Withholding Tax in Nigeria: Rates, Who Pays & How to Remit

Everything you need to know about withholding tax in Nigeria under the NTA 2025. WHT rates, who deducts, remittance deadlines, credit notes, and penalties explained.

Withholding tax in Nigeria trips up more businesses than any other tax obligation. It is not a separate tax — it is an advance payment of income tax, deducted at source by the person making the payment and remitted to the tax authority on behalf of the recipient. Under the Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025 (both effective from January 2026), the withholding tax framework has been consolidated, penalties for non-compliance have been stiffened, and the Nigeria Revenue Service (NRS) now has digital tools to cross-check deductions against filed returns. If you pay for contracts, services, rent, dividends, interest, or royalties, you are almost certainly a withholding agent — and getting it wrong is expensive. This guide covers the rates, the obligations, the remittance process, and the mistakes that cost businesses money.

What Withholding Tax Actually Is

Withholding tax (WHT) is not an additional tax. It is a mechanism for collecting income tax at the point a payment is made, rather than waiting for the recipient to file a return and pay later. The payer deducts a percentage of the payment, remits it to the tax authority, and pays the balance to the recipient. The recipient then uses a WHT credit note to offset the amount against their final income tax liability when they file their annual return.

Think of it as the government collecting tax in instalments throughout the year, with the payer acting as the collection agent. The recipient is not taxed twice — the WHT they suffered is credited against their final tax bill. If the total WHT exceeds the final liability, the recipient is entitled to a refund (though in practice, Nigerian refunds can be slow).

WHT applies to both companies and individuals, but the administering authority differs. For payments to or from companies, the NRS (formerly FIRS) handles WHT. For payments involving individuals, the relevant State Internal Revenue Service (SIRS) is the collecting authority.

Who Must Deduct Withholding Tax?

Every person or entity that makes a qualifying payment is obligated to deduct WHT. This includes companies, government agencies (ministries, departments, and agencies — MDAs), and individuals making payments in the course of business. If you pay a contractor, a supplier, a landlord, a consultant, or a shareholder, and the payment type is on the WHT list, you must deduct the applicable rate before making the payment.

The obligation is on the payer, not the recipient. If you fail to deduct, you — not the person you paid — face the penalty. Under Section 105 of the NTAA 2025, the penalty for failure to deduct tax at source is 40% of the amount not deducted. That is a severe financial hit for an administrative oversight.

The Small Business Exemption

Under the NTA 2025 tax reforms, small businesses, local manufacturers, and agribusinesses are no longer subject to withholding tax deductions on their transactions, provided their monthly transaction values are below ₦2 million and they hold a valid Tax Identification Number (TIN). This is a significant relief for SMEs that previously had cash flow squeezed by WHT deductions on nearly every payment they received.

However, the exemption is not automatic. The small business must have a valid, verified TIN and must qualify under the small company definition (annual turnover of ₦50 million or less, fixed assets under ₦250 million). If you are a payer, verify the recipient’s eligibility before skipping the WHT deduction — the penalty for wrongly not deducting is on you.

Withholding Tax Rates in Nigeria

WHT rates in Nigeria depend on the type of payment and whether the recipient is a company or an individual, and whether they are resident or non-resident. Here are the standard rates that apply under the current framework:

Payments to Resident Companies and Individuals

Payments to Non-Resident Companies and Individuals

For non-residents without a permanent establishment or significant economic presence in Nigeria, the WHT deducted at source is generally the final tax on that payment — the recipient has no further Nigerian tax obligation on that income. This is a critical distinction: for resident recipients, WHT is an advance payment offset against their annual liability. For most non-residents, it is the final tax.

Double tax agreements (DTAs) may reduce these rates. Nigeria has DTAs with several countries, and where a treaty provides a lower rate, the treaty rate applies. Check the applicable DTA before deducting — over-deduction creates refund complications for the recipient. For treaty-specific rates, consult a professional from our Tax Professional Directory.

