Withholding tax (WHT) is a common part of doing business in Nigeria. It applies when a business or individual makes certain types of payments and is required to deduct tax before paying the recipient.
In simple terms, the person making the payment holds back a percentage and sends it to the relevant tax authority. The rate depends mainly on the type of transaction, whether the recipient is a company or an individual, and whether the recipient is based in Nigeria or overseas.
For businesses, WHT should be considered before an invoice is paid. For example, a company in Lagos hiring a local consultant may apply a different rate from a company in Abuja paying a foreign technical adviser.
WHT Rates Depend on the Payment
There is no single WHT rate for every transaction in Nigeria. Different payments attract different rates.
Dividends and interest generally attract WHT at 10%. This rate applies to both companies and individuals, whether they are resident or non-resident. Payments for rent, hire or lease arrangements also generally attract a 10% rate.
Royalties paid to companies are normally subject to WHT at 10%. For individuals and other non-corporate recipients, the rate is generally 5%.
Consultancy, technical, management and professional fees require more attention. Payments to resident companies and individuals generally attract WHT at 5%. Where the recipient is non-resident, the rate is usually 10%.
Some business transactions have lower rates. For example, the supply of goods or materials by someone other than the manufacturer or producer generally attracts WHT at 2% when the recipient is resident.
Certain general services, qualifying construction work and telecommunications tower services may also attract a 2% rate for resident recipients. For non-residents, some of these payments attract WHT at 5%.
Other construction activities and brokerage fees generally attract 5% for resident recipients and 10% for non-residents.
Special Rules for Individuals
Some payments made to individuals have their own WHT rates.
Directors’ fees paid to resident individuals generally attract WHT at 15%. Where the director is non-resident, the rate increases to 20%.
Compensation paid for loss of employment is generally subject to WHT at 10%.
Nigeria also applies special rules to payments involving entertainment and sport. Payments to non-resident entertainers and sports persons generally attract WHT at 15%.
Winnings from lotteries, gaming, reality shows and similar activities are also covered. Resident individuals generally face a 5% deduction, while non-residents are subject to 15%.
These differences show why businesses should understand exactly what they are paying for before applying WHT.
When WHT Must Be Filed
Calculating the correct tax is only one part of the process. Businesses must also meet their filing and payment deadlines.
WHT is generally filed by the 21st day of the month after the payment is made.
Related-party transactions need extra attention. In these cases, WHT may become due when the payment is made or when the liability is recorded in the accounts, whichever happens first.
Businesses should therefore not wait until money actually leaves the bank account before checking whether a WHT obligation has arisen.
Why a Valid TIN Matters
A Tax Identification Number, commonly called a TIN, is important when dealing with suppliers.
Where a vendor does not provide a valid TIN, the normal WHT rate may be doubled. However, the increased rate cannot exceed 20%.
This rule generally does not apply to passive income such as dividends.
Businesses can avoid many problems by confirming supplier tax details during onboarding rather than waiting until an invoice is ready for payment.
For certain non-resident companies providing consultancy, technical, professional or management services, the WHT deducted may also serve as the final Nigerian tax on that income.
Penalties for Getting WHT Wrong
WHT mistakes can become expensive.
If a business fails to deduct WHT when it should have done so, the penalty can be 40% of the amount that was not deducted.
A different penalty applies where the business deducted WHT but failed to send the money to the tax authority. In that situation, the penalty is generally 10% of the amount not remitted. Interest may also apply based on the prevailing Central Bank of Nigeria Monetary Policy Rate.
Good record keeping and regular monthly reviews can help businesses avoid these unnecessary costs.
Relief Available to Small Companies
Some small companies may not need to deduct WHT on lower-value transactions.
The exemption generally applies where the transaction is below NGN 2 million and the supplier has a valid TIN.
Both conditions matter. A business should therefore confirm the transaction value and the supplier’s TIN before treating a payment as exempt.
Keeping Proper WHT Records
Businesses are expected to submit electronic monthly schedules covering relevant suppliers and transactions.
These records should include useful details such as the supplier’s TIN and address, the nature of the transaction, the invoice number and the amount of WHT deducted.
Tax credit certificates should also be issued after the tax has been deducted and paid. These certificates allow suppliers to keep proper evidence of the tax already withheld from their income.
A simple internal system can make this process easier. For instance, an Ibadan-based company working with several contractors could verify TINs and WHT categories when each supplier is registered. This reduces the amount of checking needed at month-end.
How Double Tax Treaties Affect WHT
Nigeria has double tax treaties with several countries. These agreements can affect the WHT charged on certain cross-border payments.
For many treaty countries, dividends, interest and royalties remain subject to a 10% rate. However, some treaties provide lower rates.
Payments involving countries such as China, Singapore, South Africa, South Korea, Spain and Sweden may qualify for a 7.5% rate on dividends, interest and royalties, depending on the relevant treaty conditions. Management and technical fees generally remain at 10%.
Nigeria has also signed tax treaties with Kenya, Mauritius and Poland, although the required domestic ratification must be completed before those treaties can take effect.
Having a treaty does not automatically mean every payment qualifies for a reduced rate. Businesses should first check the type of income, the recipient’s tax status and the specific treaty rules.
Making WHT Compliance Easier
WHT compliance becomes much easier when it is built into the normal payment process.
Before paying a supplier, businesses should identify the type of transaction, confirm the recipient’s residency status, check the TIN and apply the correct rate. Cross-border payments should also be reviewed for possible treaty benefits.
Taking these simple steps early can prevent incorrect deductions, missed deadlines and unnecessary penalties. More importantly, it makes WHT part of everyday business administration rather than a problem that has to be fixed at the end of the month.
FAQs
Does Nigeria use the same WHT rate for every transaction?
No. The rate depends on the type of payment, the recipient’s status and whether the recipient is resident or non-resident.
When should businesses file WHT?
WHT is generally filed by the 21st day of the month following the relevant payment. Businesses should keep accurate records to avoid missed deadlines.
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What happens when a supplier does not have a valid TIN?
The normal WHT rate may be doubled where a vendor does not provide a valid Tax Identification Number, subject to a maximum rate of 20%.
Are small companies exempt from deducting WHT?
Qualifying small companies may be exempt where the transaction is below NGN 2 million and the supplier has a valid TIN. Both conditions need to be satisfied.
What happens if a business fails to deduct WHT?
Failure to deduct WHT when required can result in a penalty equal to 40% of the amount that should have been deducted.
Can Nigeria’s tax treaties reduce WHT?
Yes. Some double tax treaties may provide reduced WHT rates for qualifying cross-border payments. The specific treaty and eligibility requirements should be checked before applying a reduced rate.
What records should businesses keep for WHT purposes?
Businesses should maintain details such as supplier TINs, addresses, invoice numbers, transaction descriptions and WHT amounts. Tax credit certificates should also be issued where required.