How to set up as an independent contractor in Nigeria

If you want to start making a living as an independent contractor, then Nigeria is an ideal location.

Nigeria’s thriving economy draws skilled workers from across the globe. The tech industry is robust in Lagos, Nigeria’s largest city. In fact, Lagos has been dubbed “The Silicon Valley of Africa.” 

Nigeria also has the second-largest film industry worldwide and is well-known for its vibrant, warm, and welcoming culture.

Before you can embark on your self-employment journey, though, you’ll need to know how to:

• Register as a business in Nigeria

• Avoid misclassification as an employee

• Create compliant contracts that protect you and your client

• Remit national and local taxes

• Invoice and collect payments from around the world

This article covers these topics and more about how to become a freelancer in Nigeria. It also includes how to get started as an independent contractor (if you haven’t done so already), your tax responsibilities as a self-employed worker, and some risks and liabilities to be aware of.

How do I set myself up as an independent contractor?

Independent contractors are workers who provide paid services or products to another party. Commonly referred to as freelancers, these individuals are self-employed and in complete charge of their business, how it’s run, and the type of work they perform. Independent contractors work across career fields, from accountants to medical professionals to copywriters.

However, independent contractors are classified differently from employees and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in their work.

See also: Why businesses hire contractors vs. international employees

If you want to work as an independent contractor, whether you plan to stay local or expand your services internationally, you must complete several necessary steps:

1. Determine a business structure — how you plan to build and scale your operations.

2. Register your business with the proper authorities; these requirements vary with business type and location.

3. Obtain the licenses and permits you need to conduct legal business operations.

4. Determine the appropriate tax structures and your reporting obligations.

5. Set up a business bank account and establish your preferred payment method(s).

While these steps are fairly consistent from country to country, specific rules and regulations can also apply.

With that in mind, let’s clarify how Nigeria defines independent contractors.

What is an independent contractor according to Nigerian law?

As in most countries, Nigerian law does not explicitly define the difference between employees and independent contractors. Instead, the distinction is made based on the nature of the working relationship and the degree of control exercised by the client/employer.

Based on these guidelines and the definitions of employment in the Nigerian Labour Act, you are generally considered to be an independent contractor if you:

• Determine your own work schedule and working hours

• Perform work for other companies

• Set your own rates and scope of work

• Provide your own tools or equipment

• Are not integrated into one specific company and its operations (i.e., you don’t have an internal email address)

• Can delegate or subcontract work

• Work without direction or supervision

When you work with clients, it’s important to be correctly classified as an independent contractor or employee. This helps you avoid penalties and fines and ensures you are paying the correct taxes.

Business structure and registration in Nigeria

Before you can begin working as an independent contractor in Nigeria, you need to choose a formal business structure. This will determine your liabilities and how you will pay taxes.

The most popular choice for contractors is to operate as a sole proprietorship. Under this structure, you have full control of your enterprise. Although there is no legal separation between you (the owner) and the business, you are personally responsible for all its debts and liabilities.

If you opt for the sole proprietor model, you’ll need to reserve a name and register your business with the Corporate Affairs Commission (CAC) to obtain a business permit. You can do this in person at your nearest CAC office or online. 

The CAC regulates and monitors the activities of all businesses and companies operating in Nigeria to ensure legal and ethical compliance. Once you register your business with the CAC, it’s recognized as legitimate, and you can apply for business bank accounts, loans, and grants. 

If you want more legal protection, you’re working with other partners, or you anticipate generating a large amount of revenue, you can incorporate a formal company or enter into a partnership. 

If you’re unsure which structure is best for your business, speak with a registered solicitor or accountant.

Licenses and permits in Nigeria

If your business activity is regulated, you may also need to acquire additional business permits or licenses from your local issuing authority. Examples include:

• If your business has a physical presence within a particular premise, you must apply for a Business Premises Permit (BPP).

• If your business has a potential environmental impact, you must apply for an Environmental Impact Assessment (EIA).

• Different licenses are required for workers who perform professional services. These professionals include medical personnel, engineers, architects, lawyers, accountants, and auditors.

• If you operate a restaurant or cafe or are otherwise involved in the food industry, your business must be licensed through the National Agency for Food and Drug Administration and Control (NAFDAC).

• Other requirements vary depending on your business type.

In addition, all non-Nigerian citizens must obtain a work permit or visa. They must apply for one of three types (a basic entry visa, a temporary work permit, or a subject-to-regularization visa), depending on the type of work they do and how long they intend to stay in Nigeria.

Independent contractor taxes in Nigeria

As an independent contractor, you must file and pay taxes and social security contributions.

The good news is that, as a sole proprietor, you pay personal income tax on your business profits. You don’t have to fill out extra returns or pay additional corporate taxes.

In Nigeria, you can expect to be taxed between 7% and 24% of your profits, depending on your income.

You are not required to make pension contributions as a self-employed person, although the government has launched a targeted micro-pension scheme to encourage more people to save.

If your annual income is NGN 30,000 or less, you are not required to file a tax return in Nigeria.

You must file your annual tax return and settle your tax bill by the end of March each year.