Payments Exempt From Withholding Tax

Not every payment attracts WHT. Key exemptions include:

• Interest on savings accounts with deposits under ₦50,000
• Payments to small businesses (monthly transactions below ₦2 million, valid TIN, qualifying small company) — under the NTA 2025 reforms
• Dividends of a capital nature — dividends received by a Nigerian company by way of shares in the paying company are excluded from profits chargeable to tax
• Payments covered by specific exemption orders issued by the Minister of Finance

If you are unsure whether a particular payment is subject to WHT, our AI Tax Assistant can help you determine the applicable rate based on the payment type and the recipient’s status.

Step-by-Step: How to Deduct, Remit, and Report WHT

Step 1: Identify the Payment Type and Applicable Rate

When processing any payment to a supplier, contractor, consultant, or other recipient, check whether the payment type falls under the WHT schedule. Refer to the rate tables above. If the payment is for a service contract worth ₦500,000 to a resident company, the WHT rate is 10%, and you must deduct ₦50,000.

Step 2: Deduct the WHT Before Making Payment

Deduct the applicable percentage from the gross payment amount. Pay the net amount to the recipient and hold the deducted WHT for remittance to the tax authority.

Example: You hire a consulting firm (company) for ₦2,000,000. The WHT rate for consultancy fees paid to a company is 10%. You deduct ₦200,000 and pay the firm ₦1,800,000. You hold the ₦200,000 for remittance.

Step 3: Remit to the Tax Authority by the 21st

The deducted WHT must be remitted to the NRS (for company transactions) or the relevant SIRS (for individual transactions) on or before the 21st of the month following the month of deduction. If you deducted WHT in March, it must be remitted by 21 April.

Remittance is done electronically through the NRS Self-Service Portal at selfservice.nrs.gov.ng for federal obligations. State Boards have their own e-portals. The system generates a payment reference, and you pay via Remita, Quickteller, or at a designated bank.

Step 4: File the Monthly WHT Return

Alongside the payment, you must file a monthly WHT return detailing all deductions made during the month. The return includes the recipient’s name, TIN, address, nature of the transaction, invoice number, amount paid, and WHT deducted. The filing deadline is also the 21st of the following month.

Companies are required to submit this information electronically in a schedule format. Manual or paper returns are no longer accepted for most federal obligations.

Step 5: Issue a WHT Credit Note to the Recipient

After remitting the tax, you must issue a proper WHT credit note (certificate) to the recipient. This document is crucial — the recipient needs it to claim credit against their annual income tax liability or to apply for a refund. The credit note must show the payer’s details, the recipient’s details and TIN, the payment amount, the WHT rate and amount deducted, and the date of remittance.

Failure to issue the credit note does not just inconvenience the recipient — it can lead to the NRS treating the WHT as unremitted, triggering penalties for the payer.

Practical Example: Monthly WHT Cycle for a Business

OmegaTech Ltd is a Lagos-based company. In February 2026, it makes the following payments:

OmegaTech must remit the ₦940,000 to the appropriate tax authorities by 21 March 2026. The ₦300,000 + ₦250,000 + ₦200,000 on company payments goes to the NRS. The ₦150,000 + ₦40,000 on individual payments goes to the Lagos State Internal Revenue Service (LIRS). OmegaTech files the monthly WHT return electronically and issues credit notes to all five recipients.

How the Recipient Uses the WHT Credit Note

The recipient is not out of pocket permanently. The WHT deducted is credited against their final income tax liability when they file their annual return. Here is how it works:

The IT consulting firm in the example above received ₦2,700,000 and has a WHT credit note for ₦300,000. When the firm files its annual Company Income Tax return, it calculates its total CIT liability on all its profits. If the total CIT liability is ₦1,500,000 and the firm has accumulated ₦800,000 in WHT credit notes from various clients during the year, it only pays ₦700,000 as the balance. If the total WHT exceeds the CIT liability, the firm can apply for a refund or carry the credit forward.

The credit note is the proof. Without it, the NRS will not allow the credit — and the recipient effectively pays tax twice on the same income. This is why timely issuance of credit notes is not just good practice; it is a legal obligation for the payer.

