How To Legally Avoid Nigerian Taxes (yes, it's legal) 🇳🇬

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Kalu Aja
@FinPlanKaluAja1Dec 22, 2025

The Spaces is a practical masterclass on legally avoiding taxes in Nigeria, led by Kalu Aja and joined by contributors like Jibola and Obina (ex‑FIRS). It distinguishes lawful tax avoidance from illegal evasion, then walks through who is taxed (residency rules built around 183 days, permanent home, and significant economic ties) and stresses filing to access reliefs. Above‑the‑line strategies focus on Pension Reform Act contributions (18% on basic/housing/transport) and Additional Voluntary Contributions that can be withdrawn tax‑free after five years (50%), plus deductions for life insurance, annuities, NHIS, NHF, and mortgage interest. Passive income exemptions include foreign dividends/interest/rents/royalties brought in via approved channels, profits from non‑oil exports repatriated officially, and dividends from authorized collective investment schemes; government bonds are tax‑exempt. Capital gains reliefs cover small transactions and private residence disposals. For SMEs, any expense wholly and exclusively incurred to earn income is deductible; VAT input credits, capital allowances, and rural/pioneer incentives apply. Compliance themes: separate personal/business accounts, document and digitize, respect state procedures, and beware related‑party shams. Extensive Q&A clarifies crypto, remote services, AdSense, POS, side hustles, and filing mechanics, with a reminder that exemptions largely start in 2026 and that filing is mandatory to claim them.

Twitter Spaces Recap: How to Legally Avoid Taxes in Nigeria (Host: Kalu Aja)

Session Overview

  • Host: Kalu Aja (money educator; explicitly stated “My name is Kalu Aja”).
  • Theme: Legal tax avoidance vs illegal tax evasion, with practical playbooks under Nigeria’s tax reforms. Emphasis that avoidance is lawful and, in policy terms, “patriotic” because incentives are designed to redirect behavior (e.g., retirement savings, capital markets participation, exports).
  • Scope: Individuals and SMEs (not large PLCs with full tax counsel). Numerous examples and live Q&A.
  • Disclaimer: Not investment or tax advice. Verify with your tax professional and state tax authorities.

Core Principles Clarified

  • Tax avoidance is legal; tax evasion is illegal.
  • Nigerian tax law builds incentives to encourage certain activities (saving for retirement, investing via collective schemes, exporting, lending to government) through exemptions/deductions.
  • You must file to benefit. If you don’t file, authorities can estimate and assess (referenced as “Section 91”-type power). Filing is annual; consider accruing monthly into a “tax account” and settling in one annual payment.

Who Is Taxed: Nigerian Tax Residency

  • Nigerian tax residency hinges on presence and ties, not passport:
    • Spend ≥183 days in Nigeria in a 12-month period.
    • Maintain a permanent home in Nigeria.
    • Have significant economic or family ties in Nigeria.
    • Or perform economic activity in Nigeria while not being taxed in your home country.
  • Consequences:
    • If resident, worldwide income is taxable in Nigeria.
    • If non-resident, Nigerian-source income may be taxed at entity level, but personal income may be outside Nigerian PIT depending on structure.
    • Double Taxation Arrangements (DTAs) apply where treaties exist; typically Nigeria will take the higher applicable rate or assess the difference.
  • Practical tip: Track days in-country; structure activities and presence carefully if you are dual-based.

Filing and Compliance Hygiene

  • Always file annual returns—even if income is low or nil. Without filing, you can be estimated and taxed.
  • Separate personal and business accounts; avoid commingling.
  • Narrate transfers explicitly (e.g., “gift to mother’s birthday,” “medical support for parents”).
  • For employees: insist on a payslip that breaks out Basic, Housing, Transport (BHT). This is needed to compute pension contributions and deductions.
  • Documentation: retain receipts for repairs, fuel, logistics, etc. Prefer digital invoicing; track VAT in/out for input VAT credits.
  • State-level administration: PIT is administered by states (e.g., LIRS). Procedures (e.g., mortgage interest proofs, owner-occupied criteria) can vary.

