Contractor’s guide to contracting in Nigeria
As the EU looks confusing, uncertain and even inhospitable right now due to the Brexit impasse, contractors are increasingly looking further afield when they consider contracting overseas, writes Nikolas Papageorgiou of international payroll firm Access Financial.
Nigeria for contractors: in an economic nutshell
Nigeria's GDP surpassed that of South Africa about a decade ago, according to the World Bank. Indeed last year, Nigeria's economy was valued at $397billion, while South Africa - once the biggest player on the continent - had a GDP of $366 billion. Nigeria is one of the world’s biggest oil exporters – and Africa’s biggest oil producer, pumping out around two million barrels each day.
Real GDP is projected to grow by 2.3% in 2019, and 2.4% in 2020, as implementation of the country’s Economic Recovery and Growth Plan (hatched in 2017) gains pace. However, the slide in oil prices from late 2018, coupled with an output cut imposed by the Organization of the Petroleum Exporting Countries, poses a downside risk to Nigeria’s economic outlook.
More positively, the growing importance of services has bolstered growth in the economy. The sector accounts for about half of GDP, dwarfing the 10% from oil and 22% from agriculture. Real GDP growth was an estimated 1.9% in 2018, reflecting a recovery in services and industry -- particularly mining, quarrying, and manufacturing.
What are the benefits of working in Nigeria as a UK contractor?
The top three benefits of working in Nigeria, most often cited to us by UK contractors, are:
- The fastest growing economy in Africa
- Low income tax
- Relatively low cost of living
Can I use my existing UK limited company for a contract in Nigeria?
It is possible to use your own Personal Services Company (PSC) in Nigeria. However, the strict practice of creating a permanent establishment by a foreign PSC, and the Nigerian tax authority’s resistance to this method of working by foreign workers, means that for most foreigners, this is a bureaucratic and not very financially-rewarding route to take.
What about Britons’ take-home pay in Nigeria?
The maximum salary retention you can achieve in Nigeria can reach 75% of your gross income if you are an expatriate, as there is no obligation for pension contributions.
What are the levels of taxation in Nigeria?
To answer this question, please see the income tax rate table below:
|Annual Taxable Income (NGN)||Rate (%)|
0 - 300,000 (£665)
300,0001 (£665) - 600,000 (£1,330)
600,001 (£1,330) - 1,100,000 (£2,439)
1,100,001 (£2,439) - 1,600,000 (£3,552)
1,600,001 (£3,552) - 3,200,000 (£7,103)
Over 3,200,000 (£7,103)
What are Nigeria’s Social Security requirements?
Social security contributions are payable by individuals under a contributory pension scheme and the National Housing Fund.
Social security in Nigeria comprises the government health insurance. However, foreigners should have sufficient health insurance coverage or travel insurance that will cover all medical expenses.
Contractors, in Nigeria, pension contribution (‘NPS’) is optional for foreign employees
Under Nigerian law, employees must contribute to a Retirement Savings account (RSA) maintained with a Pension Fund Administrator (PFA). Under the Pension Reform Act 2014, the employer pension contribution rate is 10% of the employee’s monthly emoluments (defined as basic salary, plus housing allowance, plus transport allowance), and the employee pension contribution rate is 8%.
Pension contribution is not payable on car allowance or any other allowance (except the housing and transport allowance). However, NPS is optional for foreign employees and, as a result, UK expats and contracting Britons’ get to keep more of their hard-earned cash in their pockets.
How do I register locally in Nigeria? What local registration do I need?
To live and work in Nigeria legally, you need a valid work permit sponsored by a local employer.
A Taxpayer Identification Number (TIN) is a number, unique to all corporate and individual taxpayers. The TIN is a unique 14-digit sequential number and is mandatory for all taxpayers, obtainable from your local tax office in Nigeria (or via your contractor management/payroll firm if you're using one for your engagement).
While both forms of registration, outlined above, can be carried out by yourself as an individual, contractors often find it easier getting the likes of us to both sponsor your local work permit and employ you legally for the duration of your contract in Nigeria.
Generally-speaking, and to give cash-conscious some idea, the work permit has an approximate cost of 5,000 (USD), or around 800 (USD) per month. Please note however, these are approximations only and both figures are subject to change. Lastly in terms of costs contractors in Nigeria will face, ensure you have up-to-date and comprehensive international travel insurance, plus the local compulsory insurance via the social security system.
Know before you go...
Nigeria is a rapidly developing economy which is increasingly attractive to highly skilled workers. The oil industry is usually the most attractive sector to foreign nationals and tends to pay a supplementary country premium over and above what an equivalently skilled worker would earn elsewhere. Coupled with relatively low levels of taxation, foreign oil and gas workers may find Nigeria a highly lucrative destination, which more than compensates for some cultural differences which Britons may encounter and could potentially take time to adjust to.
For exampple, Nigeria is a very diverse country with more than 250 cultural groups and 500 languages spoken. The north of the country is predominantly Muslim while the southern states are mostly Christian. Be prepared for men and women to be treated differently, particularly in the north of the country. The Yoruba people in the south-west place great emphasis on respect for elders. It is respectful to bow or curtsy when greeting and elderly Yoruba person, for example.
But finally, back to work. Foreigners with IT and engineering skills are increasingly sought-after by Nigerian companies, and these techies may also find that employers are prepared to pay a premium for their skills. While Nigeria may not be the obvious choice for contracting overseas, often because of its seemingly out-of-the-way location, and potentially one or two misconceptions Britons may have, it is a growing country in which opportunities are multiplying. For the adventurous and ambitious who want a solid economic and tax framework behind them while they freelance, it has a lot to offer.
Finally, while working in Nigeria is generally a trouble-free experience, it is advisable to check the travel advice published by the Foreign Office before travelling to Nigeria, and regularly while working in the country.