Introduction

On July 1st, 2024, the Nigerian Government, through its finance minister, introduced the new Withholding Tax Regulations (the “Regulations”). These regulations establish a new regime for the deduction and remittance of withholding taxes in Nigeria, applicable to both residents and non-residents. This article provides an overview of the significant changes in the withholding tax regime and outlines what is expected of taxpayers.

Exemptions from Withholding Tax Deductions

The Regulations specify that the following categories are exempt from withholding tax obligations:

• Individuals
• Small Companies or Unincorporated Entities with a gross turnover of less than N25,000,000, provided that:
  • The supplier has a valid Tax Identification Number (TIN).
  • The value of the transaction is N2,000,000 or less.

Administration of WHT Credits

Under the Regulations, any person who makes a deduction from a payment must issue a receipt upon remittance to the relevant authority. This receipt, containing specific information as outlined in the Regulations, is sufficient for claiming tax credits. If a receipt is issued for an amount deducted but not yet remitted, the beneficiary will still be credited by the relevant tax authority, and the amount will be treated as the tax liability of the person who made the deduction, recoverable with applicable penalties and interest.

Increased WHT Rate on Director’s Fees

The Regulations have increased the withholding tax rate on director’s fees from a flat rate of 10% to 15% for residents and 20% for non-residents.

Clarification on “Across-the-Counter” Transactions

The Regulations define “across-the-counter” transactions as those carried out without an established contractual relationship or prior formal contracting arrangement, with instant payment in cash or via electronic means.

Double Tax Treaties

Reduced rates under double tax treaties remain unchanged. Eligible recipients residing in a treaty country will benefit from the reduced rates as specified in the relevant treaty or protocol ratified by the Nigerian National Assembly.

Sanctions for Entities without a TIN

Suppliers of goods or services in WHT liable transactions without a Tax Identification Number (TIN) will face double the rate specified in the Schedule to the Regulations. This measure aims to accelerate the inclusion of more taxpayers into the tax net.

WHT Deductions by Payment Agents

Agents making payments on behalf of a person liable for WHT deductions must make the necessary deductions. The agent, rather than the principal, may be liable for penalties and interests in case of non-compliance.

Nature of WHT Deductions

Deductions made at source are not considered separate taxes or additional contract costs but function as advance or final taxes for the supplier or contractor.

Obligation to Deduct WHT

The obligation to deduct WHT crystallizes when:

• Payments are made.
• The amount due is otherwise settled.

For transactions between related parties, WHT obligations will crystallize on the earlier of payment or when the liability is recognized.

Remittance and Reporting

Deducted amounts must be remitted to the relevant tax authority within specified timelines:

• 21st day of the month following payment to the Federal Inland Revenue Service (FIRS).
• 30th day of the month following payment to the State Internal Revenue Service.

Submissions must include comprehensive details such as the payer’s name, address, TIN, transaction nature, gross amount paid, and deducted tax amount.

Leniency on Partial WHT Remittance

If a person required to deduct at source fails to do so but has paid a portion representing the required deduction to the recipient, only an administrative penalty and one-off annual interest on the undeducted amount will be due.

Exempt Transactions from WHT Deductions

Certain transactions are exempt from WHT deductions, including:

• Compensating payments under registered securities lending transactions.
• Distributions or dividends to Real Estate Investment Trusts (REITs) or Real Estate Investment Companies (REICs).
• “Across-the-counter” transactions.
• Interest and fees paid to Nigerian banks.
• Transactions involving goods manufactured or materials produced by the supplier.
• Payments for imported goods not establishing a taxable presence in Nigeria.
• Payments related to income or profit exempt from tax under Nigerian tax laws.
• Out-of-pocket expenses incurred by the supplier.
• Insurance premiums.
• Supply of specified petroleum products.
• Commission retained by brokers.
• Winnings from game shows promoting entrepreneurship, academics, technology, or scientific innovation.

Conclusion

The new Withholding Tax Regulations of 2024 introduce significant changes to the compliance landscape for withholding taxes in Nigeria. Understanding these changes is crucial for both residents and non-residents to ensure proper compliance and avoid penalties.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, or www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.