Withholding Tax (WHT) in Nigeria — rates and credit notes
Who withholds, what the 2.5% to 10% rates apply to, how WHT 002 monthly remittance works, and how credit notes offset corporate or personal income tax.
Withholding Tax (WHT) in Nigeria is an advance payment of income tax deducted at source by the paying party when settling certain invoices, then remitted to the tax authority — FIRS for companies and State Internal Revenue Services for individuals and unincorporated taxpayers. Rates range from 2.5% on construction and building contracts to 10% on professional services, directors' fees, dividends, interest and royalties, with intermediate rates on rents and management fees. WHT is governed by Section 81 of the Companies Income Tax Act, Section 73 of the Personal Income Tax Act and the WHT Regulations 1997 (as amended), with FIRS Information Circulars setting current practice. Critically, the WHT deducted is not a final tax in most cases — the supplier receives a WHT credit note (Form WHT 005) which is then offset against their final corporate income tax or personal income tax liability when the annual return is filed.
- Rates: 2.5% construction, 5% rent and management fees, 10% professional services.
- Paying party withholds at source and remits monthly on Form WHT 002.
- FIRS receives WHT for companies; State IRS receives WHT for individuals.
- WHT credit note (Form WHT 005) offsets the supplier's income tax.
How it works
Identify whether the transaction is subject to WHT. The most common WHT-bearing transactions are professional and consultancy services (10%), management and technical services (10%), construction and building contracts (2.5%), rent on property (10% for companies, 10% State for individuals), commissions (10%), directors' fees (10%), dividends, interest and royalties (10%). Pure trading transactions in goods (sale of inventory) are generally not subject to WHT — this distinction is the single most common source of disputes between buyers and suppliers.
Withhold the correct percentage from the gross invoice value at the moment of payment. If a supplier issues an invoice for NGN 1,000,000 in professional services, the paying company withholds NGN 100,000 (10%) and pays the supplier NGN 900,000 net. VAT is calculated on the gross invoice and is not netted against WHT — the supplier still issues a tax invoice for NGN 1,000,000 plus VAT 7.5% (NGN 75,000), the buyer pays NGN 900,000 + NGN 75,000 = NGN 975,000 and remits NGN 100,000 WHT to FIRS.
Remit the withheld amount on Form WHT 002 by the 21st day of the following month. For companies (CIT-registered), remit to FIRS through TaxPro-Max. For individuals and sole traders (PIT), remit to the State Internal Revenue Service of the supplier's state of residence — Lagos State IRS for Lagos-resident suppliers, Federal Capital Territory IRS for Abuja-resident suppliers, and so on. Mis-remittance to the wrong authority is a frequent compliance error.
Issue the WHT credit note (Form WHT 005) to the supplier. After remitting the WHT, the paying party prepares and delivers a WHT credit note showing the supplier's TIN, the invoice number, the WHT amount and the receiving authority's acknowledgement reference. The supplier then uses this credit note to offset their final income tax liability — without the credit note, the supplier cannot prove the WHT was actually remitted on their behalf.
Reconcile annually against the supplier's income tax return. When the supplier files their annual CIT or PIT return, all WHT credit notes received during the year are aggregated and deducted from the gross tax payable. If the WHT exceeds the final tax liability (typical for low-margin businesses or pre-revenue contractors), the excess can be carried forward or, in limited cases, refunded by FIRS or the State IRS. WHT 005 credit notes are therefore retained for at least six years.
Legal framework
- Companies Income Tax Act Cap C21 LFN 2004, Section 81.
- Personal Income Tax Act Cap P8 LFN 2004 (as amended), Section 73.
- Withholding Tax Regulations 1997 (as amended).
- FIRS Information Circulars on WHT rates and operation.
Frequently asked questions
What is the WHT rate for professional services in Nigeria?
10% on the gross fee, withheld by the paying party at the point of payment. This applies to legal, accountancy, audit, consultancy, engineering design, advisory, technical and management services. The same 10% rate applies to commissions, agency fees, directors' fees, dividends, interest and royalties. For construction and building contracts, the rate is 2.5%. For rent and management fees, the rate is 10% for companies and 10% for individuals — but the receiving authority differs.
Does WHT apply to trading in goods?
Generally no — pure supply of goods is not subject to WHT in Nigeria, provided the transaction is a straightforward sale of merchandise. WHT applies to services, contracts, rentals, royalties and similar transactions, not to ordinary inventory sales. However, a supply contract that combines goods and services (for example, a turnkey delivery with installation) may be partly subject to WHT on the service portion. Pure resellers of goods to other businesses are normally outside WHT.
What is the WHT credit note (Form WHT 005) for?
The WHT credit note is the supplier's proof that the buyer actually remitted the withheld tax to FIRS or the State IRS. Without this credit note, the supplier cannot claim the WHT as a credit against their final income tax liability when filing the annual return. The credit note must show the supplier's TIN, the invoice details, the WHT amount, and a reference number from the receiving tax authority. 4invoices issues WHT 005 credit notes automatically when payments with WHT are recorded.
What happens if WHT is remitted to the wrong authority?
It is treated as an unpaid liability with the correct authority — and a refund or transfer claim with the wrong one. Companies (CIT) WHT must go to FIRS. Individual and sole trader (PIT) WHT must go to the State IRS of the supplier's residence. If a Lagos-resident sole trader has their WHT remitted to FIRS, FIRS will not transfer the funds automatically to Lagos State IRS — the paying party must request a refund from FIRS and then remit again to Lagos State. Always confirm the supplier's residence and registration type before remitting.
How does WHT interact with FIRS MBS clearance?
FIRS MBS clears the gross invoice and the VAT element. WHT is a separate post-clearance event that occurs at the moment of payment — it does not appear on the MBS-cleared invoice itself. However, FIRS uses cleared MBS invoices and the matching WHT 002 remittances to cross-check supplier income tax returns. Mismatches between cleared invoice value, WHT 002 remittance and the supplier's annual return are the most common trigger for FIRS desk reviews under the Tax Administration Reform Bill 2024.