The natural resources and the economic opportunities in Nigeria continue to attract foreign direct investments (FDI) by investors across the world. Based on the National Bureau of Statistics, capital inflow to Nigeria in 2018 was $19.07 billion of which $7.78 billion represents FDIs while capital inflows from January 2019 to May 2019 amounts to $14.2 billion of which $2.87 billion represents FDIs.

Closely related to such foreign direct investment is the need for skilled manpower and specialized labor to ensure the profitability of these investments. Without doubting the capabilities of the local workforce in Nigeria, some of these investors require the services of foreign workforce or expatriates especially in the initial phases of their business in Nigeria, due to the nature or technicality of such businesses. In these instances, the common practice which is also enforced by the respective authorities is to assign local employees to understudy any expatriate employed in any organisation for a period of time. In addition, businesses that employ expatriates have certain regulatory requirements which must be complied with in order to avoid sanctions and penalties, which will ultimately hinder their business process.

This article examines the various regulatory and tax considerations/obligations for organisations that employ expatriates for their businesses in Nigeria.

Tax Considerations for Employment of Expatriates

Taxation in Nigeria is generally based on the residency rule. An individual is deemed resident in Nigeria, if that individual exercises the duties of his employment in Nigeria. Hence, physical presence of an expatriate in Nigeria is one of the basis of ascertaining the tax residency of such expatriate.

An expatriate is deemed to have derived income from Nigeria and therefore liable to tax thereon if the duties of the expatriate's employment is performed wholly or partly in Nigeria. However, the expatriate will not be subjected to tax on such income if the duties of the employment are performed for a NonNigerian employer and the expatriate's income is not borne by a fixed base of the employer in Nigeria. Such income will also not be taxable in Nigeria if the expatriate is not in Nigeria for a period or periods amounting to an aggregate of 183 days (inclusive of annual leave or temporary period of absence) or more in any twelve month period, and if the remuneration of the expatriate is liable to tax in a country with a double tax treaty with Nigeria.

Taxation of individuals fall under the purview of the State Internal Revenue Service (SIRS) as provided in the Personal Income Tax Act 2011 (as amended). Based on the recent effort to enhance internally generated tax revenue in Nigeria, the State tax authorities have been quite aggressive in ensuring that tax due to the State are correctly collected and remitted to the State coffers. It is a general notion that expatriates are generously compensated by their employers in Nigeria. To this end, where the income declared by expatriate seems unjustifiable, the State Tax Authorities are quick to assess such expatriate on a deemed income or best of judgement basis.

Regulatory Considerations for Employment of Expatriates

The Immigration Act of Nigeria (the Act) provides the framework for the regulation of foreigners' entry, stay and exit from Nigeria. The principal regulatory agencies under the Immigration Act are the Nigerian Immigration Service (NIS) and the Federal Ministry of Interior (FMI).

The Immigration Act also regulates the employment of expatriates in Nigeria. The Act provides opportunities for businesses to access specialist skills or expertise that are not locally available in the Nigerian market for their lines of businesses or operations by introducing categories of visas and entry permits for the expatriates.

Based on the provision of applicable laws, any Company in Nigeria seeking to employ expatriates must obtain the consent of the Comptroller General of Immigration. This consent is issued in form of an Expatriate Quota (EQ).The EQ is a document that permits companies to employ a certain number of expatriates to specific pre-approved job designations for a specific period. To obtain the EQ, an employer will have to submit an application to the Federal Ministry of Interior in the prescribed format along with other supporting documents.

The categories of visa and entry permits for expatriates to live and work in Nigeria are:

  • Temporary work permit (TWP) – This covers entry into Nigeria to carry out activities on short term basis. A TWP which is usually valid for 90 days, allows its holder to work and reside in Nigeria subject to renewal or until he or she exits Nigeria before the expiration of the visa.
  • Subject to regularization (STR) Visa – This covers entry of expatriates who have been offered permanent employment with a Nigerian company. An expatriate that enters into Nigeria on an STR visa will usually be placed on the expatriate quota of a Nigerian company and therefore considered to be a full time employee of such company. STR visa is usually given for an initial period of 90 days, during which an application must be made to the NIS, for regularization of stay.

Another important permit that is required for expatriates to live and work in Nigeria is the Combined Expatriate Residence Permit and Alien Card (CERPAC). The CERPAC grants a foreigner the permission to live and work in Nigeria for up to two years, which is subject to renewal based on the validity of the EQ. The application for CERPAC should only be processed where EQ approval has already been obtained.

In summary, the EQ is required for companies seeking to employ expatriates while CERPAC is required for the expatriate to lawfully reside and work in Nigeria.

Employees under Expatriate Quotas

An expatriate who has been granted an STR visa or issued a CERPAC is deemed to be tax resident in Nigeria. Such expatiates are liable to tax in Nigeria irrespective of the length of their stay.  The income of such expatriate is liable to tax in Nigeria whether such income was received in Nigeria or not. In other words, any portion of the income of such expatriate paid into a bank account (or through any other means) outside Nigeria is liable to tax in Nigeria. However, foreigners who come into Nigeria on TWP may not be liable to tax if the conditions earlier stated are jointly met.

Employers can however explore other available tax planning tools to minimize the level of tax exposure of such expatriates for the duration of their stay in Nigeria. Such tax planning tools includes introduction of employee's Equity Based Incentive Schemes (EIS) as a form of employment benefit. The types of EIS schemes that may be adopted includes Stock Option, Stock Awards, Stock Purchase Agreement, Pseudo-Stock Option etc. The expatriates' level of tax exposure can also be minimized through a properly managed asset acquisition scheme or deferred lump sum payments.

In line with the efforts to curb tax evasion in Nigeria, various agencies have been in collaboration in order to synchronize data of tax payers. The State tax authorities have strengthened collaboration with the NIS to facilitate access to immigration records/ information on expatriates employed by Nigerian companies as a way of verifying information received by tax payers in the course of their periodic tax audit and verification exercises.

It is important for employers of expatriates to properly track the entry and exit of the expatriates on their EQ in and out of Nigeria by making sure details of the expatriates (location, duration of stay etc.) are properly set out in the relevant returns and EQ deletions upon completion of the expatriate's assignment in Nigeria. In addition, the need for appropriate record keeping of all documents relating to his assignment such as contracts/assignment letters, immigration documents, travel trackers and pay slips cannot be overemphasized.

Other Statutory Deductions/ Contributions for Expatriate Employees

Remuneration of expatriates should be included in the base for the computation of remittance to be made by Organisations for social security contributions such as Nigeria Social Insurance Trust Fund (NSITF) and Industrial Training Funds (ITF). However, the Nigeria Pension Reform Act and other employee related regulations does not specifically apply to foreign employees in Nigeria. Expatriates may enjoy the applicable tax reliefs where voluntary pension contributions are made to an approved Pension Fund Administrator (PFA) in Nigeria. Where the pension contributions are made to a PFA outside Nigeria, such contributions may not be allowed as a tax relief but subjected to tax.


As organisations venture to source and employ foreign skilled professionals, it is imperative to ensure compliance with all tax, legal and regulatory requirements. Employers face stiff penalties where they fail to perform their statutory obligations in relation to their employees whether local or expatriate. There is also a need for adequate tax planning in defining the compensation structure, nature of contract, scope of work, mode of entry of such expatriates in order to take advantage of the tax planning opportunities available in the respective tax laws. Companies should endeavour to source for professional guidance in this regard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.