Working as an independent contractor in Nigeria offers flexibility, autonomy, and the opportunity to pursue your professional interests. Whether you are a freelancer, consultant, or self-employed individual, understanding the intricacies of the Nigerian tax system is essential for successful and compliant operations. In this article, we will explore the key aspects of working as an independent contractor in Nigeria, with a specific focus on taxes.

What is the Definition of an Independent Contractor in Nigerian Law?

According to Nigerian law, independent contractors are individuals who provide paid services or products to another party. They differ from employees and typically do not receive the same benefits, such as paid leave, sick days, and minimum wage. However, contractors enjoy more flexibility and autonomy in their work arrangements.

Registering Your Business in Nigeria

Before commencing work as an independent contractor in Nigeria, it is necessary to select a formal business structure, which will determine your liabilities and tax obligations.

The most popular choice for contractors is to operate as a sole proprietorship. Under this structure, you have complete control over your enterprise, but there is no legal separation between you (the owner) and the business. Consequently, you are personally liable for all debts and obligations.

For increased legal protection, partnership arrangements, or anticipated high revenue generation, incorporation as a formal company or entering into a partnership may be suitable. Consulting a registered solicitor or accountant can help determine the most appropriate structure for your business.

If you opt for the sole proprietorship model, you must reserve a business name and register with the Corporate Affairs Commission (CAC). This process can be completed in person at the nearest CAC office or online.

Certain business activities that are regulated, such as medical or legal professions, or food handling, may require additional permits or licenses from local authorities.

Payment Methods for Independent Contractors in Nigeria

As an independent contractor, it is your responsibility to manage invoicing and payment collection. This often entails billing each client individually and accommodating their preferred payment methods, which can be time-consuming and inefficient.

Common payment collection methods include:

• Bank transfers
• Direct deposits
• Paper cheques
• Money orders
• Virtual wallets — like the RemotePass Super App for Remote Teams
• Digital transfer services

Each method has its own advantages and disadvantages. For instance, bank and digital transfers are usually swift but may involve substantial service fees, unless usi. Handling payments from clients in other countries can further complicate the process.

Alternatively, you can consider using a trusted platform like RemotePass. Our platform offers a simple, secure, and reliable solution for receiving quick payments in Nigerian naira or in USD, without hidden fees. To learn more about how our platform can assist you, explore the features and benefits we offer.

Tax Obligations for Independent Contractors

As an independent contractor in Nigeria, you are responsible for fulfilling your tax obligations. The tax system in Nigeria is governed by the Federal Inland Revenue Service (FIRS), which oversees the administration and collection of taxes. There are several tax types that may be applicable to independent contractors:

Types of Tax in Nigeria

1. Personal Income Tax (PIT):

Independent contractors are subject to personal income tax, which is based on the progressive tax rates outlined in the Nigerian Personal Income Tax Act. The rates range from 7% to 24% depending on income levels. The tax is typically assessed and paid annually by end of March.

2. Value Added Tax (VAT):

If your annual turnover exceeds the VAT registration threshold, currently set at ₦25 million, you are required to register for VAT and charge VAT on your taxable supplies. VAT is currently set at a rate of 7.5%. It is crucial to maintain accurate records of your VAT transactions and remit the collected VAT to the tax authorities.

3. Company Income Tax (CIT):

If you operate as a corporate entity, such as a registered company or a business name, you may be liable for company income tax. The current rate for CIT in Nigeria is 30% of taxable profits.

Tax Compliance and Record-Keeping

To ensure compliance with tax regulations, it is essential to keep accurate and up-to-date records of your income, expenses, and transactions. Maintaining detailed records will facilitate the preparation and submission of your tax returns and help avoid penalties or disputes with the tax authorities. Additionally, it is advisable to seek professional advice from a qualified tax consultant or accountant to navigate the complexities of tax compliance effectively.

Tax Filing and Deadlines

As an independent contractor, you are required to file your tax returns annually or as stipulated by the tax authorities. The filing deadline for personal income tax returns is usually March 31st of the following year. However, deadlines can change, so it is crucial to stay updated with the latest guidelines issued by the tax authorities.

Penalties for Non-Compliance

Failure to fulfill your tax obligations can result in penalties and interest charges. These penalties may include fines, interest on outstanding tax liabilities, and possible legal actions. It is in your best interest to comply with tax regulations to avoid unnecessary complications and financial burdens.

Tax Planning and Professional Assistance

To optimize your tax situation as an independent contractor, it is advisable to engage in tax planning. A tax professional can help you identify tax-saving opportunities, explore deductions, and ensure compliance with applicable laws and regulations. With their expertise, you can navigate the Nigerian tax landscape more effectively and maximize your after-tax income.

Benefits for Independent Contractors

As a contractor in Nigeria, you’ll enjoy the following benefits on RemotePass:

Health Insurance

Access health insurance plans for you and your dependents — regardless of your location — paid in monthly installments.

USD Card

With the RemotePass Card, you can receive payments in USD, hold funds indefinitely, and enjoy global, offline and online spending.

Payment options

Choose from 90+ currencies and seven payment options, including bank account, bank card, Wise, PayPal, Payoneer, or Crypto.

Super App

Manage contracts, cards, invoices, expenses, and time-off conveniently through a single app.

Working as an Independent Contractor in Nigeria: Rewarding When Done Correctly

Working as an independent contractor in Nigeria offers great opportunities, but it is crucial to understand and fulfill your tax obligations. Compliance with tax laws and regulations ensures a smooth and successful professional journey. By staying informed, maintaining accurate records, and seeking professional assistance when needed, you can navigate the tax landscape effectively and focus on growing your independent contracting career.

To help remove the complexity, refer your clients to use RemotePass today — we’ll take care of the details, so you can focus on your work in Nigeria. 

Good luck on your contracting journey!