New tax rules put employee perks under fresh scrutiny

… Company cars, accommodation and workplace benefits

Employees who receive company cars, accommodation, and other perks from their employers may face higher taxable income under Nigeria’s new tax regime, even when those benefits never reach their bank accounts as cash.

The implication is that employers may need to consider the tax consequences of how they provide benefits, rather than looking only at the cost of the perk.

“Although you didn’t receive actual cash, you got something valuable, and this value is what is subject to taxation,” said Habeeb Alabi, a tax specialist in Nigeria and the UK.

Under Section 14 of the Nigeria Tax Act 2025, an employer-owned asset provided for an employee’s personal use is valued for tax at 5 percent of its acquisition cost or its market value at acquisition, where the cost cannot be determined.

For example, a N40 million company car provided for an employee’s private use would create a N2 million taxable benefit, but if the company pays N600,000 monthly to lease a vehicle for an employee’s private use, the annual taxable benefit would be N7.2 million.

This means the tax treatment of a company car can vary significantly depending on how the employer provides it.

“The rules are quite simple. If your employer owns the car, you pay 5 percent on the actual cost of the car. However, if your employer rents or leases the car, the taxable benefit will be the actual amount your employer spends to rent or lease the car,” Alabi said.

Not every company car is taxable

The rules do not mean every vehicle provided by an employer automatically becomes a taxable benefit.

Toheeb Yusuf, a chartered accountant and tax professional, said vehicles used strictly for official duties would not ordinarily be treated as taxable benefits.

“Official cars used strictly for work purposes with no personal use are not taxed,” Yusuf said in a LinkedIn post explaining Section 14.

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The distinction is whether the employee gets a personal benefit from the asset. An employee who takes a company car home and uses it for private journeys could therefore face different treatment from one whose use is restricted to official duties.

Yusuf said employers would need evidence to show that a vehicle is used exclusively for work, including vehicle-use policies, official trip records and evidence that vehicles are kept at company premises after working hours.

Perks beyond cars

The tax rules extend beyond company vehicles.

For employer-owned assets, the taxable benefit is 5 percent of the acquisition cost or market value at acquisition where the cost cannot be determined. For rented or hired assets, it is the actual annual rent or hire charges paid by the employer.

Perpetual Badejo, an accountant and tax professional, said Section 14 covers situations where employers provide employees with access to assets they own, such as cars, for private use.

Employer-provided accommodation can also create a taxable benefit. Where accommodation is provided free or below its annual rental value, the employee can be assessed on the benefit, subject to a cap of 20 percent of annual gross employment income, excluding the rental value.

However, not every workplace benefit is taxable. The Act excludes provisions including meals in official staff canteens or through meal vouchers, uniforms and protective clothing, work tools and equipment, and qualifying relocation expenses.

What it means for employers

The rules could make the structure of employee compensation more important for businesses.

An employer deciding whether to purchase an asset for an employee, lease one or provide another form of benefit now has to consider both the cost of the perk and its tax treatment.

The difference is particularly clear with company cars. A N40 million employer-owned vehicle could produce a N2 million taxable benefit, while a vehicle leased for N600,000 monthly could produce a N7.2 million benefit.

The employee’s eventual tax bill will depend on their total taxable income and applicable tax rates, but the examples show how a company provides a benefit can influence how much of it becomes taxable.

Employers are also responsible for accounting for taxable benefits when calculating and reporting employment income and PAYE obligations.

For companies, the new rules therefore make employee perks more than a compensation decision. They are now also a tax consideration.