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
|
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