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Legal and Tax Advice

How to File Annual Tax Returns in Nigeria as a Freelancer

Last Updated on July 21, 2023

Introduction

Tax returns are declarations of income and deductions made within a fiscal year. Filing annual returns is mandatory for freelancers in Nigeria. It is a legal obligation and failure to comply may result in penalties.

Freelancers need to file tax returns to avoid legal and financial consequences. The process involves registering for tax, filing the returns, and paying the assessed taxes.

Before registering, freelancers need to obtain a Tax Identification Number (TIN). The TIN serves as a unique identifier for the freelancer with the tax authorities.

After obtaining TIN, the freelancer must register with their respective State Internal Revenue Service. After registering, the freelancer will receive their tax clearance certificate. To file returns, the freelancer must calculate their income and expenses for the fiscal year.

They also need to keep all relevant receipts and tax invoices to substantiate the claims. The returns must then be submitted on or before the due date to avoid penalties.

In summary, filing annual tax returns is crucial for freelancers in Nigeria to avoid penalties and comply with the law.

Read: Withholding Tax for Freelancers: A Nigerian Perspective

Step 1: Get Your Tax Identification Number (TIN)

As a freelancer in Nigeria, paying taxes is an important aspect of your financial responsibility.

One of the necessary steps in filing your annual tax returns is obtaining a Tax Identification Number (TIN). Here’s a breakdown of how to obtain your TIN:

What is a Tax Identification Number (TIN)?

  • A TIN is a unique identifier that is assigned to individuals or organizations for tax purposes.

  • It is required for opening a bank account, registering a business, and filing tax returns.

  • The TIN consists of 14 digits and is issued by the Federal Inland Revenue Service (FIRS).

Requirements for Obtaining a TIN

  • You must be over 18 years old.

  • You must have a valid means of identification, such as a National ID card, International Passport or Driver’s License.

  • You must have a functional email address and phone number.

Procedures for Obtaining a TIN

  • Visit the FIRS website at www.firs.gov.ng and click on “Register for Tax.”

  • Select “New Registration” and fill out the registration form with your personal information.

  • Upload a scanned copy of your means of identification and a passport-sized photograph.

  • Submit the form and wait for your TIN to be generated.

  • Collect your TIN Certificate at the nearest FIRS office.

Once you have obtained your TIN, it is important to include it in all your financial transactions and tax filings.

The TIN serves as your unique identifier and simplifies the process of filing your annual tax returns.

Remember, it is your civic responsibility to pay taxes and contribute to the development of the country.

Read: Effective Proposals: Winning Strategies for Nigerian Freelancers

Step 2: Keep Accurate Records

As a freelancer in Nigeria, keeping accurate records is crucial when it comes to filing your annual tax returns. Here are a few reasons why record-keeping is important:

Importance of record-keeping

  • Informs you of your business performance

  • Helps track your expenses and income

  • Makes it easier to prepare for tax filing

  • Keeps you organized and professional

Types of records to keep

  • Receipts for expenses such as office supplies and equipment, travel expenses, and any other business-related expenses

  • Bills and invoices from clients, including dates, amounts, and services rendered

  • Bank statements, including any deposits, withdrawals, and transfers related to your business

  • Purchase orders and contracts that outline the scope of work and the payment terms

How to keep accurate records

  • Invest in a good accounting software to keep track of your income and expenses

  • Create a separate bank account for your business transactions to simplify bookkeeping

  • Establish a record-keeping system that works for you, such as organizing your receipts in folders or creating spreadsheets

  • Make it a habit to record every transaction as it occurs to avoid forgetting important details

  • Regularly review your records to ensure accuracy and identify areas for improvement

By keeping accurate records, you can easily access the necessary information when it is time to file your tax returns. It also helps avoid penalties and legal issues that may arise from inaccurate or incomplete records.

Read: Pitching Your Skills Right: The Nigerian Freelancer’s Toolkit

Step 3: Determine Your Taxable Income

As a freelancer in Nigeria, it is important to determine your taxable income to ensure you are paying the correct amount of taxes.

Taxable income is the amount of income that is subject to taxation after deducting allowable expenses and exemptions.

To calculate your taxable income, follow these steps:

1. Determine your gross income

Your gross income is the total amount you earned before any deductions or taxes are taken out.

As a freelancer, your gross income includes all the money you made from your freelance work. This includes income from clients, affiliate marketing, and any other sources.

2. Deduct your allowable expenses

Allowable expenses are expenses that are necessary for your freelance work and can be deducted from your gross income before calculating your taxable income. Allowable expenses include:

  • Internet and phone bills

  • Home office expenses

  • Transportation expenses

  • Professional fees such as legal and accounting fees

  • Software and equipment purchases

You can also deduct any other expenses that are directly related to your freelance work.

3. Calculate your Net Income

To calculate your net income, subtract your allowable expenses from your gross income. Your net income is the amount you actually earned from your freelance work.

4. Determine your taxable income

Your taxable income is your net income minus any personal allowances or exemptions.

Personal allowances are deductions that are allowed for individuals to reduce their taxable income. In Nigeria, the personal allowance for individuals is N200,000.

For example, if your net income is N1,000,000 and you have a personal allowance of N200,000, your taxable income would be N800,000.

