DEDUCTION OF TAX AT SOURCE (WITHHOLDING) REGULATIONS, 2024
The Deduction of Tax at Source (Withholding) Regulations, 2024, effective from January 1, 2025, introduce several key provisions aimed at streamlining tax deduction processes in Nigeria. Here are the important highlights:
- Objectives of the Regulations:
- Establish clear rules for tax deductions at source under various tax laws, including the Capital Gains Tax Act and the Companies Income Tax Act.
- Simplify the tax deduction process to enhance compliance.
- Reduce deduction rates for sectors with low profit margins.
- Provide exemptions for small businesses and manufacturers.
- Promote ease of tax compliance and administration.
- Curb tax evasion.
- Reduce disparities between corporate and non-corporate business structures.
- Align with global best practices in tax deduction at source.
- Scope of Application:
- Applies to taxes deductible at source from payments to taxable persons as defined under relevant tax laws.
- Eligible Transactions and Rates:
- Specified in the “First Schedule” of the Regulations.
- Reduced rates under Double Taxation Treaties apply to eligible recipients resident in treaty countries, as ratified by the National Assembly.
- For transactions involving non-passive income, if the recipient lacks a Tax Identification Number (TIN), the deduction rate is doubled.
- Entities Required to Deduct Tax at Source:
- Corporate and unincorporated bodies, excluding individuals.
- Government Ministries, Departments, and Agencies.
- Statutory bodies and public authorities.
- Other institutions, organizations, establishments, or enterprises, including tax-exempt entities.
- Payment agents representing any of the above entities.
- Exemptions:
- Small companies, as defined under section 105 of the Companies Income Tax Act, are exempt from deducting tax at source if:
- The supplier has a valid TIN.
- The transaction value is ₦2,000,000.00 or less during the relevant calendar month.
- Small companies, as defined under section 105 of the Companies Income Tax Act, are exempt from deducting tax at source if:
- Treatment of Deductions:
- Deductions are treated as advance or final tax of the supplier, not as separate taxes or additional contract costs.
- Timing of Deductions:
- Obligation arises when payment is made or the amount due is settled.
- For related parties, deduction occurs at payment or when liability is recognized, whichever is earlier.
- For non-resident recipients, the deducted amount is the final tax unless further tax is applicable due to a taxable presence in Nigeria.
- Remittance of Deductions:
- Remittance to the relevant tax authority is due by the 21st day of the month following the month of payment for Federal Inland Revenue Service.
- For State Internal Revenue Services:
- Capital Gains Tax and Pay-As-You-Earn: by the 10th day of the month following payment.
- Other deductions: by the 30th day of the month following payment.
- Penalties for Non-Compliance:
- Failure to deduct or remit tax at source attracts penalties as prescribed in relevant tax laws.
- If a deduction is made but not remitted, the amount becomes the tax liability of the deducting entity, recoverable with applicable penalties and interest.
- Exempt Transactions:
- Certain transactions are exempt from tax deduction at source, including:
- Compensating payments under a Registered Securities Lending Transaction.
- Distributions or dividend payments to Real Estate Investment Trusts or Companies.
- Across-the-counter transactions.
- Interest and fees paid to Nigerian banks by direct debit of domiciled funds.
- Goods manufactured or materials produced by the supplier.
- Imported goods not creating a taxable presence for the foreign supplier.
- Payments for income or profits exempt from tax.
- Telephone charges, internet data, and airline tickets.
- Out-of-pocket expenses directly incurred by the supplier.
- Insurance premiums.
- Supply of specific petroleum products.
- Commission retained by brokers in line with industry norms.
- Winnings from certain games of chance or reality shows promoting entrepreneurship, academics, or innovation.
- Certain transactions are exempt from tax deduction at source, including:
These Regulations aim to enhance tax compliance, simplify the deduction process, and align with global best practices.
