Withholding Tax (WHT) in Nigeria: A Practical Guide for Nigerians and Expats
Whether you’re a Nigerian business owner, an employee, or an expat working in Nigeria, understanding Withholding Tax (WHT) is crucial for staying compliant with local tax laws. This guide breaks down everything you need to know about withholding tax in Nigeria—from what it is, who pays it, the latest WHT rates in Nigeria, and how to calculate and remit WHT, to recent changes and practical FAQs.
What is Withholding Tax (WHT)?
Definition of Withholding Tax in Nigeria
Withholding Tax (WHT) is an advance payment of income tax, deducted at source by a payer (such as a business or employer) from certain payments made to individuals or entities, including expats. In Nigeria, WHT is governed by the Federal Inland Revenue Service (FIRS) and the State Boards of Internal Revenue (SBIR).
The Purpose and Importance of WHT
WHT ensures the government collects taxes on income that might not be easily tracked, such as on contract payments, dividends, interests, or rents. It aids in boosting tax compliance and government revenue.
How Withholding Tax Works: An Overview
When a payment that is subject to WHT is due, the payer deducts the tax at the prescribed rate, remits it to the tax authorities, and pays the balance to the payee. The payee can then use the WHT credit against their own annual tax liability.
Source: FIRS Withholding Tax Guide
Who Must Pay Withholding Tax in Nigeria?
WHT Obligations for Individuals, Companies, and Expats
- Nigerian Individuals & Companies: People and businesses making specific payments (interest, rent, contractors’ fees, etc.) to others must deduct and remit WHT.
- Expats & Non-Residents: Expat employees or foreign companies earning Nigerian-sourced income (like consultancy, technical services, or rental income) are subject to Nigerian WHT.
Typical Scenarios: Salaries, Contracts, Dividends, Interest
- Salaries: WHT does not apply to salaries. Instead, Pay-As-You-Earn (PAYE) tax applies.
- Contracts: If you pay ₦1,000,000 to a contractor, you must withhold 5% for companies or 5-10% for individuals.
- Dividends & Interest: Paid by Nigerian companies to shareholders or investors, subject to 10% WHT.
- Royalties & Rents: Apply similarly, with rates varying by payment type.
Who is Exempt from Withholding Tax? (WHT Exemptions and Reliefs)
- Government Agencies/Ministries: Usually exempt from WHT on incomes not subject to income tax.
- Small Amounts: Payments below certain thresholds may be exempt.
- Double Tax Treaties: Expats from countries with treaties may get relief or reduced rates (see recent treaties).
- WHT Exemptions: Some income types or nonprofit organizations are also exempt—verify specifics with FIRS or a tax consultant.
Withholding Tax Rates in Nigeria (2025 Update)
Below is an up-to-date table of WHT rates in Nigeria as of 2025 for both residents and non-residents. Always check current FIRS rates or PwC Nigeria WHT guide for confirmation.
| Payment Type | Resident Rate | Non-Resident Rate* |
|---|---|---|
| Contract Payments (Companies) | 5% | 10% |
| Contract Payments (Individuals) | 5% | 10% |
| Dividends | 10% | 10% |
| Interest | 10% | 10% |
| Royalties | 10% | 10% |
| Rent (Property) | 10% | 10% |
| Directors’ Fees | 10% | 10% |
| Technical, Management, Consultancy Fees | 5% | 10% |
*Non-resident rates may be reduced under Double Tax Treaties. (Treaty List)
Special Considerations for Expats and Non-Residents
- Payments to foreign entities attract higher rates unless a treaty applies.
- Non-resident individuals and companies must apply for relief through their country’s treaty or through certificate claims with FIRS.
WHT on Cross-border Payments
If a Nigerian company pays a foreign supplier or contractor, WHT is due on the gross amount, unless exempted or reduced by treaty.
Double Tax Treaties Affecting WHT
Nigeria has tax treaties with several countries (including UK, Canada, France) which can reduce rates—always check the current list and status on latest regulatory resources.
How to Calculate and Deduct Withholding Tax in Nigeria
Step-by-step Calculation Examples
Let’s break it down with simple examples:
Local Payment Example:
You pay a Nigerian contractor ₦1,000,000 for services.
- Applicable WHT Rate: 5%
- WHT Amount: ₦1,000,000 x 5% = ₦50,000
- Net amount to pay contractor: ₦950,000
Foreign Payment Example:
A Nigerian company pays a UK-based consultant ₦2,000,000 for technical services.
