Withholding Tax (WHT) is probably the most misunderstood tax in Nigeria. Business owners hear "withholding tax" and panic — thinking it's yet another tax on top of everything else they're already paying. Employees see a deduction on their payment and wonder what happened to their money.
Here's the truth: Withholding Tax is NOT a separate tax. It's an advance payment of income tax — deducted at the point of payment and later credited against whatever tax the recipient owes at year-end. Think of it as the government collecting a deposit on your future tax bill.
This guide explains how WHT works in Nigeria, who deducts it, the rates for different transactions, and how to use your WHT credits to reduce your annual tax liability.
The one-line summary: Withholding Tax is income tax collected in advance. The payer deducts it from your payment and remits it to NRS. At year-end, you use the credit certificate to offset your actual tax bill. It's not extra money — it's tax you would have owed anyway, paid earlier.
How Withholding Tax Works: The Full Cycle
Let's trace through the complete WHT cycle so you understand every step:
- A payment happens: Company A hires a consultant (Company B) for ₦1,000,000.
- Payer deducts WHT: Company A deducts 5% (the WHT rate for professional services) = ₦50,000. Company B receives ₦950,000.
- Payer remits to NRS: Company A sends the ₦50,000 to NRS by the 21st of the following month.
- Credit certificate issued: NRS issues a WHT credit certificate to Company B (or Company A provides one).
- Year-end offset: When Company B files its annual CIT return, it uses the ₦50,000 credit certificate to reduce its CIT liability. If Company B owes ₦200,000 in CIT, it only pays ₦150,000 cash — the ₦50,000 was already paid via WHT.
That's it. The full loop. Nobody paid extra tax. The government just collected part of Company B's income tax earlier in the year, through Company A as the collection agent.
Think of it like this: If your total annual tax bill is a bucket that needs to be filled, WHT is the government scooping water into that bucket throughout the year, bit by bit, every time you receive a qualifying payment. At year-end, the bucket might already be partially full — so you only need to add what's remaining.
WHT Rates: What Gets Deducted on What
The WHT rate depends on the type of transaction. Here's the complete rate table as at the time of writing under the NTA 2025:
Payments to Nigerian Residents (Companies and Individuals)
| Transaction Type | WHT Rate |
|---|---|
| Dividends | 10% |
| Interest | 10% |
| Royalties | 10% |
| Rent (land/buildings) | 10% |
| Directors' fees | 15% |
| Professional/management/consultancy fees | 5% |
| Technical services fees | 5% |
| Commission/brokerage | 5% |
| Construction/building services | 2% |
| Supply of goods (contracts) | 2% |
| Equipment hire/leasing | 2% |
| Telecom services | 2% |
| Other services not specifically listed | 2% |
Payments to Non-Residents
| Transaction Type | WHT Rate |
|---|---|
| Dividends | 10% |
| Interest | 10% |
| Royalties | 10% |
| Rent | 10% |
| Management/professional/technical fees | 10% |
| Construction | 10% |
| Other services | 10% |
Non-resident note: WHT on payments to non-residents is generally 10% across most categories (unless a Double Taxation Agreement reduces it). For non-residents, WHT is often the final tax — they don't file returns in Nigeria, so the 10% is their entire Nigerian tax obligation on that income.
Who Deducts Withholding Tax?
The payer — the person or company making the payment — is responsible for deducting WHT. This is critical to understand:
- If you hire a lawyer, you deduct 5% from their fee and remit to NRS
- If a company pays you rent for your building, they deduct 10% from the rent and remit
- If you buy goods under a contract from a supplier, you deduct 2% from the payment
The obligation falls on whoever is writing the cheque (or making the bank transfer). If you're paying, you deduct. If you're receiving, you bear the deduction.
Who Bears the WHT?
The payee — the recipient of the payment — bears the WHT. Their net payment is reduced by the WHT amount. But remember: it's not lost money. It's a credit against their future tax bill.
Example: Ngozi's company hires a graphic designer (Chidi) for ₦500,000. Ngozi's company deducts 5% WHT (₦25,000) and pays Chidi ₦475,000. Ngozi remits the ₦25,000 to NRS by the 21st of the following month. Chidi gets a credit certificate for ₦25,000 that he uses when filing his annual tax return.
