Withholding Tax and The Nigerian Rates

What is a Withholding Tax?

A withholding tax is basically an advance and  indirect source of taxation deducted at source from the invoices of the tax payer. It’s main purpose is to capture as much tax payers that may have evaded tax into the tax net. Withholding tax rates are usually 10% or 5% depending on the type of transaction and collecting authority for the tax (which can be a Federal Inland Revenue or the State Inland Revenue).

In Nigeria, the withholding tax is deducted at source by the authorized withholding tax agent and the tax is later paid to the State Internal Revenue if the recipient of the income from which the tax is deducted is an individual. The amount withheld is paid to the Federal Inland Revenue Service Board, if the recipient of the income is a corporate body. Suffice it to say, that in determining the relevant tax authority on withholding tax, the residence of the recipient is very important. For example, the residence of the landlord is important in determining the relevant tax authority on withholding tax on rent. In case of the interest, the location of the branch of the bank paying the interest is relevant. The residence of the tax payer is important when considering the issue of royalty. However, the residence of the taxpayer is important and not the location of the company paying the dividend. In the case of director's fees, the residence of the recipient director is an important consideration. Withholding tax is an advance payment of tax, which was introduced in 1985 in Nigeria to bring into the tax net all the taxpayers including those not registered or too difficult to track down.

WITHHOLDING TAX RATES IN NIGERIA

S/N	Nature of Transactions or Payments	Companies	Individuals
1.	Contract of construction	5%	5%
2.	Contract of supplies, agency etc.	5%	5%
3.	Dividend, Rent & internet	10%	10%
4.	Technical fees	10%	5%
5.	Royalties	10%	5%
6.	Professional Services	10%	5%
7.	Management Services	10%	5%
8.	Directors‟ fees	-	10%
9.	Hire of equipment, Plant & Machinery and Motor Vehicles	10%	10%
10.	Rents	10%	10%
11.	Interests	10%	10