Welcome to Follow the Money, our weekly deep dive into the financial performance, business models, and growth tactics of African fintech companies and financial institutions. Tune in every Monday for fresh insights.
Starting January 2026, Nigerians earning income remotely-such as a software developer making $2,000 monthly for a U.S.-based startup while residing in Lagos-will be subject to income tax just like conventional employees.
The maximum personal income tax rate will be capped at 25%, positioning Nigeria’s tax burden below that of South Africa (45%), Kenya (35%), Egypt (27.5%), and Algeria (35%).
In June 2025, Nigeria enacted new tax legislation aimed at streamlining tax administration and boosting government revenue. The country’s goal is to raise its tax-to-GDP ratio from under 10% to 18% by 2027. These reforms expand the definition of taxable income to encompass a broader segment of earners.
According to Chapter Two of the law, titled “Taxation of Income of Persons,” any income, gains, or profits earned by Nigerian residents are considered Nigerian-sourced and taxable within the country, regardless of where the income is generated or received.
The legislation clarifies that income from employment is deemed Nigerian-sourced if the employee resides in Nigeria or performs their duties wholly or partially within Nigeria, provided the remuneration is not already taxed in the employee’s country of residence.
Moreover, salaries earned abroad by Nigerians are taxable if the foreign country exempts such income under a bilateral agreement or diplomatic arrangement involving Nigeria.
Nigeria currently holds double taxation treaties (DTTs) with countries including Belgium, Canada, China, the Czech Republic, France, the Netherlands, Pakistan, the Philippines, Romania, Singapore, Slovakia, South Africa, Spain, Sweden, and the United Kingdom.
These treaties allow Nigerian residents earning income from these countries to offset foreign taxes paid against their Nigerian tax liabilities, as explained by PwC.
The law also provides relief mechanisms for income already taxed abroad to prevent double taxation.
Tax Rates and What You Owe
Remote workers have been actively discussing the implications of the new tax rules. “Our company’s Nigerian WhatsApp group, usually quiet, has been buzzing with questions about tax since the law was passed,” shared Tope Oladosu, a quality analyst at a U.S.-based payroll firm, with TechCabal. “Everyone wants clarity on how much tax they’ll owe starting next year.”
The tax brackets under the new legislation are as follows:
For example, a remote employee earning $2,000 monthly (approximately ₦2.98 million per month or ₦35.72 million annually) from a foreign employer will face an estimated tax rate of about 23%, equating to roughly ₦684,599 monthly starting in 2026. However, taxable income is calculated after allowable deductions.
Permissible deductions include contributions to the National Housing Fund, National Health Insurance Scheme, Pension Reform Act, annual premiums for life insurance or annuities, and a rent relief allowance of 20% capped at ₦500,000 (around $336).
Adewunmi Adewole, an accountant, explains that the tax system will be progressive, meaning individuals with lower incomes will pay less tax proportionally than those in higher brackets. “The first ₦800,000 of annual income remains exempt from tax after adjustments,” she notes.
She also points out that while Nigerian clients can withhold taxes on behalf of freelancers, foreign employers typically cannot. Consequently, freelancers working for overseas clients will need to self-declare and pay their taxes annually.
Compliance, Penalties, and Enforcement
Failure to register with the Nigeria Revenue Service (which will replace the Federal Inland Revenue Service by 2026) will incur a penalty of ₦50,000 ($33.59) for the first month and ₦25,000 ($16.79) for each subsequent month. Not filing tax returns will attract a fine of ₦100,000 ($67.19) initially, followed by ₦50,000 ($33.59) for every additional month.
The tax authority will verify submitted information, and providing false declarations can result in fines up to ₦1 million or imprisonment for up to three years, or both.
From 2026 onward, freelancers and Nigerians employed by foreign companies must register, file returns, and remit taxes accordingly or face significant penalties.
Note: Exchange rate used is ₦1,488.26 to $1.
Don’t miss out! Moonshot by TechCabal returns to Lagos on October 15-16. Join Africa’s leading founders, creatives, and tech innovators for two days of inspiring talks, networking, and forward-thinking ideas. Secure your tickets now at moonshot.techcabal.com.
0 Comments