If Chidi's total annual PIT bill is ₦180,000, he presents his accumulated WHT certificates (let's say they total ₦95,000 from various clients) and only pays the remaining ₦85,000 in cash.
The Remittance Deadline: 21st of the Following Month
After deducting WHT from a payment, the payer must remit the amount to NRS by the 21st of the month following the month the payment was made.
Made a payment on March 5th? Remit the WHT by April 21st. Made another payment on March 28th? Also due by April 21st. All WHT deductions made in any given month are bundled and remitted together by the 21st of the next month.
How to Remit
As at the time of writing, WHT remittance is done through the NRS Rev360 portal. You generate a payment schedule listing all payments made during the month, the WHT deducted on each, and the total. Then you make payment using the portal's payment channels.
The Credit Certificate: Why It Matters
After remitting WHT, the payer should issue (or the payee can obtain from NRS) a WHT credit certificate. This document is the payee's proof that tax was deducted and remitted on their behalf.
What the Credit Certificate Contains
- Name and TIN of the payer
- Name and TIN of the payee
- Amount of the payment
- WHT rate applied
- Amount of WHT deducted
- Date of payment and remittance
- NRS receipt or confirmation number
How Payees Use It
At year-end, when the payee files their annual tax return (CIT for companies, PIT for individuals), they attach all WHT credit certificates collected during the year. The total credits are subtracted from their assessed tax liability. If the credits exceed the tax owed — rare, but possible — the payee can apply for a refund or carry the credit forward.
Don't lose your certificates: Without the credit certificate, you can't offset the WHT against your annual tax. If a client deducted 5% from your payment but never gave you the certificate (or never remitted to NRS), you're out that money with no offset to show for it. Always request your certificates and follow up if you don't receive them.
Common Confusion: WHT Is NOT an Extra Tax
This point cannot be stressed enough. WHT does not increase your total tax burden. Let's prove it with numbers:
Scenario A (No WHT): Aisha earns ₦5M in consulting income during the year. No client deducts WHT. At year-end, her PIT liability is ₦600,000. She pays ₦600,000 to NRS in one lump sum.
Scenario B (With WHT): Aisha earns the same ₦5M. Her clients deduct 5% WHT on each payment = ₦250,000 total. At year-end, her PIT liability is still ₦600,000. But she has ₦250,000 in WHT credits. She only pays ₦350,000 cash to NRS.
Total tax paid in both scenarios: ₦600,000. The only difference is timing — in Scenario B, ₦250,000 was paid gradually throughout the year instead of all at once.
WHT is a prepayment mechanism. It spreads your tax obligation across the year and gives the government regular cash flow. Your total tax is the same either way.
When You DON'T Deduct WHT
Not every payment triggers WHT. Here are the main exemptions:
- Salary payments: Employees are covered by PAYE (Pay As You Earn), which is a separate withholding mechanism. You don't apply WHT rates to salaries — you apply PAYE rates instead.
- Payments to government: Payments to federal, state, or local government bodies are generally exempt from WHT.
- Payments below threshold: Transactions below certain thresholds (which vary by state) may be exempt. For federal purposes, the NTA 2025 doesn't specify a minimum threshold for most categories, but administrative practice often exempts very small casual payments.
- Payments between related parties in the same group: Intra-group transactions may have specific rules. Consult a tax adviser for group structures.
- Import transactions: VAT and duties on imports are handled through customs, not WHT.
The PAYE vs. WHT Distinction
This confuses many employers. If someone is your employee (on your payroll, working under your direction), you deduct PAYE — not WHT. If someone is an independent contractor (issues invoices, works independently, has other clients), you deduct WHT at the applicable rate.
The distinction matters because PAYE rates are progressive (0% to 25% under NTA 2025) while WHT rates are flat (2%, 5%, 10%, or 15% depending on transaction type).
Quick rule: Payroll = PAYE. Invoice = WHT. If they're on your payroll, apply PAYE. If they send you an invoice, apply WHT.
