Compliance Audits

This is a question most Nigerian taxpayers can’t answer with confidence: Which parts of my income are legally tax-free? If you’re unsure, you’re not alone. Thousands of Nigerians overpay their taxes every year simply because they are unaware of legal exemptions. This often leads to financial losses caused by incorrect payroll configurations that mistakenly tax-exempt income. Understanding tax-free income isn’t about finding loopholes—it’s about knowing your legal rights under Nigeria’s tax laws. With the landmark 2025 tax reforms set to take effect in January 2026, this knowledge has never been more valuable. On June 26, 2025, the President of Nigeria signed four new tax reform bills into law, which are considered the most significant overhaul of the country’s tax structure since 1999. These reforms will fundamentally reshape taxation starting January 2026. Your Complete Guide to Tax-Free Income in Nigeria Earnings Below ₦800,000: The New Freedom Threshold  From January 2026, if your annual gross income is ₦800,000 or less, you owe no personal income tax. The new progressive tax regime provides significant relief to low-income earners, while higher-income earners will be taxed at a higher rate. This translates to roughly ₦66,667 monthly. For entry-level employees, small business owners, traders, and freelancers operating at this level, tax season becomes significantly simpler. Current provision: Those earning only the minimum wage (₦70,000 monthly) are currently exempt. Retirement Gratuities: Your Lifetime of Work, Protected Gratuities are specifically exempted from PITA and are listed among tax-exempt items under Nigerian law. This includes properly approved lump-sum payments received upon retirement and end-of-service benefits from your employer. The rationale is clear: these payments represent your lifetime of service and should remain intact to support your retirement years. No percentages, no deductions, no exceptions. Also exempt: National Pension Scheme contributions deducted from your salary are not subject to personal income tax. Compensation Payments: Protection When You Need It Most When employment ends unexpectedly or injury occurs, Nigerian law protects you. The exemption threshold for compensation for loss of employment will increase from ₦10,000,000 to ₦50,000,000 under the new tax reforms. This provision recognizes that such payments aren’t income—they’re compensation for loss or harm. Whether you’re laid off, restructured out, or receive settlement for workplace injury, amounts up to this threshold remain untouched by taxation. Foreign Income Remittances: Bringing Money Home Without Penalty This exemption is particularly valuable for encouraging the repatriation of foreign currency. The new tax laws retain and clarify key exemptions for investment income and foreign-earned income brought into Nigeria. What is Exempt from Nigerian Tax: Investment Income Repatriation (for Nigerian Residents): Dividends, interest, rent, or royalties earned abroad and repatriated into Nigeria through government-approved banking channels. This is an exemption from the general rule that Nigerian residents are taxed on their worldwide income. Export Proceeds: Dividends received from wholly export-oriented businesses are exempt. Profits of any Nigerian company in respect of exported goods or services are exempt, provided the proceeds are repatriated through official channels. Government Bonds: The exemption for income earned from Federal Government bonds is retained. The exemption also extends to some state bonds and other government-issued securities. Critical Requirement: You must use government-approved banking channels (i.e., any financial institution authorized by the Central Bank of Nigeria to deal in foreign currency transactions). This documentation is essential for claiming the exemption. Important Distinction: Residency and Tax Liability Nigerian Residents: Individuals legally defined as resident in Nigeria are liable to pay tax on their worldwide income (both domestic and foreign). The exemption above is a crucial relief on foreign passive income (dividends, interest, rent, royalty). Non-Residents: Individuals legally defined as non-resident are only liable to Nigerian tax on income derived from Nigeria. Income earned outside Nigeria by a non-resident is generally not subject to Nigerian tax, regardless of whether it is remitted. Agricultural Income: Encouraging Food Security Income derived from agriculture, livestock, horticulture, or fishing benefits from significant tax incentives. Any small or medium sized company engaged in primary agricultural production shall be granted, pursuant to an application to the President, through the minister, an initial tax-free period of four years. This may be extended, subject to the satisfactory performance of such primary agricultural production, for an additional maximum period of two years. Additionally, with these new laws, food, education, transport, and agriculture will be VAT-free, according to the Executive Chairman of FIRS. This exemption serves Nigeria’s food security objectives while recognizing that many agricultural workers operate at subsistence levels. Statutory Contributions: Building Your Future Tax-Free The following deductions are exempted from PITA: National Housing Fund Contribution, National Health Insurance Scheme, Life Assurance Premium, National Pension Scheme, Gratuities. Certain mandatory contributions don’t just reduce your taxable income—they’re entirely exempt: National Pension Scheme contributions – Building retirement security while reducing current tax National Housing Fund (NHF) payments – Contributing toward homeownership, tax-free National Health Insurance Scheme (NHIS) contributions – Health protection without tax penalties Life insurance premiums – Securing your family’s future (for yourself or spouse) These exemptions create powerful incentives for long-term financial planning while lowering your immediate tax burden. Investment Returns: Strategic Exemptions The Act retains the exemption of income earned from federal government bonds and extends the exemption to state bonds, making them attractive for risk-averse investors seeking stable returns. However, the exemption does not extend to corporate bonds. Share transactions: The tax exemption threshold for the sale of shares in Nigerian companies has been increased to ₦150 million (from ₦100 million) in any 12 consecutive months, provided that the gains do not exceed ₦10 million. These provisions encourage participation in Nigeria’s capital market and government financing. Insurance Benefits: Protection Without Taxation Life insurance payouts and legitimate claim settlements are tax-free. When you receive a life insurance benefit or successfully claim on your policy, the amount remains intact. This makes insurance more effective as a financial protection tool, encouraging more Nigerians to secure coverage. Gifts Received by Individuals: Under the new laws, non-cash gifts received by individuals are explicitly exempt from income tax, simplifying tax planning. Capital Gains on Personal Assets (Up