Key Changes Under the NTA 2025 and NTAA 2025

Broader Definition of Royalties

The NTA 2025 explicitly defines royalties to encompass any payments for the right to use intellectual property. This includes software licences, trademarks, patents, and digital platform access. Payments that might previously have been classified as “service fees” to avoid the 10% WHT on royalties are now more clearly caught. If you pay a foreign company for the use of software or a brand licence, expect 10% WHT to apply.

WHT as Final Tax for Non-Residents

Under Section 51 of the NTAA 2025, WHT deducted at source from payments relating to education services, foreign permanent establishment income, and risk premiums is the final tax for non-residents — unless the non-resident has a PE or SEP in Nigeria to which the income is attributable. This simplifies the position for many cross-border payments but requires careful classification of the payment type.

Mandatory NRC Registration

Under Section 100(2) of the NTAA, awarding a contract to an unregistered person where registration is required carries a penalty of ₦5,000,000 for the Nigerian payer. This means you should verify a non-resident vendor’s tax registration status before processing payments. The compliance pressure now sits squarely on the Nigerian business making the payment.

Expense Disallowance

Companies cannot claim capital allowances or operating deductions for assets or services where VAT or import duty was evaded. Similarly, if WHT was not deducted on a qualifying payment, the NRS may disallow the expense for CIT purposes. This creates a double penalty: you face the 40% non-deduction penalty and you lose the tax deduction on the expense itself.

Common WHT Mistakes That Cost Businesses Money

• Not deducting WHT at all. The penalty under the NTAA 2025 is 40% of the amount not deducted. On a ₦10,000,000 contract, that is ₦400,000 in penalties — plus the original WHT amount you should have deducted. There is no excuse for oversight; build WHT checks into your accounts payable process.
• Deducting but not remitting. This carries the harshest penalties: the full amount owed, plus 10% per annum, plus interest at the CBN Monetary Policy Rate. Criminal prosecution is possible — conviction can mean up to three years in prison.
• Applying the wrong rate. Deducting 5% on consulting fees to a company (it should be 10%) creates an under-deduction that will surface on audit. Over-deducting creates refund headaches for the recipient and damages your business relationship.
• Not issuing credit notes. Your supplier needs the credit note to offset against their own tax liability. Failure to issue it can strain commercial relationships and — if the NRS queries the deduction — expose you to penalty.
• Ignoring the 21st-day deadline. Late remittance attracts 10% per annum on the unremitted amount plus CBN rate interest. These charges accrue from the day after the deadline.
• Not verifying the recipient’s TIN. The monthly WHT return requires the recipient’s TIN. If you do not have it, you cannot complete the return correctly. Collect TINs from all suppliers during vendor onboarding — before the first payment, not after.
• Treating non-resident WHT as an advance when it is final tax. For non-residents without PE or SEP in Nigeria, WHT is generally the final tax. Over-deducting or under-deducting changes the non-resident’s actual Nigerian tax cost.

Tips for Smooth WHT Compliance

• Build WHT into your accounts payable workflow. Every payment approval should include a WHT check: is the payment type subject to WHT? What is the correct rate? Has the recipient’s TIN been verified? Automate this where possible through your ERP or accounting software.
• Maintain a supplier master file with TINs. Collect every supplier’s TIN at onboarding. The monthly WHT return requires it, and from January 2026, the ₦5,000,000 penalty for engaging unregistered contractors makes TIN verification a commercial necessity.
• Set a recurring calendar reminder for the 15th. Give yourself a week’s buffer before the 21st deadline. This allows time to reconcile deductions, prepare the return, and process the remittance without last-minute pressure.
• Issue credit notes promptly. Make it a standard practice to issue the WHT credit note within five business days of remitting the tax. Your suppliers will appreciate it — and it protects you from NRS queries.
• Reconcile monthly. At the end of each month, reconcile total WHT deducted against total WHT remitted and total credit notes issued. Any discrepancy should be investigated immediately, not left to the annual return.
• Check DTA rates for cross-border payments. If you are paying a non-resident in a treaty country, the DTA may reduce the WHT rate below the standard 10%. Applying the domestic rate when a lower treaty rate applies means you over-deduct — creating a refund issue for the recipient. Consult our Tax Professional Directory for advisers experienced in cross-border WHT.

