Nigeria

Tax-deferred employer plans

Nigeria's Contributory Pension Scheme, established by the Pension Reform Act 2004 and now governed by the Pension Reform Act 2014, which repealed and replaced it, requires employers and employees to contribute to individual Retirement Savings Accounts (RSAs) managed by licensed Pension Fund Administrators (PFAs). Pension assets are held in segregated accounts by Pension Fund Custodians (PFCs). The exemption is available only to an ‘eligible individual’ under §5.02: someone who is compliant (or comes into compliance) with U.S. income-tax filing and has reported the plan’s contributions, earnings, and distributions as income to the extent U.S. law requires; a participant who never reported plan earnings cannot rely on it until they do.

Under Treas. Reg. §301.7701-7, this trust-like structure (segregated assets held by a custodian for the benefit of individual members) supports classification as a foreign trust.

Rev. Proc. 2020-17 does not require a treaty, so the absence of a U.S.–Nigeria income tax treaty does not by itself disqualify the mandatory RSA. Whether it qualifies instead depends on whether it independently satisfies the revenue procedure's conditions, including nondiscrimination, contribution limits, and withdrawal restrictions tied to retirement age, disability, or death. Absent a qualifying exemption, a Nigerian retirement trust an employer contributes to is reported as the note at the end of this section explains.

If classified as a foreign trust, the 3520-A should report employer contributions (minimum 10%), employee contributions (minimum 8%), investment returns, fees, and the opening and closing RSA balance.

For a plan an employer contributes to, a trust holding it is generally a nonexempt employees’ trust described in §402(b). §6048(a)(3)(B)(ii) excepts transfers to §402(b), §404(a)(4), and §404A trusts from Part I, the participant’s own contributions included, and §679 does not make the participant the owner (see the Reporting Guide’s employer-plan section). Payouts the participant reports as compensation income are excepted from Part III. If the participant’s own contributions ever exceed the employer’s, the participant is treated as the owner of the part those contributions fund (Treas. Reg. §1.402(b)-1(b)(6)), reports it on Part II and Form 3520-A each year it is owned, and is taxed on its income each year. In that count, what the participant chose to put in, salary sacrifice included, is the participant’s, and anything the plan’s rules required taken from pay is the employer’s, as the IRS chief counsel read a national retirement fund in 1997. The rest is taxed when it vests and, after that, when paid out (§402(b)(1), (2)).

Tax-deferred individual plans

In addition to mandatory contributions, employees can make voluntary contributions to their RSA. Voluntary contributions can be withdrawn after a shorter period than mandatory contributions.

Voluntary contributions are held in the same trust structure and follow the same 3520/3520-A reporting. Rev. Proc. 2020-17 does not require a treaty. The mandatory RSA's early-access features are of the kind Section 5.03(5) permits (hardship and primary-residence purchase): a 25% withdrawal after four months of unemployment (Pension Reform Act 2014, s.7(2)) and, since 2022, a 25% withdrawal toward a residential mortgage. Voluntary contributions are different: PenCom rules allow them to be withdrawn periodically for any purpose, and any-purpose withdrawal is not a permitted reason. Whether the voluntary portion disqualifies the RSA as a whole is unresolved, so the conservative approach is full reporting.

Withdrawals of voluntary contributions are reported on Form 3520, Part III.

Gifts and inheritances

Nigeria is one of the most common African source countries for gifts and inheritances received by U.S. persons, given the large Nigerian-American diaspora community.

If a U.S. person receives more than $100,000 in gifts or bequests in a year from one nonresident alien individual or foreign estate (adding together gifts from donors related to each other), Form 3520 Part IV reporting is required. Gifts from foreign corporations or foreign partnerships exceeding $20,573 (for 2026, indexed for inflation) are also reportable. Common scenarios include:

- Cash gifts from parents or family members in Nigeria - Inheritance of Nigerian real property (land, buildings) - Inheritance of Nigerian bank accounts or business interests - Gifts related to weddings, cultural celebrations, or family support

Nigeria does not currently impose a federal gift tax or inheritance tax (estate duty was repealed). Some states have limited succession-related levies. The U.S. obligation is purely informational.

Documentation should include the donor's identity, relationship, and country of tax residence. Convert Nigerian naira at the rate prevailing when each amount is received, paid, or accrued; the IRS has no official exchange rate and generally accepts any posted rate used consistently, so its published yearly average rate is a common choice for amounts arising evenly across the year. Given the significant gap between official and parallel market exchange rates for the naira, the rate used should reflect the actual rate at which the funds were or could be converted.

Penalties and practical notes

Failure to file Forms 3520/3520-A carries penalties under §6677: the greater of $10,000 or 35% of the gross reportable amount for certain Form 3520 failures (§6677(a)); 5% or $10,000 for Part II and 3520-A (§6677(b)).

The Nigerian tax year is the calendar year, aligning with the U.S. No fiscal year conversion is needed.

PFAs provide RSA statements through online portals and mobile apps showing contributions, returns, and balances. These can be used to prepare the 3520-A.

No treaty deferral is available, but if the RSA is a foreign trust its returns aren’t taxed as earned. Contributions, the member’s mandatory 8% taken from pay included, are taxed when they vest (§402(b)(1)), and returns when paid out, under §72 (§402(b)(2)). Returns are taxed each year only on a part the member owns (voluntary contributions above the employer’s total) or for a highly compensated employee in a plan that fails the U.S. coverage tests (§402(b)(4)(A)).

Nigeria has foreign exchange controls administered by the Central Bank of Nigeria. These may affect the ability to transfer funds internationally but do not affect the U.S. reporting obligation: the filing requirement is based on the existence of the trust interest, not on accessibility of the funds.