In short: When a Nigerian company pays you for work, it keeps back a slice, 5% on most services, and sends that slice to the tax authority in your name. You receive 95% and a credit for the 5% against the income tax you would have paid anyway. It is a collection mechanism, not a separate tax. The two things that go wrong are a missing TIN, which doubles the deduction and loses you the credit, and a payer who deducts but never remits, which leaves you paying twice.
What withholding tax is
Withholding tax is income tax collected at source. The law makes the payer, not the recipient, responsible for deducting a percentage from certain payments and remitting it to the Nigeria Revenue Service (for companies) or the state internal revenue service (for individuals). The recipient then treats the amount withheld as tax already paid when filing its own return.
If you invoice a company ₦1,000,000 for consultancy, it pays you ₦950,000 and remits ₦50,000 under your TIN. At year end your company income tax bill is reduced by ₦50,000, and if the withheld amounts exceed what you owe, the excess is a credit carried forward or refunded.
Who must deduct
The Deduction of Tax at Source (Withholding) Regulations 2024, in force since January 2025, name the deducting persons: companies, government ministries and agencies, statutory bodies, and other organisations paying for the listed transactions. In practice: if your client is a registered company or a government body, expect deduction. Individuals paying for personal purposes do not deduct.
The regulations carved out some transactions: goods bought across the counter, and, for small companies paying vendors that have a TIN, payments below ₦2 million. Manufacturers and producers selling their own goods are also outside the net in most cases. When in doubt, the payer's finance team will deduct; your job is to make sure it is at the right rate and reaches your account.
The rates
| Payment | Rate (company recipient) | Rate (individual) |
|---|---|---|
| Professional, consultancy, technical and management fees | 5% | 5% |
| Commission and brokerage | 5% | 5% |
| Supply of goods and materials | 2% | 2% |
| General services (non-professional) | 2% | 2% |
| Construction of roads, bridges and buildings | 2% | 2% |
| Other construction and installation | 5% | 5% |
| Rent, hire and lease | 10% | 10% |
| Dividends and interest | 10% | 10% |
| Royalties | 10% | 5% |
| Directors' fees | – | 15% |
No TIN, double rate. A recipient that does not provide a TIN is deducted at twice the rate. That is why the TIN field on the invoice generator is not optional in practice.
Run any payment through the withholding tax calculator to see the deduction, the net amount and the remittance date.
When it is remitted, and how you get the credit
The payer files a schedule and pays the withheld tax by the 21st of the month after the payment. The tax authority issues a withholding tax credit note in the recipient's name, which the recipient uses when filing its own return. Ask every corporate client for the credit note or the remittance evidence; it is the document that turns money kept from you into tax you have paid.
If a client deducts and never remits, you have lost 5% and gained nothing. It happens. Keep the invoice, the payment advice showing the deduction, and chase the credit note within the quarter.
When the deduction is final
For individuals receiving dividends, interest, rent or royalties, the withholding is the final tax on that income; nothing further is filed on it. For companies, and for individuals' business and professional income, it is an advance payment set against the year's assessment.
Withholding tax and VAT on the same invoice
They are separate. VAT at 7.5% is added to your price and belongs to the tax authority; withholding is deducted from your price and is your own tax paid early. On a ₦1,000,000 service invoice with VAT: the client pays you ₦1,000,000 + ₦75,000 VAT − ₦50,000 WHT = ₦1,025,000. Withholding is calculated on the amount before VAT.
What changes with e-invoicing
Once your turnover tier is live on the NRS Merchant-Buyer Solution, only validated invoices with an Invoice Reference Number count for withholding credits. The deduction will be matched to the validated invoice automatically, which removes the lost-credit problem for compliant invoices and makes it worse for invoices sent as chat screenshots. The e-invoicing guide has the dates.
Practical checklist for vendors
- Put your TIN on every invoice. See how to get a TIN if you have none.
- Quote knowing corporate payments arrive net. On services, plan for 95%.
- Ask for the withholding credit note with every corporate payment.
- File your annual return and claim the credits. See how to file tax returns.
Practical checklist for payers
- Collect the vendor's TIN before you pay; the purchase order generator has a field for it.
- Deduct at the rate in the table, or double it without a TIN.
- Pay the vendor the net amount and give them a payment advice showing the deduction.
- Remit with the schedule by the 21st of the following month, and pass the credit note to the vendor.