Hiring in Nigeria means navigating a layered tax and compliance system that spans federal and state authorities. Employers are responsible for withholding and remitting income tax, enrolling employees in pension and health insurance schemes, and meeting several other statutory contribution obligations. This guide covers every employer tax obligation you’ll encounter when building a team in Nigeria.
Overview of nigeria’s tax system
Nigeria’s tax administration is split between federal and state levels. The Federal Inland Revenue Service (FIRS) oversees corporate income tax, VAT, and related federal levies. State Internal Revenue Services handle Pay As You Earn (PAYE) income tax, which employers collect from employees and remit monthly to the relevant state authority.
The Nigeria Tax Act 2025, effective January 1, 2026, introduced significant changes to the personal income tax framework, including a raised tax-free threshold and the abolition of the old Consolidated Relief Allowance. Employers need to apply these updated rules for all payroll processed from that date onward.
Paye: employer withholding obligations
PAYE is the mechanism by which employers deduct personal income tax from employees’ salaries and remit it to the State Internal Revenue Service where the employee works. It isn’t optional — failure to withhold and remit correctly exposes the employer to penalties and back-tax liability.
Updated paye rates from january 1, 2026
Under the Nigeria Tax Act 2025, the following graduated rates apply to annual taxable income:
| Annual taxable income (NGN) | Rate |
|---|---|
| First 800,000 | 0% |
| Next 2,200,000 | 15% |
| Next 9,000,000 | 18% |
| Next 13,000,000 | 21% |
| Next 25,000,000 | 23% |
| Above 50,000,000 | 25% |
Key changes employers must apply in 2026
The tax-free threshold has increased to NGN 800,000 per year, up from NGN 300,000 previously. Employees earning at or below the national minimum wage of NGN 70,000 per month (NGN 840,000 per year) are fully exempt from PAYE and the minimum tax rule.
The old Consolidated Relief Allowance has been abolished and replaced by a set of specific deductions. The most significant of these is a 20% rent relief, capped at NGN 500,000 per year. Employers should update their payroll calculations to reflect these new deduction rules rather than applying the legacy CRA formula.
Pre-tax deductions that reduce taxable income
Before applying the PAYE rate table, employers must first subtract the following statutory contributions from gross income:
- Pension contributions: 8% of monthly emoluments (employee share)
- National Health Insurance Authority (NHIA): 5% of basic salary (employee share)
- National Housing Fund (NHF): 2.5% of basic salary (employee share)
These deductions reduce the employee’s taxable income before the graduated rates are applied.
Minimum tax rule
If the PAYE calculated using the rate table is less than 1% of the employee’s gross income, the employer must apply a minimum tax of 1% of gross income instead. This rule doesn’t apply to employees earning at or below the minimum wage.
Monthly remittance deadlines
Employers must remit PAYE to the relevant State Internal Revenue Service by the end of each month following the payroll period. Late remittance attracts penalties and interest, so building a reliable payroll calendar is essential.
Employer payroll contributions
In addition to withholding PAYE, employers are required to make their own statutory contributions on top of employee salaries. These costs are entirely the employer’s responsibility and aren’t deducted from employee pay.
| Contribution | Employer rate | Base |
|---|---|---|
| Pension (RSA) | 10% | Monthly emoluments |
| NHIA (health insurance) | 10% | Basic salary |
| NHF (National Housing Fund) | 0% | N/A — no employer share |
| ITF (Industrial Training Fund) | 1% | Total annual payroll |
Taken together, employer contributions add approximately 23.5% to total employment cost above base salary (excluding ITF, which applies only to qualifying employers).
Pension: contributory pension scheme
Nigeria’s pension system is governed by the Pension Reform Act and operates on a defined contribution model. Employers with 15 or more employees must enrol all employees in the Contributory Pension Scheme.
How the scheme works
Each employee holds an individual Retirement Savings Account (RSA) with a licensed Pension Fund Administrator (PFA) of their choice. The employer contributes 10% of the employee’s monthly emoluments, and the employee contributes 8%, making the combined contribution 18% per month.
Employers must open an RSA for each employee within the timelines prescribed by the National Pension Commission (PenCom). Employers with fewer than 15 employees and self-employed individuals may participate voluntarily.
What counts as “monthly emoluments”
Monthly emoluments for pension purposes typically include basic salary, housing allowance, and transport allowance. Employers should confirm the precise definition with their PFA or legal counsel to ensure contributions are calculated on the correct base.
Nhia: national health insurance
The National Health Insurance Authority Act 2022 made health insurance mandatory for private sector employers. This ended the previously voluntary nature of employer health coverage in Nigeria.
