Withholding tax on invoices in Nigeria

What withholding tax actually is

It is not a fee, a levy on the transaction, or a charge you add. It is your tax, paid early, by someone else, out of money that was going to be yours.

The mechanism matters because it decides where the number goes. Value added tax is added on top of your price and increases what the customer owes. Withholding tax is subtracted from what the customer sends and does not change what they owe. Both can appear on the same transaction, and they behave in opposite directions.

• You raise an invoice for the full amount, VAT included if you charge it.
• The customer calculates withholding tax on the value of the supply.
• The customer pays you the invoice total less the withheld amount.
• The customer remits the withheld amount to the tax authority and issues you a credit note.
• You claim the credit note against your own income tax.

Not everyone deducts. In practice you should expect it from limited companies, government bodies, ministries and agencies, and larger organisations with a finance function. A retail customer paying for a service will not.

The rates

The table below is limited to payment types we could source directly. Where the source did not give a single unambiguous rate, the row says so rather than guessing.

On construction, the source we cite reports 2% for construction itself and 5% for related activities, without setting out where the boundary falls. If your work sits near that line, ask the customer which rate they intend to apply before you plan around the answer.

The 2024 regulations added telephone charges, internet data and airline tickets to the list of payments exempt from deduction.

No TIN doubles the rate

Where a vendor does not have a valid Taxpayer Identification Number, the withholding rate is doubled, subject to a cap of 20%. A 5% consultancy deduction becomes 10%. A 2% supply deduction becomes 4%.

This is the strongest practical argument for putting your TIN on every invoice you send. It is also why corporate customers ask for it before they set you up as a supplier. See TIN and CAC details on your invoice.

There is a de minimis rule in the other direction as well. Small companies are exempt from withholding tax deduction where the transaction value is less than NGN 2 million and the vendor has a valid TIN. The exemption is conditional on the TIN, so the same point applies.

A worked example

A consultancy invoice to a limited company, with VAT charged and withholding tax deducted. Watch which figure each tax is calculated on.

The invoice reads 537,500.00 and stays that way. Nothing on the document mentions the 25,000.00. The customer arrives at it themselves and tells you afterwards.

Note the base. The 5% is applied to the 500,000.00 fee, not to the VAT inclusive total. Customers do occasionally compute it on the gross figure, which over-deducts. Check the credit note against your own arithmetic and query it in writing on the day it arrives, not at year end.

Credit notes are the whole point

The withholding tax credit note is the document that proves tax was paid on your behalf. Without it, the deduction is just money you did not receive.

Chase it in the same breath as the payment. The moment a payment arrives short, reply and ask for the credit note by name, giving the invoice number and the amount deducted. Six months later the person who processed it may have moved on and nobody will reconstruct it for you.

• Keep a running list of every deduction: date, customer, invoice number, amount withheld, credit note received yes or no.
• Check the rate on the note against the rate you expected.
• Check the base the rate was applied to.
• Store the notes with the invoices they relate to, not in a separate pile.
• Reconcile the list to your tax computation before you file, not during.

Remittance is due by the twenty-first day of the month following the deduction, so a customer who has not remitted by then is late and the credit note should already exist. Where an agent fails to remit what they withheld, the penalty is 10% of the amount not remitted plus interest at the prevailing Central Bank of Nigeria monetary policy rate.

What it does to your cash flow

The tax is not a loss. The cash is. If you are billing corporate clients for professional services at 5%, roughly one naira in twenty of your invoiced revenue is unavailable to you until you file and recover it.

Plan from the received figure, not the invoiced figure. When you price a job, work out what will actually land. When you forecast a month, apply the deduction to every invoice going to a company and none of the invoices going to individuals.

The combination that hurts is VAT and withholding tax on the same transaction. In the example above, 537,500.00 was invoiced, 512,500.00 arrived, and only 475,000.00 of it was ever yours. Treating the 512,500.00 as income is how a profitable month becomes a tax bill you cannot pay.

Putting it into practice

1. 01Put your TIN on every invoice, so the doubled rate never applies to you.
2. 02Before you price work for a company, decide which rate you expect and quote from the received figure.
3. 03Invoice the full amount. Never subtract withholding tax on the document.
4. 04When payment lands short, ask for the credit note the same day.
5. 05Keep a deduction log and reconcile it against the credit notes each month.
6. 06Separate the VAT you are holding from the cash you can spend, on the day it arrives.

Billify keeps every invoice and its number in one place so a deduction can be matched back to the document it came from. Payments taken through a Billify payment link settle to your wallet and are withdrawn to your bank account, which gives you a dated record of what actually arrived against what was invoiced. Collection is naira only, through Kora Pay.

For the other side of the same invoice, see VAT on invoices in Nigeria.