Once you have determined your taxable income, you can use the Nigerian tax rates to calculate the amount of tax you owe.

Most importantly, calculating your taxable income is essential for filing your tax returns as a freelancer in Nigeria.

By deducting your allowable expenses from your gross income, you can determine your net income and then subtract your personal allowances to arrive at your taxable income.

Read: Boost Your Freelance Business in Nigeria: Proposal Secrets

How to File Annual Tax Returns in Nigeria as a Freelancer

Step 4: Determine Your Tax Liability

As a freelancer in Nigeria, it is important to understand your tax liability, which refers to the amount of tax you owe according to the tax laws of the country.

To calculate your tax liability, you need to know your taxable income, which is the total amount of money you earned during the year minus any allowable deductions and allowances.

The taxable income will then be subject to the applicable tax rates and thresholds.

The tax rates and thresholds for freelancers in Nigeria vary depending on the type of income earned and the amount earned during the year.

For instance, the current Personal Income Tax rate for self-employed individuals in Nigeria is 7%. However, if your taxable income is above a certain threshold, you may be subject to a higher tax rate.

It is important to note that there are different tax laws and regulations for different types of freelancers in Nigeria.

For instance, if you are a freelancer operating as a company, you will be subject to different tax rates and thresholds compared to a freelancer operating as an individual.

How to Calculate Tax Liability

Calculating your tax liability as a freelancer in Nigeria can be done through the following steps:

  1. Determine your total income earned during the year.

  2. Calculate your allowable deductions, which are expenses that can be deducted from your income before calculating your tax liability. These may include expenses such as office rent, equipment, and supplies, among others.

  3. Subtract your allowable deductions from your total income to arrive at your taxable income.

  4. Apply the applicable tax rate to your taxable income to arrive at your tax liability.

It is important to keep track of all your income and expenses throughout the year to ensure accurate calculation of your tax liability.

Seek the help of a tax professional or accountant if you are unsure about how to calculate your tax liability.

Tax Rates and Thresholds

The tax rates and thresholds for freelancers in Nigeria vary depending on the type of income earned and the amount earned during the year.

For self-employed individuals, the tax rates and thresholds are as follows:

Taxable IncomeTax Rate
Up to N300,0000%
Above N300,000 and up to N600,0007% of the excess over N300,000
Above N600,000 and up to N1,000,000N21,000 + 11% of the excess over N600,000
Above N1,000,000N81,000 + 15% of the excess over N1,000,000


It is important to note that tax rates and thresholds may change over time. Therefore, it is advisable to keep yourself updated on the current tax laws and regulations in Nigeria.

Overall, as a freelancer in Nigeria, understanding your tax liability and tax rates is crucial to avoiding penalties and ensuring compliance with tax laws and regulations.

Keep accurate records of your income and expenses and seek professional help when needed to accurately calculate your tax liability.

Step 5: Fill and Submit Your Tax Return

Once you have gathered all necessary documents and have computed your tax liability, the next step is to fill and submit your tax return.

A tax return is a document that summarizes your income, expenses, deductions, and tax liabilities for a particular tax year. It is usually submitted to the relevant tax authority by taxpayers.

In Nigeria, freelancers are required to submit their tax returns using the appropriate forms. These forms can be obtained from the tax authority or downloaded from their website.

There are different forms for different types of taxpayers. For freelancers, the appropriate form is the Self-Assessment form.

This form requires you to provide information about your income, expenses, deductions, and tax liability.

The deadline for submitting your tax return varies depending on the type of taxpayer you are. For freelancers, the deadline is usually March 31st of the following year.

Failure to submit your tax return by the deadline may result in penalties and interest charges.

Steps to filling your tax return as a freelancer

  1. Obtain the relevant form

  2. Gather all necessary information and documents

  3. Fill the form accurately and completely

  4. Compute your tax liability

  5. Attach all necessary documents

  6. Submit the form to the relevant tax authority before the deadline

It is important to ensure that you fill the form accurately and completely, and attach all necessary documents to avoid delays and penalties.

Once you submit your tax return, the tax authority will review it to ensure that it is accurate and complete. If there are any discrepancies, they may request further information or audits to verify your claims.

Submitting your tax return as a freelancer may seem daunting, but it is an important part of fulfilling your tax obligations and avoiding penalties.

With the right information and preparation, you can easily fill and submit your tax return on time and avoid any unnecessary stress.

Conclusion

As a freelancer in Nigeria, filing your annual tax returns is crucial, and it’s a legal obligation. It’s important to keep accurate records of your income and expenses to ensure that you’re paying the correct amount of tax.

To file your tax returns, you need to register with the Tax Authority in your state and obtain a Tax Identification Number.

Then, you can fill the tax return form online or visit a Tax Office to get assistance. Remember to file on time to avoid penalties and keep copies of your tax returns for future reference.

Filing your tax returns not only meets your legal obligation, but it also benefits you in the long run, as you can use it to obtain credit facilities, tender for contracts, and secure other financial benefits.

So, it’s imperative that you take it seriously and comply with the tax laws.

Therefore, I urge all freelancers in Nigeria to take advantage of this valuable information and ensure that they file their tax returns annually. It’s your civic responsibility, and it’s for your benefit!

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