Penalties for Non-Remittance
If you deduct WHT but fail to remit it to NRS, the penalties are severe:
- 10% penalty per annum on the unremitted amount
- Interest at the Central Bank of Nigeria (CBN) Monetary Policy Rate (currently around 27.5% as at the time of writing)
- Criminal liability: Under the NTA 2025, deliberate failure to remit tax deducted at source can constitute a criminal offence — with potential prosecution
The worst-case scenario: You deduct ₦500,000 in WHT from various contractors during the year but never remit to NRS. The contractors have no credit certificates (because you didn't remit). NRS comes after you for the ₦500,000 plus 10% penalty plus interest at CBN rate. Meanwhile, the contractors are also out — they paid the WHT but can't get credit for it. Everyone loses except... nobody. Everyone loses.
Practical Example: The Full WHT Cycle
Let's walk through a complete real-world example to make this concrete:
The Setup
Emeka runs a construction company (Emeka Builders Ltd). In March 2026, he makes the following payments:
| Payee | Service | Amount | WHT Rate | WHT Deducted | Net Paid |
|---|---|---|---|---|---|
| Arch. Obi & Associates | Architectural design | ₦2,000,000 | 5% | ₦100,000 | ₦1,900,000 |
| Dangote Cement | Supply of cement | ₦5,000,000 | 2% | ₦100,000 | ₦4,900,000 |
| Adeola Legal Partners | Legal advisory | ₦800,000 | 5% | ₦40,000 | ₦760,000 |
| Mr. Landlord | Office rent | ₦3,000,000 | 10% | ₦300,000 | ₦2,700,000 |
| Total | ₦10,800,000 | ₦540,000 | ₦10,260,000 |
Emeka's Obligations
- By April 21, 2026: Emeka remits ₦540,000 to NRS through the Rev360 portal
- Issue credit certificates: Emeka provides each payee with a WHT credit certificate showing the amount deducted
- Keep records: Emeka retains copies of all invoices, payment evidence, and remittance receipts
What Each Payee Does
Each recipient takes their credit certificate and uses it at year-end. Arch. Obi's ₦100,000 credit reduces his firm's CIT bill. Mr. Landlord's ₦300,000 credit reduces his PIT bill. The system works — everyone gets credit for what was deducted.
WHT on Investment Income
WHT doesn't just apply to business payments. It also applies to investment income:
Dividends (10%)
When a company declares dividends, it deducts 10% WHT before distributing to shareholders. If you receive ₦1M in dividends, the company actually retained ₦100,000 as WHT and paid you ₦900,000. You get a credit certificate for the ₦100,000.
Interest (10%)
Banks deduct 10% WHT on interest earned on deposits and fixed-income instruments. Check your bank statement — if you earned ₦50,000 in interest, the bank likely deducted ₦5,000 WHT and credited you ₦45,000. That ₦5,000 is reflected in your tax credit.
Royalties (10%)
If you license intellectual property and receive royalty payments, the licensee deducts 10% WHT from each royalty payment.
Bank interest example: Aisha has a fixed deposit that earns ₦200,000 in interest during Q1. Her bank deducts 10% WHT (₦20,000) and credits her account with ₦180,000. At year-end, that ₦20,000 is a tax credit she can use against her PIT liability. Many people don't realize their bank interest has already been partially taxed — check your statements.
WHT for Non-Residents: Final Tax
For Nigerian residents, WHT is a credit against annual tax. But for non-residents, it's often the final tax — meaning it's their entire Nigerian tax obligation on that income.
When a Nigerian company pays a foreign consultant or foreign supplier, it deducts 10% WHT. The foreign party doesn't file a Nigerian tax return — the 10% is their done-and-dusted Nigerian tax on that income.
However, Double Taxation Agreements (DTAs) between Nigeria and other countries may reduce these rates. For example, if Nigeria has a DTA with the UK that caps WHT on dividends at 7.5%, the payer should apply 7.5% instead of 10%. Always check whether a DTA applies before defaulting to the standard rates.