- Applicable WHT Rate: 10% (may be lower if treaty applies)
- WHT Amount: ₦2,000,000 x 10% = ₦200,000
- Net amount to pay consultant: ₦1,800,000
WHT on Dividends and Interest
Dividends paid out of Nigerian companies are subject to 10% WHT.
If you receive ₦500,000 as a dividend:
- WHT Amount = ₦500,000 x 10% = ₦50,000
- You receive: ₦450,000 (₦50,000 credited to your tax account)
WHT on Contract Payments: Practical Example
If XYZ Ltd. pays ₦5,000,000 to a supplier (resident company):
- WHT: ₦5,000,000 x 5% = ₦250,000 (to FIRS), supplier receives ₦4,750,000.
WHT Remittance and Filing: What Payers Need to Do
WHT Remittance Process (FIRS, SBIR)
- Federal payments: Remit to the Federal Inland Revenue Service (FIRS).
- State payments: Remit to the relevant State Board of Internal Revenue (SBIR).
- Timeline: Deduct WHT at payment time and remit within 21 days of deduction.
Deadlines, Penalties for Late Remittance, and Record-Keeping
- Deadline: 21st day of the following month after deduction.
- Penalties: Late filing attracts 10% of the tax not remitted, plus interest for each month late.
- Records: Retain all documentation for at least 6 years (contracts, receipts, remittance slips).
How to Obtain WHT Credit/Certificate
- Collect a WHT credit certificate from the tax authority upon remittance.
- This certificate can be used as a tax credit against your annual income or company tax liability.
- Certificates are often required for contract bidding and tax clearance.
Common Mistakes and FAQs about Withholding Tax in Nigeria
Frequent Errors in Calculating/Remitting WHT
- Using outdated rates or applying wrong rates.
- Failing to remit within stipulated deadlines.
- Not claiming WHT credits, especially for expats.
How to Correct WHT Errors
- File an amended return or write to FIRS/SBIR to notify and correct the error.
- Pay any additional tax plus penalties, if applicable.
Practical Tips for Employers, Employees, and Expats
- Always check up-to-date WHT rates before payment.
- Get all tax certificates and keep them safe.
- Consult tax professionals for cross-border or treaty issues.
Top WHT Questions Answered
Q: Does WHT apply to salary payments?
A: No, salaries are taxed under PAYE, not WHT.
Q: How do I claim my WHT credit?
A: Use the certificate when filing your annual tax returns with FIRS or SBIR.
Q: Are there exemptions for expats?
A: Yes, via double tax treaties or specific exemptions—check FIRS WHT Exemptions.
Updates and Recent Changes in Nigerian Withholding Tax
2025 Legislative or Regulatory Changes
- WHT rates and rules are reviewed annually. For 2025, no major rate changes, but increased enforcement and digital remittance methods added.
- Consult FIRS News for updates.
Trends: WHT and the Nigerian Business Environment
- Digital payments and e-filing for WHT are becoming standard.
- More sectors are now under closer scrutiny (e.g., oil & gas, fintech).
Conclusion: Navigating WHT Successfully as a Nigerian or Expat
Mastering Withholding Tax in Nigeria requires knowing:
- If and when you should apply WHT,
- The right rates for each transaction,
- How to calculate, remit, and claim your WHT credits, and
- Staying updated with new regulations.
For extra help, consult:
- FIRS Official Site
- Professional tax consultants
- Nigerian tax law resources
Stay compliant, keep good records, and always seek expert advice if in doubt!
Related Resources:
- Personal Income Tax (PIT) in Nigeria: Full Guide
- Companies Income Tax (CIT) in Nigeria: What You Need to Know
- FIRS Official Withholding Tax Resources
This guide is for informational purposes—please confirm all tax decisions with FIRS or a qualified tax consultant.
FAQ
What is withholding tax in Nigeria?
Withholding tax in Nigeria is a tax deducted at source from payments such as contracts, dividends, and interest. It serves as an advance payment of income tax to ensure better compliance.
Who must pay WHT in Nigeria?
Both individuals and companies paying or receiving certain incomes (e.g. contract fees, dividends) must pay or withhold WHT in Nigeria, including expats working in the country.
What is the WHT rate for contracts in Nigeria?
The standard WHT rate for contracts in Nigeria is 5% for residents and 10% for non-residents, subject to changes or reductions through treaties.
How do I remit WHT to FIRS?
Deduct WHT on payment, remit to FIRS or SBIR within 21 days, and obtain a WHT credit certificate as proof of remittance.
Who is exempt from WHT in Nigeria?
Some government agencies, nonprofits, and payments below certain thresholds may be exempt. Double tax treaties can also provide exemptions for expats and foreign entities.