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Withholding Tax (WHT)

Advance PaymentLast Updated: 2025-12-12

Understanding Withholding Tax

Withholding Tax (WHT) is not a separate tax type but a mechanism for collecting income tax in advance.

How it works:
When a business (the payer) pays a supplier or contractor (the beneficiary), they subtract a percentage of the payment (the WHT) and remit it to the tax authority. The supplier then receives a WHT Credit Note which they can use to reduce their final tax liability at the end of the year.

Simple Analogy: Think of it as a "deposit" on your future tax bill.

Who Deducts What? (Jurisdiction)

  • FIRS: Collects WHT from payments made to Limited Liability Companies.
  • State IRS: Collects WHT from payments made to Individuals and Enterprise names.

WHT Rates Chart (2025)

The rate depends on the type of transaction and the beneficiary.

| Transaction Type | Companies (CIT) | Individuals (PIT) | | :--- | :--- | :--- | | Dividend, Interest, Rent | 10% | 10% | | Director's Fees | 10% | 10% | | Professional Fees (Audit, Legal) | 10% | 5% | | Management & Consultancy Fees | 10% | 5% | | Commissions | 10% | 5% | | Construction / Building Contracts | 2.5% | 5% | | Contract of Supply (General) | 5% | 5% | | Royalty | 10% | 5% |

Note: The rate for construction was reduced to 2.5% for companies to encourage infrastructure development.

The WHT Credit Note

The Credit Note is your proof of payment.

  • Why you need it: Without it, you cannot claim the tax deducted.
  • How to get it:
    • Old Way: Physical paper receipts.
    • New Way: Automated credit notes via TaxPro-Max. When your client remits the WHT online, you instantly receive a credit in your TaxPro-Max account.

How to File & Remit (For Payers)

If you are the one making the payment, you have a legal duty to deduct and remit.

  1. Deduct: Calculate the correct % from the vendor's invoice.
  2. File Schedule: create a schedule (CSV) listing the vendor's TIN, Name, and Amount.
  3. Remit: Upload to TaxPro-Max (for companies) or State Portal (for individuals).
  4. Deadline: By the 21st day of the following month.

Exemptions

  • Sales in the Ordinary Course of Business: WHT does not apply to simple "over the counter" purchases of goods (e.g., buying a laptop from a store) unless there is a specific contract of supply.
  • Reimbursements: Cost reimbursements are generally not subject to WHT if they are separated from the service fee.

References & Resources