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The short answer
Salary paid in dollars to an employee in Nigeria is taxable in Nigeria, and the employer works out PAYE on the naira equivalent using the CBN official exchange rate at the time the pay is made. Keep a record of the dollar amount, the date, the official rate used and the naira figure for every payment, and remit the tax in naira by the 10th of the following month.
The tax rule
Under the tax laws in force from 1 January 2026, DLA Piper's August 2026 summary states that Nigerian employers who pay in foreign currency must calculate the naira equivalent using the CBN official exchange rate at the time the income is paid, and use that figure for PAYE and other statutory deductions. Employees resident in Nigeria are taxed on worldwide income, and the summary describes residence by domicile, habitual abode and economic ties, or physical presence in Nigeria for at least 183 days in a year.
Two consequences follow. First, a dollar salary does not sit outside PAYE because it never touched a naira account. Second, the naira value of the same dollar salary changes from month to month with the official rate, so the PAYE figure changes too even when the dollar pay does not.
Step by step each payroll
- Fix the payment date. The relevant rate is the one at the time the income is paid.
- Look up the CBN official rate for that date on the CBN website and save a copy or screenshot.
- Convert each component (basic, allowances, bonus) to naira at that rate.
- Apply the PAYE bands to the naira figure, after the reliefs and deductions the employee is entitled to; see the 2026 PAYE bands.
- Work out pension and other statutory deductions on the same naira base.
- Pay the employee their net dollar amount (or naira, if agreed), and remit the PAYE in naira to the state IRS by the 10th of the next month.
- File the naira figures in the annual employer return due by 31 January.
Worked example
Example only. The rate below is invented to keep the arithmetic simple; it is not a current or past CBN rate. Check the CBN website for the official rate on your own payment date.
| Item | Calculation | Result |
|---|---|---|
| Monthly salary | Agreed in contract | $2,000 |
| Illustrative official rate on payday | Assumed for the example | ₦1,500 per $1 |
| Naira equivalent for PAYE | $2,000 × ₦1,500 | ₦3,000,000 |
| Annualised for the bands | ₦3,000,000 × 12 | ₦36,000,000 |
The PAYE on ₦36,000,000 a year, before reliefs, using the bands DLA Piper lists (0% on the first ₦800,000, 15% on the next ₦2.2 million, 18% on the next ₦9 million, 21% on the next ₦13 million and 23% on the next ₦25 million) works out as follows: ₦0 + ₦330,000 + ₦1,620,000 + ₦2,730,000 + 23% of the remaining ₦11,000,000 (₦2,530,000) = ₦7,210,000 a year, or about ₦600,833 a month. Reliefs such as pension contributions and rent relief reduce that. If the official rate next month is different, the naira base and the tax change with it.
The Labour Act point to check
Section 1 of the Labour Act says the wages of a worker "shall in all contracts be made payable in legal tender and not otherwise", and payment in any other form is "illegal, null and void", except by cheque or postal order with written consent. The Act's "worker" excludes people in administrative, executive, technical or professional roles, which covers many of the engineers, designers and managers who are typically paid in dollars. For a cashier, driver or clerical worker paid in foreign currency, take legal advice on how section 1 applies before you set pay in dollars.
What to document
- A contract clause stating the currency of pay, the payment date, and that tax is computed on the naira equivalent at the CBN official rate.
- A monthly payroll file showing dollar gross, rate, rate date, naira gross, PAYE and net pay.
- Payslips showing both currencies, so staff can reconcile with their own annual return, which they must file themselves.
- Proof of PAYE remittance in naira for each month.
Paying contractors in dollars is a different question. A genuine contractor is not on your payroll and handles their own tax, but labels do not decide it; see employer of record versus contractors.
Bonuses, allowances and naira pay pegged to dollars
The same rule applies to every component. A dollar bonus paid in December is converted at the official rate on the day it is paid, not the rate used for the regular salary that month, and DLA Piper notes that bonuses and 13th-month pay form part of the PAYE base. Allowances paid in dollars, such as a remote-work stipend, are converted in the same way.
Some employers do the opposite: they agree pay in dollars but pay the naira equivalent each month. Here the naira paid is the income, and PAYE is worked out on that naira figure. The contract should then say which rate sets the naira amount and on which day, because staff will compare it with what the dollar would have fetched elsewhere.
Where Pryme fits
A Pryme Business Account holds USD and NGN with local account details for each, so dollar salaries can be paid from a dollar balance and PAYE from the Naira balance. Money stays in the currency it arrived in until you choose to convert with Swap, where the rate is shown first, the fee is on its own line and you approve. Outside Nigeria, financial activities are carried out through regulated partners.
Questions people ask
Is salary paid in dollars taxable in Nigeria?
Yes, for employees resident in Nigeria. PAYE is calculated on the naira equivalent at the CBN official rate at the time of payment.
Which exchange rate do I use for PAYE on a dollar salary?
The CBN official exchange rate at the time the income is paid, according to DLA Piper's 2026 summary of the new tax rules.
Is PAYE on a dollar salary paid in dollars?
The tax is computed in naira. Remit it to your state IRS in naira by the 10th of the following month.
Can I pay a Nigerian employee entirely in dollars?
For staff outside the Labour Act's definition of worker, it depends on the contract. For covered workers, section 1 requires wages payable in legal tender, so take advice first.
Sources
- DLA Piper Africa: FAQs on payroll taxes and employer liability (28 Aug 2026) · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, individual tax administration (reviewed 29 May 2026) · accessed Oct 2026
- Labour Act (Chapter 198 LFN 1990, now Cap L1 LFN 2004), full text · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.