As in most countries, you can claim tax deductions for multiple business expenses, including rent, equipment maintenance, and professional subscriptions.

VAT information for independent contractors in Nigeria

If your annual income exceeds ₦25 million (around $60,000), you are required to charge and collect VAT from your clients. Submit this to the Federal Inland Revenue Service (FIRS) every month.

The standard VAT rate in Nigeria is 7.5%.

How do I get paid as an independent contractor in Nigeria?

As an independent contractor, you are responsible for handling your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method, which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services

These methods all have their pros and cons. For instance, bank and digital transfers can be quick but often have hefty service fees. While paper checks don’t come with service charges, they do take longer to complete, issue, and process, which may be frustrating for some clients. If you have clients in other countries besides Nigeria, the payment collection process can be even more complicated. 

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in Nigerian naira, with no hidden fees. Learn more about how our platform can help.

Liability considerations for independent contractors in Nigeria

As a sole proprietor, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to cover yourself when drafting and signing client agreements. 

At a minimum, your contracts should include the following:

• Full names of both parties

• Relationship between parties — essentially outlining you as an independent contractor and not an employee of the company

• Scope of the project or service to be provided

• Timeline for estimated completion

• Payment terms

• Intellectual property (IP) protection — namely, who owns what

• Special considerations or obligations, such as a plan to hire additional workers

• Cancellation rights

• Next steps if breaches of contract, disputes, or disagreements occur

• Signatures and dates from all parties

If you want to ensure your contracts cover all the bases, contact the Remote team. Our legal experts can provide fully compliant contract templates for Nigerian and other international clients.

Accounting requirements for independent contractors in Nigeria

As a sole proprietor, you do not need to publish annual financial statements.

However, you should keep organized, accurate records of all your income and expenditures. You must keep track of client invoices, purchase orders and returns, bank statements, and receipts. 

This will help you file your taxes correctly, give you a stronger picture of your financial situation, and make life easier if the tax authorities audit you.

You can manage these records using an accounting or bookkeeping tool or hire a professional bookkeeper or accountant.

The dangers of contractor misclassification in Nigeria

As we’ve mentioned, independent contractors are classified differently from employees in Nigeria. Many of the protections and benefits that employees enjoy do not typically apply to contractors.

For example, employees are typically provided healthcare benefits, retirement packages, and paid time off. Their employer withholds and pays taxes on their behalf, including funds to government-directed programs and services like social security.

As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for you and your client.

As an independent contractor, you can work with your clients to ensure this doesn’t happen. 

• Discuss your role and responsibilities with them.

• Outline the terms of your contract, including dates, payments, and other terms.

• Review the working arrangement regularly.

• Understand local labor and employment laws.

• Determine your IP rights.

• Obtain liability insurance.

If your working relationship changes and you become more integrated into a client’s company, you can ask to be converted into an employee.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I ask the company I’m working with to convert me to an employee in Nigeria?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

For example, employees are more likely to stay with the company longer, which saves on the costs of recruiting, hiring, and onboarding. Employees also tend to establish connections and stronger relationships with management and colleagues, leading to better collaboration and a higher-quality product or service.

You can even suggest using a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions, including payroll management and benefits administration, in accordance with Nigerian law.

4 ways Remote makes life easier for contractors and their clients

As you can see, there’s a lot to take on board when setting up as an independent contractor.

Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering high-quality products or services to your clients.

Here’s how:

1. International payments in countries around the world

Navigating your clients’ different invoicing, approvals, and payment systems can be complicated and time-consuming. Manual methods of invoicing and collecting payments can also increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Nigerian naira or other currencies without hidden fees.

2. Localized in-app contracts and advice

Drafting agreements and contracts for your clients can result in non-compliance with local labor laws, especially when working with international clients.

Remote offers localized contracts tailored to Nigerian laws, ensuring that you stay compliant.

For example, Nigerian law delineates between workers and employees. Workers are typically those in manual or administrative fields, while employees work in areas with advanced training or educational needs. Regulations differ for each of these groups, so you want to ensure the terms of your contract are clearly outlined.

Our legal experts can also provide guidance on complex issues, such as local classification and IP protection.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many inaccuracies and delays caused by archaic processes and manual management.

Our platform lets you create invoices, submit them for approval, and get paid in your local currency without switching to any other tool or software. This is especially critical when you’re working with multiple countries and currencies.

4. Tax management

Tax management is notoriously complex work.

Since independent contractors are responsible for filing their own taxes, they must understand the nuances of the tax laws to ensure they remain compliant. For example, income tax and payroll taxes vary depending on the country they’re working in.

Remote helps you quickly and efficiently manage your taxes by compiling income data based on your invoices and payments.

Setting up as an independent contractor in Nigeria

Having the freedom and flexibility to work on your own terms is liberating. Choosing where in the world you want to work is empowering.

If you’re considering a move to Nigeria, don’t let your administrative responsibilities distract you from what you really want to do: help your clients, deliver great work, and collect invoices.

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals.

Specifically, Remote helps you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for Nigerian and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws regarding work practices

Our platform makes getting started as an independent contractor quick, simple, and seamless. Learn more about how our expertise can save you time and resources today.