How to Verify and Claim WHT Credits

If you are a recipient of payments on which WHT has been deducted, here is how to handle the credits:

1. Collect credit notes from every payer. Do not accept a payment net of WHT without obtaining the credit note. Follow up immediately if one is not forthcoming.
2. Record the credit in your tax computation. When preparing your annual CIT or PIT return, total all WHT credits received during the year. These are offset against your final tax liability.
3. File the credits with your return. Attach all WHT credit notes to your annual return (or upload them through the NRS portal). The NRS will not allow credits without supporting documentation.
4. Apply for refund if credits exceed liability. If total WHT exceeds your total tax liability, you can apply for a refund. In practice, it is often more efficient to carry the excess forward as a credit against future liability — refund processing timelines in Nigeria can be lengthy.

Use our CIT Calculator to estimate your annual tax liability, then compare it with your accumulated WHT credits to determine your balance payable or refundable.

Final Thoughts

Withholding tax is one of those obligations that seems simple in principle but causes real problems in practice. The rates are straightforward, the deadlines are clear, and the process is logical — deduct, remit by the 21st, file the return, issue the credit note. Where businesses get into trouble is in the execution: missing a deduction, applying the wrong rate, or letting credit notes pile up unissued.

The NTA 2025 and NTAA 2025 have raised the stakes. The 40% penalty for non-deduction, the ₦5,000,000 fine for engaging unregistered contractors, and the NRS’s digital cross-referencing tools mean that WHT errors are now caught faster and penalised harder. The good news is that compliance is easier too — the NRS Self-Service Portal at selfservice.nrs.gov.ng handles remittance and filing in one workflow.

Get your WHT process right, and it runs on autopilot. Get it wrong, and it becomes a recurring source of penalties, commercial friction with suppliers, and audit exposure. Build the checks into your systems now. For quick calculations, use our tax calculators. For complex situations involving cross-border payments or treaty rates, find a specialist through our Tax Professional Directory. And for ongoing updates from the NRS on WHT administration, bookmark nrs.gov.ng.

FAQs About Withholding Tax in Nigeria

Is withholding tax an additional tax?

No. WHT is an advance payment of income tax, deducted at source by the payer. The recipient receives a credit note and uses it to offset the deduction against their final income tax liability when filing their annual return. If the total WHT exceeds the final liability, the recipient can apply for a refund or carry the credit forward.

Who is responsible for deducting WHT — the payer or the recipient?

The payer. If you make a qualifying payment (contracts, services, rent, dividends, interest, royalties), you must deduct the applicable WHT before paying the recipient. The penalty for failure to deduct is 40% of the amount not deducted, and it falls on the payer — not the recipient.

When must WHT be remitted to the tax authority?

By the 21st of the month following the month of deduction. If you deduct WHT in March, it must be remitted by 21 April. Remittance is done through the NRS Self-Service Portal at selfservice.nrs.gov.ng for federal obligations, or through your State Internal Revenue Service portal for individual-related transactions.

Are small businesses exempt from WHT?

Under the NTA 2025, small businesses, local manufacturers, and agribusinesses are exempt from WHT deductions on their transactions where monthly transaction values are below ₦2 million and they hold a valid TIN. The payer must verify the recipient’s eligibility before skipping the deduction.

What is the WHT rate on payments to non-residents?

The standard rate for most payments to non-residents is 10%, covering dividends, interest, royalties, rent, and service fees. Construction contracts attract 5%. These rates may be reduced under an applicable double tax agreement between Nigeria and the recipient’s country of residence.

What happens if I deduct WHT but forget to remit it?

The penalties are severe: the full amount deducted but not remitted, plus an administrative penalty of 10% per annum, plus interest at the prevailing CBN Monetary Policy Rate. Criminal prosecution is also possible — conviction can result in imprisonment of up to three years or a fine of the principal amount plus up to 50% penalty, or both.

How does the recipient claim credit for WHT deducted?

The recipient uses the WHT credit note issued by the payer. When filing their annual income tax return, they present the credit notes to offset the WHT against their total tax liability. Without a valid credit note, the NRS will not allow the credit — so both payers and recipients should treat credit note issuance and collection as a priority.