WITHHOLDING TAX IN NIGERIA

Withholding Tax (WHT) was introduced in Nigeria in 1977 with limited coverage to rent, dividends and directors fees. WHT has been expanded to include: -

·         all aspect of building, construction and related services;

·      all types of contract and agency arrangement, other than outright sale and purchase of goods and property in the ordinary course of business;

·         Consultancy, Technical and Professional services;

·         Management services;

·         Commissions;

·         Interest; and

·         Royalty.

WHT will not apply where a manufacturer delivers its normal products to its dealers or distributors for sale; and where there is dual relationship, for example a manufacturer requesting for supply of raw materials for the manufacturing of its products from a defined supplier.

Incomes earned by non – resident companies for services rendered outside Nigeria are generally not liable to WHT since the income itself would not be liable to Nigerian tax.

WHT do not constitute the final tax for companies operating in Nigeria, except for cases such as interest and dividend.  A tax payer is expected to obtain withholding tax credit notes from the relevant tax authority via the taxable party that withheld the tax. Unutilised WHT tax credit can be set off against future income tax.

APPLICABLE WHT RATES

The applicable WHT rates on transactions or services involving companies and/or individuals are specified in the table below:

Types of payment	Applicable rates for Companies	Applicable rates for Individual
Dividends, Interest, Rent	10%	10%
Directors Fees	10%	10%
Royalties	10%	5%
Commission, Consultation, Technical, Service Fees	10%	5%
Management fees	10%	5%
Construction/Building Contracts	5%	5%
Contracts, other than outright sales  and purchase of goods in the ordinary course of business	5%	5%

Note that countries that are parties to bilateral Double Taxation Treaties with Nigeria are granted a reduced rate of WHT.

WHT IMPLICATIONS ON NON RESIDENT COMPANIES/ENTERPRISES

In practice, non-resident companies are not authorized to deduct any type of WHT. These categories of enterprises are practically outside the regulatory monitoring and control of the Tax authorities. 

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