Nigeria’s Minister of Finance has released the Deduction of tax at source (Withholding) Regulations 2024 (Withholding regulations 2024). (Withholding regulations 2024 contain the revised rules for deducting tax on specific transactions from payments to taxable persons under the Capital Gains Tax Act, Companies Income Tax Act, Petroleum Profits Tax Act, and Personal Income Tax Act.
Eligible transactions
First, there is an increase in the number of eligible transactions subject to tax deduction at source. The eligible transactions include activities of entertainers, sportspersons, reality TV shows, lottery, winnings, brokerage fee, co-location and telecommunications tower services. The applicable rates for director fees, and construction activities vary for resident and non-resident persons. There is a lower rate for countries that have treaty agreements with Nigeria. Where the supplier does not have a Tax Identification Number (TIN), the WHT rate is twice the normal rate.
Second, a(n) business, government, parastatal, statutory body, public authority, institution, and organisation can deduct WHT. However, individuals should not withhold tax.
Due date and persons exempt
Third, a small company with an annual turnover of below NGN25 million and a body unincorporated is exempt from having WHT deducted from any transaction where the supplier has a valid TIN, and (b) the transaction is NGN 2,000,000 or less in a year.
Fourthly, the sum withheld is not a separate tax or an extra cost. It must not be included in the contract price but is calculated as an advance tax.
Fifth, the tax deduction is at the earlier of the time the amount is paid or the outstanding sum is settled. For related party transactions, the deduction is the earlier of when the amount is paid or liability is recognised.
Option for tax credit
Sixth, a customer who deducts WHT from any payment to a supplier will issue a receipt for the amount withheld and a statement upon remitting the amount to the revenue authority. The statement will show the name, address, and TIN of the supplier. Where the supplier does not have a TIN, either the National Identification Number (NIN) for an individual or RC number of a company will suffice. Other details are the nature of the transaction, amount payable, sum deducted, and the month of the transaction.
In addition, the supplier may submit the receipt issued by the customer to the relevant tax authority. The receipt is a proof of the amount withheld to enable the supplier to receive a tax credit. Where a customer issues a receipt for the sum deducted but has yet to remit WHT to the relevant tax authority, the revenue authority will credit the supplier with the amount unremitted. Also, the tax authority amount will treat as a tax liability of the customer. The unpaid sum is recoverable with charges for late payment.
Transactions exempt
Seventh, transactions exempt from WHT include across-the-counter transactions, goods or materials produced by the person making the supply and imported goods. However, imported goods is exempt if the activities do not create a taxable presence in Nigeria for the non-resident supplier.
Effective date
The commencement date of the Deduction of tax at source (Withholding) regulations is 1st July 2024. However, the Gazette issued on 2 October 2024 gives an effective date of 1st January 2025. Different revenue authorities, with the approval of the Finance Minister, may issue guidelines for following the new provisions and can permit an earlier effective date of 1st July 2024. To download a copy of the Deduction of tax at source (Withholding) regulations, click here.