Individual Above-the-Line Deductions (Reduce Taxable Income)

  • Retirement Savings Account (RSA) under the Pension Reform Act:
    • Statutory employer/employee contributions capped by law (commonly referenced as totaling 18% of BHT). Ensure BHT is itemized on payslip.
    • Additional Voluntary Contributions (AVCs): beyond statutory pension, AVCs reduce taxable income. You may contribute up to a considerable portion (Kalu referenced “up to one-third of salary”)—verify specifics with your PFA.
    • Withdrawal: 50% of AVC contributions can be withdrawn tax-free after 5 years; the other 50% remains in pension benefits. “Laddering” AVCs can create staggered tax-free cash flows.
    • Self-employed should open RSA, pay self a salary, and route excess to AVCs.
  • Life Insurance Premiums (self and spouse): deductible above the line.
  • Deferred Annuities Premiums: deductible.
  • National Health Insurance Scheme (NHIS): premiums deductible.
  • National Housing Fund (NHF): contributions deductible; mortgage interest on owner-occupied primary residence deductible.
  • Rent deduction: 20% of annual rent capped at NGN 500,000. Note: this mainly reduces tax payable; it’s not treated like core above-the-line income reduction.
  • Bracket management: Nigeria’s first NGN 800,000 of income is tax-free; use deductions to stay in lower brackets rather than pushing income into higher rates.

Passive Income and Exemptions (Convert Active Income to Tax-Exempt Passive)

  • Foreign-sourced passive income remitted via approved channels:
    • Dividends, interest, rents, royalties earned outside Nigeria and brought in through approved banking channels are tax-exempt for Nigerian taxpayers.
    • Salary was not listed in this exemption; don’t assume foreign wages are exempt. Strategy discussed: convert foreign wages into passive income (e.g., buy a foreign bond/CD), then remit the interest/dividend.
  • Exports by Nigerian companies:
    • Profits of non-oil Nigerian companies “in respect of goods or services exported from Nigeria” and repatriated via official channels are tax-exempt.
    • Must be export-focused (not mixed import/export). Export proceeds should be routed through approved channels.
  • Collective Investment Schemes (SEC-authorized):
    • Dividends/returns from mutual funds, unit trusts, ETFs, venture capital, private equity authorized by SEC are tax-exempt.
    • Contrast: dividends from directly held individual shares typically face withholding and assessment, unless via an authorized collective scheme.
  • Government securities:
    • Income from Federal and State government bonds is tax-exempt (local government bonds lamented as excluded in practice).
  • Sporting activities:
    • Stated that profits of companies engaged in “sporting activities” are tax-exempt; scope is unclear—seek clarification before relying on this.

Real Estate and Capital Gains

  • Capital gains tax (CGT) generally applies to gains (sell price less cost), with thresholds:
    • Transactions where proceeds are less than NGN 150 million may be outside CGT scope.
    • Annual gains under NGN 10 million within 12 months may be exempt.
  • Primary residence exemption:
    • Sale of an owner-occupied private residence is CGT-exempt (noted as a five-year owner-occupation criterion in discussion).
    • Gifting strategy: a one-time gift of a house to a child who occupies it as primary residence; their eventual sale may be CGT-exempt.
  • Land held that appreciates without generating income is not taxed; rent received is taxable income.

Corporate Income Tax (SMEs): What You Can Deduct

  • General rule: expenses “wholly and exclusively” incurred in the production of income are deductible.
    • Examples: diesel for irrigation, equipment, cameras/drones/licenses for content creation, logistics, employee meals in production contexts, etc.
  • Interest on debt used to generate income: deductible.
  • Repairs and maintenance of plant, equipment, fixtures: deductible.
  • Staff pensions/retirement benefits contributions: deductible.
  • Rent for business premises: deductible.
  • Salaries/wages: deductible at the company level; employees then pay PIT on salary received.
  • VAT management:
    • Track output VAT (charged on sales) and input VAT (paid on purchases); claim input VAT credits where applicable.
    • Raw agricultural products generally VAT-exempt; processed/branded goods liable.
  • Capital allowances: claim on qualifying assets over time.
  • Agricultural companies: 5-year CIT holiday for new farms; import of agricultural machinery may have reliefs (verify specifics).
  • Zones and incentives: export processing/free trade zones have CIT/VAT reliefs; rural/pioneer incentives can allow significant tax offsets where infrastructure is lacking.
  • Small company thresholds:
    • Referenced: turnover and fixed asset tests; Kalu cited turnover benchmark around NGN 100 million (noting prior figures); confirm latest statutory thresholds.

Crypto and Digital Assets (Q&A Highlights)

  • Crypto held is an asset (no tax until disposal).
  • On sale, proceeds are income; CGT applies to gains above thresholds.
  • Airdrops treated as income when received.
  • Loss treatment: discussion suggested passive-income losses may only offset passive-income gains; don’t assume you can offset salary/active income with crypto trading losses. Verify with your accountant.
  • Exchange conversion or P2P: taxes focus on whether a taxable event occurred (income or gain), not on platform used.