Contribution rates and delivery
The combined NHIA contribution is 15% of basic salary: 10% from the employer and 5% from the employee. Coverage is delivered through licensed Health Maintenance Organisations (HMOs), and employers must register with an accredited HMO to fulfil this obligation.
State-level health schemes
Some states operate additional health schemes alongside the federal NHIA framework. Lagos State, for instance, operates the Ilera Eko scheme. Employers with staff in these states should confirm whether separate registration or additional contributions are required under state law.
Nhf: national housing fund
The National Housing Fund requires employees to contribute 2.5% of their basic salary toward a federal housing pool. There’s no employer contribution to the NHF — the employer’s role is to deduct the employee’s 2.5% and remit it to the Federal Mortgage Bank of Nigeria.
Remittance must be made monthly, and employers should retain proof of remittance as part of their payroll records.
Itf: industrial training fund levy
The Industrial Training Fund levy applies to employers with 25 or more employees or with an annual turnover exceeding NGN 50 million. The levy is set at 1% of the employer’s total annual payroll.
ITF payments are made annually and fund vocational and industrial training programs across Nigeria. Qualifying employers that run approved internal training programs may be eligible to reclaim a portion of the levy — this is worth exploring with a local tax adviser.
Vat obligations for employers
Nigeria’s standard VAT rate is 7.5%, confirmed under the Nigeria Tax Act 2025. Employers who are VAT-registered must file monthly VAT returns with the FIRS by the 21st of the following month.
Several categories of goods and services are VAT-exempt, including basic food items, medical products, educational materials, and residential electricity. If your Nigerian operations involve supplying goods or services to local customers, you’ll need to register for VAT and charge it at the standard rate on taxable supplies.
Corporate income tax
Foreign companies operating in Nigeria through a registered subsidiary are subject to corporate income tax on profits at the following rates:
| Company size | Annual turnover | CIT rate |
|---|---|---|
| Small company | Below NGN 25 million | 0% |
| Medium company | NGN 25 million to NGN 100 million | 20% |
| Large company | Above NGN 100 million | 30% |
Corporate income tax returns are filed with the FIRS. Companies that operate at a loss in a given year are still subject to minimum tax rules under certain conditions, so it’s worth engaging a local tax adviser to review your position.
Employee payroll deductions: what employers must withhold and remit
For completeness, here’s a summary of all deductions the employer must make from the employee’s gross pay and remit to the relevant authority:
| Deduction | Rate | Remitted to |
|---|---|---|
| PAYE | Graduated rates (see above) | State Internal Revenue Service |
| Pension (employee share) | 8% of monthly emoluments | Employee’s PFA |
| NHIA (employee share) | 5% of basic salary | Licensed HMO |
| NHF | 2.5% of basic salary | Federal Mortgage Bank of Nigeria |
Each of these has its own remittance deadline and reporting requirement. Employers must maintain accurate records of all deductions and remittances.
Hiring in nigeria without a local entity
Foreign companies that want to hire employees in Nigeria without first registering a local entity have a practical option available. An Employer of Record (EOR) acts as the legal employer in Nigeria on your behalf, handling payroll processing, PAYE remittances to the relevant State Internal Revenue Service, pension enrolment and contributions, NHIA registration, and NHF deductions — all in compliance with Nigerian law.
This approach lets you hire Nigerian talent and pay them correctly from day one without the cost and timeline of entity formation. Nigeria supports expat hiring through an EOR, which makes it a viable route for both local and international employees based in the country.
If you’re working with independent contractors rather than employees, you can engage them through contractors management tools that handle payments and compliance in a single platform.
Summary: employer tax obligations at a glance
Managing payroll in Nigeria means staying on top of obligations that span multiple authorities and remittance schedules. Here’s a quick reference:
| Obligation | Rate | Frequency | Authority |
|---|---|---|---|
| PAYE withholding | Graduated (0–25%) | Monthly | State Internal Revenue Service |
| Pension (employer) | 10% of emoluments | Monthly | Employee’s PFA |
| NHIA (employer) | 10% of basic salary | Monthly | Licensed HMO |
| NHF deduction & remittance | 2.5% of basic salary | Monthly | Federal Mortgage Bank of Nigeria |
| ITF levy | 1% of annual payroll | Annual | Industrial Training Fund |
| VAT | 7.5% | Monthly | FIRS |
| Corporate income tax | 0–30% on profits | Annual | FIRS |
Getting these obligations right from the start protects your business from penalties and builds trust with your Nigerian workforce. Each remittance has its own deadline, its own form, and its own authority — which is why many foreign companies choose to use an EOR rather than managing the compliance stack independently.
RemotePass makes it straightforward to hire and pay employees in Nigeria without setting up a local entity. Visit https://remotepass.com/demo to see how the platform handles Nigerian payroll, PAYE remittances, pension, and NHIA contributions on your behalf.
