When did these new tax regulations/ legal changes start to apply?

These changes applied as at 1 January 2026, when The Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025 among the other laws, took effect.

 What are the changes in Pay As You Earn (PAYE) deductions?

The new tax legislation has changed the annual tax rate bands for PAYE from 7% to 24% to a new one running from 0% to 25%. This change applies in addition to newly regulated rent relief structure, gratuity, severance, bonuses and 13th-month pay taxations, etc

How do the new PAYE tax rates affect an employee’s monthly take-home pay?

PAYE is now charged on a more progressive structure.

• The first ₦800,000 of chargeable income at 0%
• The next income of ₦2,200,000 is taxed at 15%;
• The next income of ₦9,000,000 is taxed at 18%;
• The next income of ₦13,000,000 is taxed at 21%;
• The next income of ₦25,000,000 is taxed at 23%;
• Any income above ₦50,000,000 is taxed at 25%.

As regards, monthly take-home, for employees at or near minimum wage of ₦70,000, this will mean little to no PAYE. While staff earning in the mid-range e.g. ₦100,000 to ₦500,000 a month, will see their deductions fall compared to the old system, though outcomes vary depending on individual reliefs and how their pay is structured.

Do minimum-wage employees pay PAYE?

No. Employment income is exempt where the employee's gross income from that employment is at or below the national minimum wage. The current minimum wage is ₦70,000 monthly.

 What is the new rent relief and how does it affect me as an employee?

The rent relief is a replacement of the Consolidated Relief Allowance (CRA) adopted in the previous tax regime. This means that the CRA is no longer effective.

An employee can claim 20% of annual rent paid, subject to a maximum relief of ₦500,000 per year. The rent relief, however, unlike the CRA is conditional and is only granted when the employee proves rent payment with relevant document.

What information is required for rent relief?

The employee should provide a receipt, lease agreement, or an employer-approved rent declaration by the company. Other information could include the tenant's name, amount of rent and period covered, landlord's full name plus phone number/Tax ID/NIN, and the property address.

What kind of employees do the new tax laws concern?

The new tax laws concern all employees. Specific things to note include:

• With the new rent relief structure, there is a shift in administrative burden, as employees are now to declare necessary documentation before enjoying this relief.
• Employees are also to take note that the new PAYE tax is calculated using the new tax bands from 0% to 25%.
• Deductions of the National Housing Fund (NHF) contributions from employees’ monthly basic salary is now voluntary for private sector employees. As a result, they should only opt in at their discretion.
• Employees are now given more protection, with severance payments tax-free threshold now raised from ₦10 million to ₦50 million.
• Employees are to note that gratuity is now taxable, to be calculated with the new PAYE tax bands.
• Nigerian employees earning in foreign currency, are to be taxed on such income, calculated using the naira equivalent of the official CBN exchange rate at the time the income is paid as the PAYE base
• An employee living in Nigeria and earning income from foreign employers is required to register for tax, declare that income in Naira, and pay Nigerian tax on it, subject to the relief under double taxation treaties.

Are all components of an employee’s remuneration taxable?

Yes. Generally, all employee remuneration including; salary, wages, allowances, bonuses, benefits-in-kind, gratuity, severance and other employment compensation are taxable, subject to the exemption threshold.

Are company cars, accommodation and other employee benefits taxable?

Generally, yes, where an employee is given a personal or economic benefit. They are treated as benefits-in-kind. These are taxed with a valuation capped at 5% of the asset's cost. Excluded workplace benefits may include general staff canteen meals/meal vouchers, uniforms, protective clothing, work tools/equipment and qualifying relocation expenses.

What are the obligations of an employer under the new tax structure?

As an employer in Nigeria, you are to edit your pay roll systems to include:

• The new rent relief (which replaces the Consolidated Relief Allowance) equals 20% of annual rent paid, or ₦500,000 (whichever is lower), provided the employee provides necessary documentation.
• The new PAYE tax bands of 0% to 25%.
• Private sector employers are to discontinue deductions for National Housing Fund (NHF) contribution, unless explicitly consented to by the employees. This is because deductions of the National Housing Fund (NHF) contributions from employees’ monthly basic salary is now voluntary for those in the private sector.
• Employers must calculate PAYE tax on gratuity before paying it out to exiting employees. Employers are to note that tax-free threshold for severance payments has now been raised to ₦50 million from the previous ₦10 million.
• Employers are to add bonuses and 13th-month pay to the PAYE base of the employee, making them taxable.
• For Nigerian employers who pay in foreign currency, they are to calculate the naira equivalent, using the CBN official exchange rate at the time the income is paid and use this in determining the PAYE
• Employers are to continue deducting from the taxable income, the regular Pension, health insurance, life insurance premiums, mortgage interest, and charitable donations, as well as ensuring that these deductions are claimed in writing.

How do Nigerian employers calculate tax on salary paid in foreign currency?

For Nigerian employers who pay in foreign currency, they are to calculate the naira equivalent, using the CBN official exchange rate at the time the income is paid and use this in determining the PAYE and other statutory deductions.

Do Nigerians working for foreign employers pay Nigerian Income tax?

Yes. Every qualified Nigerian resident is now taxed on worldwide income, and not just income earned within Nigeria, provided the received income falls within taxable income using the new PAYE tax band.
Residency is determined by factors like domicile, habitual abode and economic ties, or physical presence in Nigeria for at least 183 days in a year. Consequently, an employee living in Nigeria and earning income from foreign employers is required to register for tax, declare that income in Naira, and pay Nigerian tax on it, subject to the relief under double taxation treaties.

Whose responsibility is it to file the annual personal income return to tax authorities?

Both the employer and employee are individually and severally responsible to file the employee’s annual return by 31 January for the preceding year.  This is because an employer can only report what it paid the employee, and not income from other sources. Each employer must deal with PAYE strictly on the employment income it pays, while the employee must disclose income from all sources in the annual return.

What is the consequence for failure to file the annual return/ PAYE?

Failure to file PAYE attracts a fine of ₦100,000 for the first month of default and ₦50,000 for every subsequent month it continues.

What are the penalties for payroll tax non-compliance?

Failure to deduct attracts a 40% administrative penalty on the amount not deducted. Failure to remit attracts a 10% penalty on the unpaid amount, plus interest at the prevailing CBN rate, accruing for as long as the amount remains outstanding. Filing incomplete or inaccurate returns can also attract penalties.

Where unrevised payroll systems are in use, who bears the responsibility for under-deducted PAYE?

The employer bears the statutory responsibility for properly deducting PAYE, and the tax authority can pursue the employer or manager for arrears where it failed to deduct correctly. The employee must nevertheless still accurately disclose their income for final tax assessment.