Withholding Tax in Nigeria? — 11 Major Things You Need to Know

Withholding Tax in Nigeria? — 11 Major Things You Need to Know (A practical, fail-safe recipe to avoid the tax hammer)

Retained verbatim: article text, structure, headings, and data.

Introduction

Picture this: you pay a contractor ₦1,000,000 for a rush job, happy you closed it quickly. A year later, during a tax audit, a tax officer drops a letter on your desk — you should have withheld tax but you paid in full. Then the headaches begin as the “tax hammer” dangles over your head.
The Deduction of Tax at Source (Withholding) Regulations, 2024 are the blueprint that tells you exactly when to hold back cash, who must act as the government's on-the-spot tax collector, how much to withhold, when to remit, and what happens if you slip up. This article translates those Regulations into plain English, real-life examples, checklists, and a step-by-step “recipe” you can implement in your finance team today. Where I cite specific rules or templates, I’m using the Regulations as published (Deduction of Tax at Source (Withholding) Regulations, 2024).

Quick navigation — the 11 major points you’ll master by the end

What the Regulations are for (why they exist)
Who must deduct (the list of payers) — and who usually doesn’t
Small-company (₦2,000,000) exemption — the life-saver
When the obligation to withhold arises (timing rules)
How much to withhold — simplified rates table and TIN penalty (double rate)
Exemptions — payments you do not withhold on
Remittance deadlines, returns and receipts — the paperwork timeline
What happens if you don’t remit or fail to deduct (penalties)
A step-by-step compliance recipe (the kitchen method)
Worked numerical examples — digit-by-digit clarity
Checklists, templates, traps and the 7-day sprint to get compliant

Throughout, I’ll weave in examples, a decision infographic, and copy-paste templates so your accounts team can act immediately. Where relevant I cite the official Regulations.

1. The purpose: why these Regulations exist (short answer)

The Regulations aim to simplify withholding rules, lower deduction rates where justified, grant targeted exemptions (notably for small businesses and manufacturers), reduce tax arbitrage between business structures, and improve collection and compliance. In short: clearer rules, fairer sectoral rate choices, and firmer enforcement. These objectives are stated in the Regulations’ opening sections.
Why you should care: the Regulations turn many informal “tax customs” into law. That means your business processes either align with the law — or you risk avoidable penalties.

2. Who must deduct withholding tax at source?

Short answer: Mostly organisations — not ordinary private individuals paying once-off amounts.

Who the law names as required deductors (summary from Regulation 4):

A body corporate or unincorporate (i.e., companies, partnerships and equivalent business entities — not individuals acting privately).
Government Ministries, Departments and Agencies (MDAs).
Statutory bodies and public authorities.
Any other institution, organisation, establishment or enterprise (this is broad, and even entities exempt from tax can be deductors).
Payment agents acting on behalf of any of the above.

Practical translation: If you run a company, a parastatal, or operate as a payment agent, you are likely the person who MUST withhold when the conditions are met. If you’re an individual paying a one-off contractor in your private capacity, the Regulations usually do not make you a mandatory ‘deductor’. But check other rules (e.g., PAYE) if the context looks like trading or employment.

3. The small-company exemption: the ₦2,000,000 per month saver

Here’s the most useful twist for small businesses.
A “small company” (as defined in s.105 of Companies Income Tax Act) — and unincorporated entities of equivalent size — are exempt from the obligation to deduct tax at source provided both conditions below are satisfied:

The supplier/payee has a valid Tax Identification Number (TIN).
The total value of the transaction(s) with that supplier in the relevant calendar month is ₦2,000,000.00 or less.

That means: if your small catering company pays a supplier ₦1.5m in January and the supplier has a valid TIN, you do not have to withhold. If sums for that supplier in the month exceed ₦2m, the exemption falls away.
Practical tip: implement vendor onboarding checks to capture TINs immediately — and build a monthly aggregation by supplier so you can apply the ₦2m test automatically.

4. When does the obligation to withhold arise? (Timing rules)

Timing is simple — but critical.

The obligation to deduct arises at the earlier of:

when payment is made, or
when the amount due is otherwise settled (for example, when you recognise the liability in the ledger).

For related-party payments the rule is the same: deduct at payment or when the liability is recognized, whichever is earlier. For non-resident recipients, the deduction is usually a final tax, unless the non-resident has a taxable presence in Nigeria (in which case further tax might apply).

