Nigeria: Nigeria's Withholding Tax Reforms: Key Changes and Sectoral Impacts

Highlights of the Key Changes

Decrease in WHT Rates:

Professional, Management, Technical, and Consultancy Services: WHT has been reduced from 10% to 5% for Nigerian companies providing these services. For non-resident companies, the rate stays at 10%, with no added tax obligations in Nigeria.

Other Services and Supply of Goods/Materials:

WHT has been reduced from 5% to 2% for payments to Nigerian residents for services other than professional, management, technical, and consultancy services, as well as for the supply of goods or materials. This excludes over-the-counter supplies made without prior agreements.

Construction Payments to Residents:

WHT has been reduced from 2.5% to 2% for payments made to Nigerian residents for construction projects such as roads, bridges, buildings, and power plants.

Co-Location and Telecommunication Tower Services:

WHT for these services to Nigerian residents has been reduced from 5% to 2%, while non-resident companies continue to attract a 5% rate.

New/Increased WHT Rates:

Non-Resident Entertainers and Sportspersons: 

A new WHT rate of 15% applies to the earnings of non-resident entertainers and sportspersons, which is the final tax payable in Nigeria.

Winnings from Lotteries, Gaming, and Reality Shows: From October 1, 2024, a 5% WHT applies to winnings for Nigerian residents, while non-residents face a 15% tax.

Construction Payments to Non-Residents: WHT for payments to non-residents involved in the construction of roads, bridges, buildings, and power plants has increased from 2.5% to 5%.

Directors’ Fees:

The WHT on directors' fees has been increased to 15% for Nigerian residents and 20% for non-residents. No other taxes are payable by non-resident directors.

Administrative Changes:

Exemption for Small Businesses: Companies with a turnover of 25 million Naira or less are exempt from WHT deductions on individual transactions up to 2 million Naira, provided the supplier has a Tax Identification Number (TIN).

Double WHT Rate for Unregistered Recipients: 

Recipients of non-passive income without registration with the Federal Inland Revenue Service (FIRS) will face double the standard WHT rate.

Extension of WHT Liability to Payment Agents: 

Agents responsible for making payments liable to WHT must now deduct and remit taxes.

Timing of WHT Deduction: The timing for WHT deductions now arises on the earlier of payment or settlement, as opposed to the earlier system of payment or accrual.

Requirement to Issue Receipts: Entities that deduct WHT are now mandated to issue receipts, entitling recipients to claim a tax credit, even if the WHT has not been remitted to the relevant authorities.

Exemptions - WHT exemptions now apply to:

Goods manufactured or materials produced by the supplier.

Winnings from reality shows or games of chance that promote entrepreneurship, academics, or innovation.

Insurance premiums, and payments made to Nigerian banks for direct debit transactions; Supply of liquefied petroleum gas (LPG), compressed natural gas (CNG), premium motor spirits, and other fuel types.

Sector-Specific Implications

Financial Services:

WHT applies to dividend payments, interest, and other financial transactions. The new rules around the timing of WHT deductions will affect cash flow management, particularly in terms of dividend distributions.

Telecommunications:

Telecommunications companies face a reduced WHT rate of 2% for co-location and tower services paid to Nigerian residents. 

Construction and Real Estate:

The reduced WHT of 2% for Nigerian residents engaged in construction of roads, bridges, and power plants offers slight relief in an industry burdened by high operational costs. 

Entertainment and Sports:

The 15% WHT on the earnings of non-resident entertainers and sportspersons could have a cooling effect on international engagements. Event organizers may need to factor in higher costs for hiring foreign talent, while the entertainment sector will face added tax burdens.

Manufacturing and Supply Chain:

The reduction in WHT to 2% for the supply of goods or materials to Nigerian residents will ease the burden on manufacturers and suppliers. This is particularly beneficial in sectors reliant on local suppliers. 

Conclusion

Nigeria’s withholding tax reforms aim to improve the efficiency of tax collection and compliance, while providing relief for specific industries through reduced WHT rates.

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Reference/ Citation

Federal Inland Revenue Service (FIRS) official circulars on WHT reforms

Nigerian Companies Income Tax Act (CITA)

Nigerian Personal Income Tax Act (PITA)

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