Americans Living in Nigeria: Expat Taxes Guide
Most Americans living in Nigeria are on work placement, having determined that the professional and financial benefits exceed the risks. What specifically do you need to learn about the filing of tax returns in Nigeria? That’s what this article is for, so read on.
Regardless of where they live or how their income is derived, all US citizens and green card holders who make at least $10,000—or just $400 for self-employed individuals—are mandated to file a US federal tax return and pay income tax to the Internal Revenue Service or the IRS. The good news is that if you pay an income tax return in Nigeria, you can take advantage of several exemptions and deductions to avoid paying tax to the IRS on the very same revenue.
Here’s What You Must Know About US Taxes
You must submit IRS Form 1040 if you make more than US$10,000 or only $400 in self-employment income, regardless of where the money comes from. While all unpaid US taxes must be paid by April 15th, expats are granted a filing extension through June 15th, which can be prolonged again until October 15th upon petition. You must also file Form 8938 to report any foreign assets worth more than US$200,000 per person, except your property if it is owned in your name. You must also file FinCEN form 114, often called Foreign Bank Account Report or FBAR if you have a total of approximately US$10,000 with one or even more foreign bank and investment accounts at any time during the tax year.
Many exclusions let you pay little or even no US income tax on the same income if you pay income tax in Nigeria. The Overseas Earned Income Exclusion, which allows you to exempt the first US$100,000 of foreign earned income from US tax provided you can establish that you are a Nigerian resident, is one of the most important ones. If a person spends over 180 days in Nigeria during 12 months, they are considered a Nigerian resident.
There’s also the Foreign Tax Credit, which allows you to claim a $1 tax credit for every dollar tax paid in Nigeria. If required, these exclusions can be applied. Bear in mind that even if you owe no taxes to the IRS, you must submit a federal return if your income exceeds US$10,000 or $400 if you’re self-employed.
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It’s not worth not submitting or deleting anything on your return because the US and Nigerian governments exchange taxpayer information, and Nigerian banks report US account holders’ account information to the IRS. To put it mildly, the consequences for expats who file incorrectly or incompletely are severe.
If you’re a US citizen, green card holder, or US/Nigerian dual citizen who’s been residing in Nigeria and didn’t realize you needed to submit a US tax return, don’t stress; the IRS Streamlined Process enables you to catch up on your filing without incurring costly penalties. But don’t wait too long, though, as you don’t want the IRS to come calling.
Here’s What You Must Know About Nigerian Taxes
A person who works full-time is subject to pay as you earn tax in Nigeria. Personal income tax is withheld from the employer’s wages or compensation and delivered to the authorities in 14 days. Unless their job income is less than NGN 30,000 per year, a person whose only source of revenue is work income from a single employer is required to file a tax return.
Other people pay their taxes through self-assessment or direct assessment. The self-assessment return must be accompanied by financial statements and schedules, if applicable. Payments can be made in whole or in installments, depending on the circumstances. The amount of withholding tax paid at the source can be utilized to reduce the amount of income tax owed.
Nigerians are taxed on their worldwide earnings. The tax rates in Nigeria are quite modest, spanning from 7% to 24%. Unless you claim one of several exemptions indicated above, you would be responsible for US taxes on Nigerian-sourced income. Salaries are taxed at the source in Nigeria. Nigeria levies a ten percent flat tax on capital gains.
If you spend more than 183 days in Nigeria during a tax year, you have been deemed a Nigerian resident. The tax year in Nigeria is identical to that of the United States. Personal tax returns in Nigeria are due by March 31st. The Federal Inland Revenue Service is Nigeria’s tax authority.
If you have any issues or queries concerning your tax liability as a US expat in Nigeria, we strongly advise you to consult a US tax specialist. Get in touch with TFX to get expert advice from professionals!