tax in Nigeria if they perform their duties partly or wholly in Nigeria and are paid in Nigeria, unless they can show at least one of the following:
19. What income tax, social security and other tax or contributions must be paid by the employee and the employer during the employment relationship?
Personal income tax. This is levied on the income of the employee under the Pay-As-You-Earn (PAYE) system, which requires the employer to deduct tax from the employee's monthly remuneration at the following rates:
There is a consolidated relief allowance of 20% of gross income and, in addition to this, a further allowance of NGN200,000 or 1% of gross income (whichever is higher). National Housing Fund deductions. On a monthly basis, Nigerian employers must deduct 2.5% of each employee's basic salary and remit this to the National Housing Fund. Pension contributions. Every employee in an organisation that employs up to three persons is required to contribute up to 8% of their monthly salary into their retirement savings account, which is managed by a pension fund administrator (PFA) of their choice. The employer has a statutory obligation to deduct this contribution at source and remit it to the PFA on behalf of the employee.
Industrial Training Fund (ITF) deductions. Every Nigerian company employing four or more persons or with a turnover of up to NGN50 million must contribute 1% of its annual payroll to the ITF.Pension contributions. Every employer of three or more persons has an obligation, in addition to deducting each employee's pension contributions (see above, Tax Resident Employees), to contribute at least 10% of each employee's monthly salary into the employee's retirement savings account. Life insurance for employees. The employer has a statutory obligation to maintain at all times, for the benefit of its employees, a life insurance policy, the benefits of which must be at least three times each employee's annual salary. Employees Compensation Fund. Employers must contribute 1% of total monthly payroll into the Employees Compensation Fund.
20. When is a business vehicle subject to tax in your jurisdiction?
A Nigerian company is tax resident in Nigeria when it has been incorporated in Nigeria.
Profits from a non-tax resident business vehicle (that is, a company not incorporated in Nigeria) are deemed to have been derived in Nigeria and subject to tax if any of the following applies:
Where the vehicle is incorporated in a jurisdiction that has a DTT with Nigeria, the provisions of the treaty will be relevant in determining the tax liability of the vehicle. The Finance Act has expanded the basis for taxing non-resident companies (NRCs) with a significant economic presence (SEP) in Nigeria to include digital services and services rendered outside Nigeria to a Nigerian beneficiary (see Question 2). NRCs that transmit, emit or receive signals, sounds, messages, images, or data of any kind to Nigeria in respect of any activity, including electronic commerce, online adverts, online payments, and so on, and have a SEP in Nigeria, will be taxed on the profit attributable to such activity in Nigeria.21. What are the main taxes that potentially apply to a business vehicle subject to tax in your jurisdiction?
The Finance Act introduces a new tax regime for the assessment of companies income tax (CIT), as the rate of CIT payable by a company on its total assessable profits will be determined by the following thresholds:
The Finance Act also expands the basis for taxing NRCs that have a SEP in Nigeria to include digital services and services rendered outside Nigeria to a Nigerian beneficiary. This means that income earned by NRCs from digital services and services provided remotely to Nigerian residents shall be subject to tax. Although the Finance Act does not state what would constitute SEP, the Minister of Finance is empowered under the Act to determine this by executive order, but this is yet to be done.
CGT is imposed on gains arising from the disposal of capital assets, at a rate of 10%. Exemptions from CGT include:
Tertiary education tax is imposed at a rate of 2% under the Tertiary Education Trust Fund (Establishment etc.) Act, 2011.
Stamp duty is imposed on documents at varying rates, which can be either ad valorem or nominal. The nominal rate is currently:
Ad valorem rates range from 0.15% to 6%. Electronic transactions are now liable to stamp duty under the Finance Act. Transfers of shares, stock, or securities by a lender to its approved agent or a borrower in furtherance of a regulated securities lending transaction are exempt from stamp duty.
The following types of companies with an annual turnover of at least NGN100 million must pay 1% of their profits before tax to the FIRS:
Withholding tax on rents, dividends, royalties and interest is 10% (reduced to 7.5% where the recipient is registered in a country with which Nigeria has a DTT). Fees for management or technical services are taxed at 10% for companies and 5% for individuals. Contracts of supplies are taxed at 5%.
VAT is charged at 7.5% on goods and services other than those exempted by law. The definition of goods and services that are subject to VAT has been expanded by the Finance Act to include intangibles such as intellectual property rights, shares and royalties. Exempted goods include:
Exempted services include:
Under the Cybercrimes Act, 2015, the following companies must pay a levy of 0.005% on all electronic transactions into a fund held with the CBN:
22. How are the following taxed:
Tax is deducted at the rate of 10% on dividends paid to all shareholders. This is reduced to 7.5% if a foreign shareholder is resident in a country with which Nigeria has a DTT.
Dividends derived from foreign companies by Nigerian residents (corporate and individuals) and brought into Nigeria through government-approved channels are exempt from tax.
Tax must be withheld at the rate of 10% on interest payments on all loans, except where the interest payments are specifically exempted from tax. This rate is reduced to 7.5% if the lender is resident in a country that has DTT with Nigeria. When the lender is foreign and the loan is in a foreign currency, tax on the interest can be further reduced as follows:
Royalty payments on IP rights are taxed at the rate of 10%. This is reduced to 7.5% where the recipient is resident in a country with which Nigeria has a DTT.
23. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)?
Nigeria does not presently have thin capitalisation rules specifying required debt-to-equity ratio requirements for companies. There are presently no laws providing that any excess debt above a specified ratio will not be deductible for tax purposes or restricting a company from procuring loans from foreign lenders. However, the Finance Act, 2019 introduced a new deductibility rule limiting the deductible interest expense incurred by a Nigerian company in any tax year on debts issued by a foreign connected person to 30% of earnings before interest, tax, depreciation and amortisation (EBITDA).The CAMA 2020 requires public companies to have net assets amounting to at least 50% of the company's issued and paid-up share capital.24. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)?A parent company that is tax resident in Nigeria (that is, incorporated in Nigeria) must file consolidated returns in respect of its foreign subsidiaries and pay tax on its worldwide income. Dividends received from foreign subsidiaries and brought into Nigeria through a Nigerian bank are exempt from tax.25. Are there any transfer pricing rules?The Transfer Pricing Regulations (TP Regulations), 2018 apply to controlled transactions (that is, related-party transactions). A company must comply with the TP Regulations in relation to any related-party transactions such as:
Customs tariffs on imports range from 0% to 65%. This is in addition to VAT, port handling charges, customs entry processing fees, bonded terminal charges, and fees levied by the Standards Organisation of Nigeria or the National Agency for Food and Drug Administration and Control for the inspection of imported goods. There are no export duties. However, exporters must pay a Nigerian export supervision scheme administrative charge, which ranges from 0.5% to 0.15% of the free on board (FOB) value.
Source: https://uk.practicallaw.thomsonreuters.com