VAT, Invoicing, and Input Credits

  • Input VAT on qualifying purchases is creditable against output VAT—retain proper invoices.
  • Prefer dealing with VAT-registered suppliers; purchases lacking VAT/import duties can jeopardize deductibility.
  • FIRS is digitizing; expect moves toward digital invoices/receipts. Maintain clean audit trails.

Practical Scenarios Addressed

  • Employees with side hustles:
    • Company may remit PAYE; you still must file your own PIT to claim above-the-line deductions for life insurance, NHIS, NHF, mortgage interest, and pensions/AVCs.
  • Mutual funds strategy:
    • Contribute to authorized collective schemes; interest/dividends are tax-exempt. The initial salary you used to buy the fund is taxed in year earned; subsequent fund returns are exempt.
  • Foreign remittances:
    • Use approved channels (commercial banks). Tools like Lemfi/WorldRemit should be confirmed as approved channels. Avoid local intra-Naira transfers for foreign payments if seeking export/foreign income exemptions.
  • Exporting services:
    • Individuals: to leverage “profits of non-oil Nigerian company” relief, operate via a company, bill foreign clients, and repatriate via official channels.
  • Loans between related parties:
    • Must be arm’s length with formal contracts and stamp duties. Tax authorities can impute interest and scrutinize related-party transactions.
  • Gifts and inheritance:
    • One-off gifts and life insurance payouts are non-taxable; recurring “gifts” may be treated as income. Inheritance (cash/property) is non-taxable; pensions to retirees are not taxed.
  • Mortgage interest deduction:
    • Only for owner-occupied primary residence; state procedures differ (e.g., LIRS documentation).
  • POS/supermarket retail:
    • Keep a dedicated business account; treat inflows as sales; file proper books showing revenue, cost of sales, and VAT.

Timelines and Transition

  • New regime effective from transactions in 2026 with filing/payment due in 2027. Transactions in 2025 remain under current law.
  • Filing is distinct from payment; failure to file attracts penalties and interest.

Noteworthy Participant Contributions

  • Obina (ex-FIRS):
    • Emphasized formal loan contracts and stamp duties; clarified new law applicability (2026 start), and that passive-income exemptions do not include salary.
  • Jibola (chipological):
    • Stressed state-level PIT administration differences and the need for documentation and clean accounting separation (personal vs business).
  • BD:
    • Raised practical filing steps for employees with side hustles; Kalu clarified annual filing, using a monthly “tax account,” and combining incomes for assessment.
  • NASA, Michael Kingsley, Osman (YouTube/Adsense), Rivers, Prince G, Kingsley, Monteiro, and others:
    • Raised real-life cases on exports of services, foreign remittances, VAT on recycling, supermarket inflows, margin loans, and operational bookkeeping.

Actionable Checklist

  • For Individuals:
    • Confirm residency status and track days in Nigeria.
    • File annual PIT; do not rely on “automatic reliefs.”
    • Maximize RSA and AVCs; plan five-year tax-free withdrawals; ladder if needed.
    • Buy life insurance and deferred annuities; claim NHIS and NHF; claim mortgage interest on owner-occupied home.
    • For foreign passive income: route dividends/interest/rents/royalties through approved channels.
    • Use SEC-authorized collective investment schemes for tax-exempt returns.
    • Keep meticulous records and narrations; avoid mixing accounts.
  • For SMEs:
    • Register the business; open a business account.
    • Document all expenses “wholly and exclusively” for income; claim interest, repairs, rent, pensions, salaries.
    • Track VAT output/input; claim input credits; understand VAT rules for raw vs processed goods.
    • Assess eligibility for agricultural holidays, free zones, rural/pioneer incentives; claim capital allowances.
    • Formalize related-party transactions; arm’s-length pricing and contracts.
    • File annually even if NIL; notify tax authorities of address changes.

Caveats and Verification

  • Salary is not in the foreign passive-income exemption list; to create exemptions, convert wages to passive instruments before remittance and ensure approved channels.
  • “Sporting activities” scope is unclear—seek interpretation.
  • NHF rate and AVC limits should be confirmed with your Pension Fund Administrator (PFA) and state tax authorities.
  • State PIT procedures (e.g., owner-occupied verification) vary—confirm locally (e.g., LIRS for Lagos).
  • Crypto treatment (loss offset rules) requires careful professional guidance.

Closing Notes

  • Kalu underscored: these levers are in the law—use them. Legal tax avoidance frees resources for consumption and investment, aligning with policy goals.
  • Reiterated: consult your tax professional; this session provided the “forest,” not every “tree.”
  • Recording and slides to be re-shared; a repeat session planned due to connectivity issues.