Actionable process change: if your ERP records a payable or executes a bank payment, that event should trigger your withholding workflow.
Read Also: What Businesses/Suppliers Need to Know About Withholding Tax in Nigeria

5. The rates — a simplified, practical table (and the “no TIN” double-rate rule)

The Regulations include a First Schedule which lists rates by transaction type and recipient status (corporate / non-corporate; resident / non-resident). I’ve simplified the common rows for quick use. This is a practical snapshot — always cross-check for edge cases with the official First Schedule.

Eligible transaction (typical)	Corporate — Resident	Corporate — Non-resident	Non-corporate — Resident	Non-corporate — Non-resident
Dividend / Interest	10%	10%	10%	10%
Royalty	10%	10%	5%	5%
Rent / Hire / Lease	10%	10%	10%	10%
Commission / Consultancy / Professional fees	5%	10%	5%	10%
Supply of goods (non-manufacturer)	2%	N/A	2%	N/A
Co-location & telecom tower services	2%	5%	2%	5%
Supply or rendering of services (general)	2%	5%	2%	5%
Construction of roads / bridges / buildings / power plants	2%	5%	2%	5%
Other construction & related activities	5%	10%	5%	10%
Brokerage fee	5%	10%	5%	10%
Directors' fees (non-corporate recipients)	N/A	N/A	15%	20%
Compensation for loss of employment (non-corporate)	N/A	N/A	10%	10%
Entertainers & sports persons (non-corporate)	N/A	15%	N/A	15%
Winnings (games / reality shows)	N/A	N/A	5%	15%

It’s important to note that if the recipient has NO TIN and the transaction involves supply of goods, rendering of services or any non-passive income, the payer must withhold twice the rate specified in the Schedule. That’s extreme — so collect TINs promptly.
Note on treaties: if a double-tax treaty applies and the official reduced rate is available, the treaty rate may override the Schedule — only where the treaty is duly ratified and documentation is provided.

6. Exemptions: payments you do not withhold on

Not everything attracts withholding. The Regulations list specific exemptions; here are practical highlights you need to remember:

Compensating payments under registered securities lending transactions.
Dividends/distributions to REITs / Real Estate Investment Companies (as provided under CITA).
Across-the-counter (instant cash/spot) transactions without formal contract.
Interest and fees paid to Nigerian banks by direct debit of funds domiciled with the bank.
Goods manufactured or materials produced by the person making the supply (manufacturer self-supply).
Imported goods where the transaction does not create a taxable presence in Nigeria for the foreign supplier.
Payments exempt from tax by law.
Telephone charges, internet data, airline tickets.
Distinguishable out-of-pocket expenses (i.e., genuine reimbursements).
Insurance premiums.
Certain fuel and petroleum products (e.g., LPG, PMS, AGO, JET-A1).
Broker commission retained in industry-norm arrangements.
Some winnings from entrepreneurship/innovation-focused shows.

Note that an exemption from withholding is not automatically an exemption from the underlying tax liability — it only means you are not required to withhold at source under these Regulations.

7. Remittance deadlines, returns and receipts — the paperwork timeline

Timing for remittance and returns is unforgiving without reminders. The Regulations prescribe:

Remittance (where payee's tax goes to FIRS):

Remit not later than the 21st day of the month following the month of payment.

Remittance (where payment goes to a State Internal Revenue Service):

For Capital Gains Tax and PAYE: remit not later than the 10th day of the month following the payment.
For any other deduction: remit not later than the 30th day of the month following the month of payment.

Returns and receipts:

A return in the format of the Regulations’ Second Schedule must be submitted with evidence of remittance. The return must list each beneficiary, TIN/NIN/RC, nature of transaction, gross amount, rate and amount deducted.
After remittance, the payer must issue a receipt and statement to the beneficiary (Third Schedule format) providing the beneficiary with the proof needed to claim the credit. If you issue receipts but fail to remit, the tax authority may still credit the beneficiary and pursue you for the unpaid amount plus penalties and interest. So don’t issue receipts until you’ve remitted.

Practical tip: tie the issuance of beneficiary receipts in your accounting process workflow to successful remittance confirmation (bank/payment reference) — not just ledger entries.

8. If you don’t remit or fail to deduct — penalty exposure

The Regulations make the liabilities clear:

Paid full amount without deduction: only an administrative penalty applies (lighter than full criminal or heavier penalties).
Deducted but failed to remit: the deducted amount becomes the payer’s liability and is recoverable, along with administrative penalty and annual interest. Also remember: if you issued a receipt to the beneficiary without remittance, the beneficiary gets credit from the authority — you still must pay.

