How to pay and manage Nigerian contractors: A practical guide

If you're paying independent contractors in Nigeria, you need to handle payment carefully and understand currency dynamics. The payment part is straightforward once you know what works in Nigeria. The compliance part—understanding TIN requirements, currency volatility, and foreign exchange regulations—is where most foreign businesses struggle.

This guide walks through what you actually need to do. Then we'll show you where Kontrable helps organize the work.

The main things you need to do

1. Use Wise or Payoneer for payments. These are the best payment methods for Nigerian contractors. Wise costs $3-10 per transfer with real mid-market exchange rates. Payoneer costs $5-12 and is very popular in Nigeria. PayPal works but costs $5-15 and has worse rates. Traditional bank transfers cost $20-45 and take 3-7 days. Use Wise or Payoneer.

2. Always pay in USD. Nigerian contractors almost universally prefer USD due to Nigerian naira (NGN) volatility and constant devaluation. Paying in NGN means the contractor loses value every month. Always confirm currency preference with the contractor, but expect USD.

3. Verify TIN before starting work. TIN (Tax Identification Number) is Nigeria's tax identification number issued by the FIRS (Federal Inland Revenue Service). Always verify the contractor has a valid TIN before the first payment.

4. Use a written contract. Document the contractor relationship with a clear service agreement covering scope, deliverables, payment terms, currency (USD), IP ownership, confidentiality, and explicit statement that they're an independent contractor (not an employee).

5. Keep payment records. Maintain documentation of all payments made. As a foreign company, you typically don't withhold Nigerian taxes, but you need records for your own country's tax compliance.

That's the foundation. Everything else builds on these five things.

Payment methods: What actually works

For paying Nigerian contractors:

Use Wise or Payoneer. Both are reliable payment methods in Nigeria.

Wise: It charges $3-10 per transfer with real mid-market exchange rates—no markup. Transfers take 1-3 business days. Contractors can withdraw to local Nigerian bank accounts. Wise is widely accepted and has lower fees than most alternatives.

How to set up: Create a Wise business account (free). Get the contractor's bank details (account number, bank name, SWIFT code). Send USD to their account. The contractor receives money in 1-3 business days and can withdraw to their local bank.

Payoneer: It charges $5-12 per transfer and is very popular with Nigerian freelancers. Many Nigerian contractors already have Payoneer accounts. Transfers take 1-3 business days. Contractors can withdraw to local bank accounts.

How to set up: Create a Payoneer business account (free). Get the contractor's Payoneer account email. Send USD to their account. They can withdraw to their Nigerian bank account.

What about PayPal?

PayPal works in Nigeria and costs $5-15 per transaction. It offers instant transfers but has worse exchange rates than Wise or Payoneer. PayPal is widely accepted, so if the contractor prefers it, it works. But for regular payments, Wise or Payoneer are better choices.

What about traditional bank transfers?

Avoid them. They cost $20-45 per transaction and take 3-7 days. Use Wise, Payoneer, or PayPal instead.

Currency: Always USD

Nigerian contractors almost universally prefer USD due to Nigerian naira (NGN) volatility and constant devaluation. The NGN loses value regularly, and contractors want certainty on what they're earning.

Tech workers especially prefer USD because they're paid by international clients and need stability. USD also has far better long-term purchasing power than NGN. Some contractors may request NGN, but this is rare and you should ask why.

Always confirm currency preference with your contractor before setting up payments, but expect them to say USD. If they request NGN, explain the currency risk and ask if they'd prefer USD instead.

Understanding TIN (Tax ID)

TIN (Tax Identification Number) is Nigeria's tax identification number issued by the FIRS (Federal Inland Revenue Service). All contractors must have one to operate legally in Nigeria.

You need to verify the contractor has a valid TIN before starting work. Ask them to provide their TIN and keep it on file. This is the contractor's responsibility to obtain and maintain, but you should verify it as part of your contractor onboarding process.

Tax and compliance requirements

When hiring contractors in Nigeria, tax obligations are straightforward: the contractor is responsible for their own taxes with the FIRS (Federal Inland Revenue Service). You don't withhold taxes or file anything with Nigerian tax authorities.

Your responsibilities: Verify the contractor has a valid TIN. Have a clear written service contract. Keep documentation of all payments. Don't withhold Nigerian taxes. Ensure proper contractor relationship (they control their work, use their own tools, work for multiple clients, are project-based).

Contractor's responsibilities: They handle their own tax compliance with the FIRS. They register and maintain their TIN. They file tax returns as required by Nigerian law. They keep records of income and expenses.

Important note: As a foreign company paying a Nigerian contractor, you typically don't have tax withholding obligations in Nigeria. The contractor handles their own FIRS tax compliance. Nigeria does have foreign exchange regulations, but contractors can receive USD through Wise, Payoneer, or PayPal and withdraw to local banks—this is standard practice. Consult with a tax professional in your country about reporting requirements in your jurisdiction.