Common WHT Mistakes and How to Avoid Them
Mistake 1: Treating WHT as an Extra Cost
Some vendors increase their prices to "absorb" WHT — charging ₦1,050,000 instead of ₦1,000,000 so they still receive ₦1M after 5% deduction. This is legal (it's just a price negotiation), but understand that you're the one paying more. WHT is supposed to come from the vendor's payment, not from your pocket via inflated invoicing.
Mistake 2: Not Deducting When Required
If you're a company making qualifying payments, you MUST deduct. It's not optional. "My contractor said they don't want WHT deducted" is not a valid excuse. The legal obligation falls on you as the payer. If NRS audits you and finds you didn't deduct, you're liable for the undeducted amount plus penalties.
Mistake 3: Deducting from Salary Earners
Employees are subject to PAYE, not WHT. If someone is on your payroll, apply the PAYE progressive rates — don't use the flat 5% or 2% WHT rates. The two systems are mutually exclusive for the same income.
Mistake 4: Not Issuing Credit Certificates
After deducting and remitting, you must provide the payee with a credit certificate. Many businesses forget this step. Without the certificate, the payee can't claim the credit — and they'll eventually come asking (or stop doing business with you).
Mistake 5: Applying the Wrong Rate
Professional services are 5%. Supply of goods is 2%. Rent is 10%. Using the wrong rate means either under-deducting (you're liable for the shortfall) or over-deducting (you've wrongly reduced the payee's payment). Always confirm the rate before processing payment.
WHT and Your Business: Practical Tips
If You're the Payer (Deducting Party)
- Set up a WHT schedule — track all qualifying payments monthly
- Deduct before paying — don't pay the full amount and then try to recover WHT later
- Remit on time — set a calendar reminder for the 15th (gives you buffer before the 21st deadline)
- Issue certificates promptly — your vendors need them for their own compliance
- Keep records for 6 years — payment evidence, remittance receipts, and certificate copies
If You're the Payee (Receiving Party)
- Request credit certificates from every client who deducts WHT from your payments
- Track all certificates received during the year in a spreadsheet
- Present certificates when filing your annual CIT or PIT return
- Follow up on missing certificates — if a client deducted but hasn't provided the certificate within 30 days, ask for it
- Verify remittance — ensure the client actually remitted to NRS (you can check via the Rev360 portal)
Need to remit Withholding Tax? Do it on Taxly
Enter payee details, select the transaction type, upload your documents — and Taxly handles the NRS remittance and credit certificate process.
Remit WHT on Taxly →Frequently Asked Questions
Is WHT deducted on VAT-inclusive amounts?
No. WHT should be calculated on the invoice amount before VAT. If a consultant invoices ₦1,000,000 + ₦75,000 VAT = ₦1,075,000, WHT is 5% of ₦1,000,000 = ₦50,000. You pay the consultant ₦1,025,000 (₦1,075,000 minus ₦50,000 WHT). The VAT portion is remitted separately through the VAT system.
What if my WHT credits exceed my tax liability?
If you've accumulated more in WHT credits than your annual tax bill, the excess can be carried forward to offset next year's tax, or you can apply to NRS for a refund. Refunds can be slow, so many businesses prefer to carry forward.
Do I deduct WHT on payments to unregistered businesses?
Yes. WHT obligation is based on the nature of the transaction, not the recipient's registration status. Even if the payee doesn't have a TIN (which they should), you still deduct and remit. The payee will need to regularize their status with NRS to claim the credit.
Can I deduct WHT on payments below ₦40,000?
There's no explicit statutory minimum threshold under the NTA 2025 for most WHT categories. However, administrative practice may exempt very small, one-off casual payments. For regular business-to-business transactions, deduct regardless of amount. When in doubt, deduct — the payee can always claim it back.
Key Takeaways
- WHT is an advance payment of income tax — not a separate tax
- The payer deducts and remits; the payee bears it and gets a credit certificate
- Rates range from 2% (goods supply, construction) to 15% (directors' fees)
- Remit by the 21st of the month following payment
- Credit certificates offset your annual CIT or PIT liability — don't lose them
- Salary = PAYE, not WHT. Invoice = WHT, not PAYE
- Non-remittance penalties: 10% per annum + CBN rate interest + potential criminal liability
- Non-residents: WHT is usually the final tax (10% across most categories)