Practical consequence: the worst position is deducting and not remitting. It’s a direct cash shortfall plus penalties and interest. Put control gates and approvals in place so bank payments are not made without remittance reconciliation.

9. The compliance recipe: a step-by-step kitchen method (actionable)

Treat withholding compliance like baking a reliable cake — follow the recipe precisely and you avoid disaster.

Ingredients (what you need):

Vendor database with validated TINs (or NIN/RC where necessary).
Vendor classification (corporate / non-corporate / non-resident).
Transaction classification taxonomy (commission, royalty, rent, supply of goods, construction, etc.).
Withholding calculator (ERP module or spreadsheet).
Monthly remittance calendar with deadlines (21st, 10th, 30th).
Templates: remittance return (Second Schedule), beneficiary receipt (Third Schedule).
Reconciliation process & GL codes (e.g., WHT payable).

Steps (the recipe):

Onboard vendors properly — collect and validate TIN/NIN/RC. Add clause: if vendor fails to provide TIN within X days, double-rate withholding applies. (Reg 3(c)).
Classify the payment — which First Schedule row applies? (e.g., supply of goods = 2%; consultancy = 5%/10% based on recipient).
Check payer status — are you required to deduct? If small company and transaction ≤ ₦2m and vendor has TIN → exemption applies.
Calculate withholding using correct resident/non-resident and corporate/non-corporate rate. If vendor has no TIN for non-passive income → double the rate.
Deduct at payment or on recognition of liability (whichever earlier). Don’t delay.
Remit to the right authority by the right date and submit the return (Second Schedule).
Issue receipt (Third Schedule) to vendor only after remittance. Keep copies.
Reconcile monthly: ledger vs remitted amounts vs receipts issued to vendors.
Archive documentation for audit (invoices, proof of payment, remittance bank advices, returns and receipts).

Control point: set automation/approval so that issuance of final vendor receipt is conditional upon posting of remittance confirmation.

10. Worked numerical examples — digit-by-digit clarity

The Regulations are technical — below are clear step-by-step calculations you can drop into SOPs and train staff on.

Example A — consultancy fee to a resident non-corporate consultant

Gross invoice: ₦3,000,000.00
Transaction type: professional fees → 10% for non-corporate recipients (resident). (From First Schedule.)

Digit-by-digit calculation:

Compute 10% as fraction: 10 ÷ 100 = 0.10.
Multiply: 0.10 × 3,000,000 = 300,000.
Withholding = ₦300,000.00.
Net payment to vendor = 3,000,000 − 300,000 = 2,700,000 → ₦2,700,000.00.

(If FIRS is the receiving authority, remit ₦300,000 by the 21st of the following month and submit the Second Schedule return; issue the Third Schedule receipt after remittance.)

Example B — supply of goods to a corporate buyer (supplier has no TIN)

Gross invoice: ₦4,000,000.00
Transaction type: supply of goods (non-manufacturer) → standard rate = 2% for corporate recipients (resident).
Because the supplier has no TIN and this is a non-passive transaction, withholding is twice the rate → 2% × 2 = 4%.

Digit-by-digit calculation:

Compute 4% as fraction: 4 ÷ 100 = 0.04.
Multiply: 0.04 × 4,000,000 = 160,000.
Withholding = ₦160,000.00.
Net payment to supplier = 4,000,000 − 160,000 = 3,840,000 → ₦3,840,000.00.

Record reason: no TIN. Request TIN immediately and update records. If the supplier later provides a TIN and claims credit, reconcile the ledger accordingly.

11. Templates, quick-check tables, audit evidence & the “7-day sprint”

Below are ready-for-copy templates and checklists to speed compliance.

Quick remittance checklist (monthly)

All payments made/posted this month classified by transaction type
Vendor TINs/NIN/RC present and validated
Correct rate applied (resident/non-resident; corporate/non-corporate)
Double-rate applied where supplier has no TIN (if applicable)
Withheld amounts recorded correctly in ledger (GL: WHT payable)
Remittance prepared and payment scheduled by deadline (21st / 10th / 30th)
Return (Second Schedule) completed and submitted
Receipt (Third Schedule) issued to beneficiary after remittance
Reconcile remitted vs ledger; reconcile supplier credits

Copy-paste: Remittance return (Second Schedule) — compact version

Name of Payer : ____________________
Tax Identification Number of Payer : ____________________
Month Covered : ____________________
Relevant Tax Authority : ____________________
Currency of Remittance : ____________________

S/N | Name & Address of beneficiary | Nature of transaction | TIN | Gross amount | Rate | Amount deducted

Declaration:
I, ____________________, being an authorised personnel of the paying entity, hereby certify that information in this schedule is true.
Name : _____________
Designation : _____________
Signature : _____________
Date : _____________
(Use the Regulations’ official layout when submitting; above is a compact working copy.)