Contractor vs employee classification

One mistake businesses make is treating contractors like employees. Nigeria has labor laws that distinguish between the two, and misclassification can create legal risk.

A proper independent contractor relationship means they control how work is done, use their own tools and equipment, work for multiple clients, and are engaged on a project basis with defined deliverables. They shouldn't have set working hours, provided equipment, exclusive work requirements, or ongoing employment-like arrangements.

Document the relationship carefully with a written contract that explicitly states independent contractor status.

Why hire Nigerian contractors?

Nigeria has Africa's largest tech ecosystem with excellent advantages. The country has skilled developers and a rapidly growing freelance workforce. Rates are 50-70% lower than Western countries while maintaining quality. The workforce is talented, motivated, and hungry for international work. English proficiency is strong in the tech sector—most contractors speak English fluently. Nigeria has a thriving startup ecosystem and growing IT industry. Africa's tech hub reputation means you're accessing a large, competitive talent pool.

Common mistakes and how to avoid them

Mistake 1: Paying in NGN. You assume NGN is simpler for the contractor. They lose significant value due to naira devaluation and are unhappy about it.

Solution: Always pay in USD. Almost all Nigerian contractors prefer USD. Have the conversation upfront about currency.

Mistake 2: Using expensive bank transfers. Traditional international wire transfers cost $20-45 per transaction with poor exchange rates. Over a year, paying a single contractor, this costs thousands extra.

Solution: Use Wise ($3-10) or Payoneer ($5-12). You save 70-80% on transfer fees.

Mistake 3: Not verifying TIN. You hire a contractor without requesting their TIN. They may not be properly registered with the FIRS, creating potential compliance issues.

Solution: Request TIN before the first payment. Keep it on file as proof of contractor tax registration.

Mistake 4: No written contract. Verbal agreements lead to disputes about scope, deliverables, and payment terms. Without documentation, there's no clarity when disagreements arise.

Solution: Always have a written service agreement before starting work. Cover scope, deliverables, payment terms, currency (USD), IP ownership, confidentiality, and termination terms.

Mistake 5: Misclassifying employees as contractors. You treat a contractor like an employee—setting hours, providing equipment, requiring exclusive work. This creates legal risk.

Solution: Ensure true contractor relationship. They control how work is done, use their own tools, work for multiple clients. Document this in the contract.

Frequently asked questions

Q: Should I pay Nigerian contractors in USD or NGN? A: Almost all Nigerian contractors prefer USD due to NGN volatility and devaluation. Always confirm with your contractor, but expect USD.

Q: What's the best payment method for Nigeria? A: Wise and Payoneer are both excellent. Wise typically has lower fees ($3-10), while Payoneer is very popular among Nigerian freelancers and many already have accounts. PayPal also works but has higher fees ($5-15).

Q: Are there foreign exchange restrictions in Nigeria? A: Nigeria has some foreign exchange regulations, but contractors can receive USD through Wise, Payoneer, or PayPal and withdraw to local Nigerian banks. This is standard practice. You don't need special authorization to pay contractors in USD.

Q: Do I need an EOR platform for Nigerian contractors? A: No. EOR is for hiring employees internationally. Nigerian contractors handle their own FIRS tax compliance. You just need a good payment method (Wise or Payoneer) and the ability to organize contracts and payment records.

Q: Do I need to withhold Nigerian taxes? A: No. As a foreign company paying a Nigerian contractor, you typically don't withhold Nigerian taxes. The contractor is responsible for their own FIRS tax compliance.

Q: Do I need a local presence or business registration in Nigeria? A: No. You're paying independent contractors for services. You don't need a Nigerian business entity, registration, or tax ID. The contractor handles their own compliance.

Q: What should be in a contractor agreement for Nigeria? A: Include scope of work, deliverables, payment terms, currency (USD), independent contractor status, IP ownership, confidentiality, and termination terms. A simple written agreement protects both sides.

Getting started

If you're paying Nigerian contractors, here's the process:

1. Verify contractor has valid TIN
2. Set up Wise or Payoneer business account (Wise typically has lower fees)
3. Confirm currency preference (will likely be USD)
4. Get contractor's payment details (bank account for Wise, Payoneer email for Payoneer)
5. Create written service agreement
6. Set up regular payment schedule
7. Keep records for your tax purposes
8. Maintain contractor contact and documentation

Kontrable helps with steps 2, 4, 5, 6, 7, and 8 by organizing contractor information, tracking payments, managing contracts, and storing invoices. You stay in control of your payment method and use Wise or Payoneer directly.

If you're managing a few contractors, a spreadsheet works. If you're managing dozens or coordinating across a team, Kontrable saves time and keeps contractor data organized.

Ready to get organized?

[Start a free trial of Kontrable] – Get invoice workflows, payment tracking, and contract storage. Try it free.