Taxation: Should Nigerian Freelancers Pay Taxes?

Winner Ajibola

SHARE THIS POST

With the high unemployment rate in Nigeria, many people have begun freelancing to generate income for their families and personal expenses. It’s also a chance to choose their working hours and be much more independent. 

While full-time employees automatically pay taxes from their annual incomes, there’s been the looming question of whether freelancers should pay taxes or not. Since freelancers don’t have a fixed income, it’s not easy to predict their annual income hence the confusion.

That’s why in this article, we’ll be clarifying whether or not freelancers should pay taxes. If yes, what taxes are they liable to pay, and how much? 

Do You Get Taxed as a Freelancer in Nigeria?

The short answer is Yes. 

Before, relying solely on gigs in Nigeria meant that you could avoid paying taxes. However, since the Personal Income Tax Act amendment in 2011, “any gain or profit from any trade, business, profession or vocation” is subject to tax payments.

This, however, doesn’t include freelancers who earn within the minimum wage tax bracket. So as long as you make less than N30,000 monthly, you’re exempted from paying taxes as a freelancer. 

Why Should You Pay Taxes?

We understand the dilemma that comes with deducting taxes. However, every citizen and resident of Nigeria has to pay taxes for the following reasons; 

  • It’s a source of government revenue - they use these taxes to help maintain infrastructure, offer free education, and so much more
  • Tax evasion is a criminal offense, and you can even be imprisoned for a year or more
  • Failing to pay your taxes can lead to extra fines. This means you might pay 10% extra on the amount you failed to pay.

Types of Taxes You Might be Subject to as a Freelancer

Being a freelancer means deciding who your clients are and the kinds of projects you take on. This could mean you simply take on a few unofficial gigs. However, it could also mean that you’re a small business owner. 

Depending on how you run your freelancing business, you can be subject to any of the following tax brackets;

1. Personal Income Tax: When you earn an income as an individual freelancer, you’re liable to pay a personal income tax in Nigeria. This annual tax payment is payable as long as you reside in Nigeria. The personal income tax is ideal when you’re a contractor for a specific client or when you get random projects.

2. Company Income Tax: If you’ve registered a company under which you operate your freelancing business, you’re subject to paying a company income tax. The CIT is any tax you must pay on profits you’ve generated.

3. Value Added Tax: VAT is a mandatory tax on the supply of goods and services. Since you have to pay for services rendered, this includes developing an app, offering writing services, and more.

How Much Tax Should I Pay on a Freelancing Income?

If you’re ready to start paying your taxes as a resident of Nigeria, here’s how you can do it seamlessly;

Value Added Tax

VAT in Nigeria is at a fixed rate of 7.5%. So let’s say you charge a client N300,000 for designing a website. Your payable VAT will be N22,500.

And while you can choose to pay this tax yourself, you can simply adopt the strategies restaurants, and other FMCGs are using to maximize profit. Markup your rates to include the VAT.

So instead of charging your client N300,000, you charge them N325,500. That way, you still get complete payment for your work. If you’re adopting this popular approach, ensure that you clearly state that your client is paying VAT in the invoice you send. You don’t want to appear fraudulent and send your clients away. 

Recommended Reading: Smart Investment Tips for Freelancers

Personal Income Tax

Before doing your personal income tax calculation, you must first identify your taxable income. A taxable income is how much you earn after you’ve deducted all allowable expenses and deductions. This then determines how much tax you can pay in a year. 

Allowable expenses in this context mean any existing loans, legal expenses, and operational costs like rent. It doesn’t include your capital, penalties, traffic offenses, private expenses, and more. 

Once you deduct these expenses, whatever is left will be taxable income. So let’s say you earn N1, 500,000 in the last year, and after subtracting allowable expenses, your taxable income is N750,000; you’ll pay an annual personal income tax on the latter amount. 

Unfortunately, since personal income taxes aren’t fixed, your tax rates depend on what band you fall on. This table is an example of  personal income tax calculation you should pay based on your annual income;

personal-income-tax

For Company Income Tax

Fortunately, if you have a gross turnover of less than N25,000,000 annually, your company income tax will be 0%. However, if it’s more than this, you’re required to pay 20% on your capital gain as CIT. 

Calculate Your Taxes Using the FIRS Tax Calculator

The federal inland revenue service created a calculator to help taxpayers calculate how much tax they should pay. With this calculator, you can simply select what type of tax you’re trying to pay off and enter other details, like your gross income. You can see how it works here.

Conclusion

As a freelancer, you must pay value-added and personal income taxes. Paying your taxes ensures that the government can adequately provide basic amenities to its citizens. However, this means knowing how much you make as your gross annual income since your taxes will be calculated based on that. 

So start receiving payments with a Grey foreign bank account to receive and track your annual income easily.

Back to top