Running a small business in Nigeria involves more than just turning a profit—you also need to stay compliant with tax laws. One of the most misunderstood but critical tax obligations for businesses in Lagos is the Withholding Tax (WHT).
In this guide, Faturoti Taiwo & Co., a leading accounting firm in Lagos, breaks down what every entrepreneur and business owner should know about WHT to stay compliant and avoid penalties.
What Is Withholding Tax (WHT)?
Withholding Tax (WHT) is an advance payment of income tax. It is deducted at source when a business makes payments to another business or individual for certain goods and services. The purpose is to reduce tax evasion and ensure that more revenue is collected ahead of time.
Why Should Lagos Small Businesses Care About WHT?
Whether you’re paying a vendor or receiving payment for services rendered, WHT affects both sides of a transaction. Not complying with WHT regulations can result in:
- Fines and penalties from tax authorities
- Loss of credibility with clients and partners
- Delays in getting tax clearance certificates
This is especially crucial in Lagos, where the LIRS (Lagos State Internal Revenue Service) actively enforces tax compliance.
Key Transactions Subject to Withholding Tax in Nigeria
Some of the most common payments subject to WHT include:
| Transaction Type | WHT Rate for Companies | WHT Rate for Individuals |
|---|---|---|
| Rent (Land/Building) | 10% | 10% |
| Rent (Movable Property) | 10% | 10% |
| Contracts and Services | 5% | 5% |
| Consultancy / Professional Fees | 10% | 5% |
| Commission | 10% | 5% |
| Royalties | 10% | 5% |
| Management Fees | 10% | 5% |
How to Deduct and Remit WHT
- Deduct WHT at the correct rate before making payment to your supplier or contractor.
- Issue a WHT credit note to the recipient, indicating the amount deducted.
- Remit the deducted WHT to the appropriate tax authority (Federal Inland Revenue Service or LIRS) within 21 days of the transaction.
- File the relevant returns monthly to avoid interest and penalties.
WHT Credit Notes: Why They Matter
WHT credit notes are proof that tax has already been deducted and paid on behalf of the recipient. If you’re a service provider or contractor in Lagos, these notes can be used to offset your income tax liabilities when filing annual returns.
Common WHT Mistakes Small Businesses Make
- Not deducting WHT at all
- Using the wrong rates
- Failing to remit WHT on time
- Not filing monthly returns
- Ignoring the need for WHT credit notes
If you’ve made any of these mistakes, don’t worry—Faturoti Taiwo & Co. can help you correct past filings and get back in compliance.
How Faturoti Taiwo & Co. Can Help
At Faturoti Taiwo & Co., we specialize in helping small and growing businesses in Lagos navigate Nigeria’s complex tax environment. Our services include:
- WHT calculation and compliance
- Remittance and filing support
- Tax audits and regularization
- Training your internal team on tax best practices
Don’t Let WHT Catch You Off Guard
Contact Faturoti Taiwo & Co. today to stay compliant and focus on growing your business.
Based in Lagos, we’re your local experts in accounting, tax, and business advisory.
Visit www.faturotitaiwoandco.com to book a consultation.