What is withholding tax (WHT)? – Business Builder by Taisha Accounting Associates

Q: What is Withholding Tax (WHT)?

A:

Withholding Tax is basically an advance payment of income tax which may be used to offset or reduce tax liabilities. It is an advance payment to be applied as tax credit to settle the income tax liability of the years of assessments to which the oncome that suffered the deduction relates. Withholding Tax is not a tax but prepaid tax.

The due date for remitting WHT returns in Nigeria is 21st day of every month following the month in which the deductions were made.

Rates of WHT for corporate companies and individuals on transactions (in Nigeria) are as follows: –

TRANSACTIONS COMPANIES (%) INDIVIDUALS (%)
Royalties 10 5
Contract of Supplies 5 5
Contract of Construction 5 5
Dividend 10 10
Technical Service 10 5
Professional Service 10 5
Consultancy 10 5
Management Service 10 5
Commission 10 5
Rent 10 10
Interest 10 10
Hire, Charter, Lease 10 10
Directors fees 10 10

 

After the withholding tax has been remitted, the Tax Authority will issue a CREDIT NOTE showing that a taxpayer has suffered tax deduction at source. Withholding Tax Credit note can only be used to offset income tax due. It cannot be used to offset late returns penalty and value added tax. This is because Penalty is not a tax but a fine, while value added tax (VAT) is not part of the income of the taxpayer. The value added tax is money belonging to the Federal Inland Revenue Service.

However, the following transactions are exempted from withholding tax (WHT)

  1. Direct purchase across the counter.
  2. Direct purchase of raw materials from supplier as distinct from contract of supplies.
  3. Sale in the ordinary course of business.
  4. All imported goods.
  5. Inter-bank interest.
  6. Income exempted from income tax.
  7. Claims in insurance business.
  8. Interest on Bonds.
  9. Dividends redistributed by Holding Companies.

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About Taisha Associates

Since its inception, TAISHA ASSOCIATES core services have been built around providing small and medium-sized companies with the timely financial information needed to make informed operational decisions on a daily basis. When you are looking for accounting outsourcing, we can provide you with the solution you need to succeed in today’s competitive environment.

Our team of professionals has about two decades of operational accounting experience and understands the challenges you face on a daily basis. We have used our experience to develop systems designed to streamline accounting processes. From beginning to the end, we will help you process, record, and analyze your data.

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