Nigeria is a Federal Republic comprising 36 states and the Federal Capital Territory (FCT), Abuja. As a result, employees are taxed in the state where they are deemed to be tax residents, and employers must comply with that jurisdiction's specific PAYE rules.
Under Paragraph 2 of the 12th Schedule of the Nigeria Tax Act 2025 (relating to Nigerian employment), an individual who holds a Nigerian employment on 1 January of a year of assessment, or who becomes liable to tax during the year by reason of commencing employment, is deemed resident for that year in the territory where they have a place or principal place of residence on that date, or on the date they commence employment.
Where an employee is on leave as at 1 January, residency is determined by the place or principal place of residence immediately before the commencement of leave.
A “place of residence” refers to any location in Nigeria available for an individual’s domestic use on a relevant day. It excludes hotels, rest houses, or temporary accommodation unless no permanent residence is available.
Where an individual has more than one place of residence, their principal place of residence is determined as follows:
The correct determination of employee tax residency is critical because it directly determines the applicable PAYE obligations.
Nigeria has 36 states and the FCT, each operating an independent tax administration system. There is no unified national PAYE filing process across states.
Key implications include:
Employee tax residency classification is a fundamental requirement for ensuring correct PAYE compliance in Nigeria. Given the decentralized nature of state tax administration, accurate classification ensures proper filing, avoids penalties, and aligns employer obligations with the relevant State Internal Revenue Authority.
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