Copy-paste: Beneficiary receipt (Third Schedule) — compact version

Serial Number of receipt : ______
Date : ______
Name of payer : ______
Tax Identification Number of payer : ______
Name of beneficiary : ______
Tax Identification Number of beneficiary : ______
Month covered : ______
Amount deducted : ______
Date of remittance to relevant tax authority : ______
Issue this only after remittance confirmation.

Audit & record-keeping (what auditors will ask)

Copy of invoices & proof of net payment to supplier.
Withholding ledger entries (WHT payable GL).
Proof of remittance to tax authority (bank confirmation / remittance reference).
Copies of returns filed (Second Schedule) and receipts issued to beneficiaries (Third Schedule).
Vendor TIN validation records.

The 7-day sprint to fast compliance (immediate action plan)

Day 1: Run vendor report — collect TINs & assign owners for missing TINs.
Day 2: Build/refresh transaction classification (map top 20 spend categories to First Schedule).
Day 3: Implement withholding calculator in spreadsheet (rates & double-rate logic included).
Day 4: Update vendor onboarding form to require TIN + double-rate clause.
Day 5: Create monthly remittance calendar and link to payments.
Day 6: Draft remittance/receipt templates (Second & Third Schedule formats).
Day 7: Train accounts team + test run (simulate withholding and remittance for sample invoices).

Top 10 practical compliance traps (and how to avoid them)

Missing vendor TIN → risk double-rate withholding. Fix: enforce TIN at onboarding and put a flag on the vendor master.
Misclassifying transactions → wrong rate applied. Fix: create a transaction-to-schedule mapping table and require a second-person sign-off for unusual spends.
Late remittance → penalties + interest. Fix: automated reminders and pre-scheduled transfers tied to payables run.
Issuing receipt before remitting → you remain liable. Fix: only issue Third Schedule receipts after remittance confirmation.
Assuming small-company exemption incorrectly → costly mistakes. Fix: verify both TIN presence and monthly ₦2m threshold before bypassing deduction.
Ignoring treaty relief requirements → misplaced treaty claims. Fix: keep tax residency certificates and treaty paperwork for non-resident payees.
Reimbursing out-of-pocket expenses as taxable fees → wrong withholding. Fix: separate reimbursable line items with receipts.
Not booking withheld amounts correctly → distorted profit figures. Fix: use GL code WHT payable and reconcile monthly.
No monthly reconciliation → surprises during audits. Fix: run monthly remittance reconciliation.
No staff training → repeated human errors. Fix: short monthly training for procurement & accounts.

FAQ (short practical answers)

Q: If my supplier is a foreign company but has a Nigerian branch, do I withhold?
A: If the foreign supplier has a taxable presence in Nigeria, withholding may not be final and further tax could apply. Check for permanent establishment and treat accordingly.

Q: Do I withhold on all bank interest?
A: Some interest/fees paid to Nigerian banks by direct debit of funds domiciled with the bank are exempt from withholding per the Regulations. Check exemptions list.

Q: Is withholding tax a separate tax?
A: No — amounts deducted are treated as advance or final tax of the recipient, not an extra contractual cost to the payer. Don’t include withholding in the price — treat it as tax collected on behalf of the vendor.

Final checklist before you close the books each month

Vendor TINs logged & validated.
All payments classified and withholding calculated.
Withheld amounts booked in GL (WHT payable).
Remittance scheduled and return prepared (Second Schedule format).
Beneficiary receipts ready to issue post-remittance (Third Schedule).
Monthly reconciliation performed and exceptions resolved.

Conclusion — final motivation & call to action

The Deduction of Tax at Source (Withholding) Regulations, 2024 give clarity and fairness — and they raise the stakes for organised compliance. The single biggest shield you have is process: vendor TIN capture, correct transaction classification, prompt deduction, timely remittance, and rock-solid record-keeping. Follow the recipe above and the “tax hammer” becomes a distant knock you’re ready for.