Withholding Tax essentially serves as an advance payment on account of the ultimate income tax liability of the taxpayer. Withholding Tax covers transactions relating to management services, consultancy, professional duties, technical services, rent, directors fees, dividends, interest, royalty, and all aspects of building construction, among other related services. There is some exclusion of special classes of income from the taxable income core.
This is a Withholding Tax Exemption List in Nigeria:
- Contracts and supplies of goods and services executed fully outside Nigeria by non-resident taxpayers.
- Interest on loans paid by a Nigerian company.
- Dividends are payable by oil-producing companies on petroleum operations.
- Transactions where a dual relationship between parties exist. An instance that describes this situation is the dual relationship that occurs when a groundnut farmer supplies groundnut to a manufacturer of groundnut oil.
- Revenue of non-resident companies.
- Transactions within the Nigerian Customs Territory.
- Companies operating within the Free Trade Zones.
- Telephone bills.
- Internet bills.
- Income of an American national for employment by the International Development Services as agents.
- The income of any duly registered ecclesiastical, charitable, or educational organization provided that such income is not derived from trade carried on by such organization.
- Income accrued to Insurers from insurance premiums.
- Income earned by distributors from their daily trading activities.
- The income of a person from employment where the gross income is lesser than the National Minimum wage.
- Income earned from bonds issued by Federal, State, and Local governments and their agencies.
- A sum received by a way of death gratuities.
- Income from dividends, interest, fee, commission earned abroad and brought into Nigeria by a Nigerian resident provided such income is brought in convertible currency and paid into a domiciliary account of a recognized bank in Nigeria.
- Income earned from abroad by athletes, authors, musicians, writers, playwrights and brought into Nigeria given that the income is brought in foreign currency and paid into a domiciliary account of a duly recognized bank in Nigeria.
- Any compensation for loss of employment.
- Dividends are paid to a person by a company incorporated in Nigeria given that the equity participation of the person in the company paying the dividends is wholly paid for in foreign currency.
- Interest on loan granted by a bank to a person engaged in agricultural trade.
- Interest on loan granted by a bank to a person engaged in the invention of any local machinery.
- Incomes of consular employees of a foreign State provided that no business outside recognized job responsibilities are carried on by the employee.
- Emoluments are payable from United Kingdom funds to members of other forces and persons in the permanent service of the UK Government on Nigeria in respect to their offices under the UK Government.
- Emoluments payable to members of any civilian extraction and the income of any recognized organization accompanying visiting forces but this exemption does not apply to a Nigerian citizen or an individual originally resident in Nigeria.
- Interest on any monies borrowed outside Nigeria by a legal entity established by law in Nigeria upon terms consented by the Minister of Finance, that such income is exempted from tax in the hands of any resident person.
- Pensions are granted to any person pursuant to any enactment for the time being in force.
- Gratuities payable to a public officer by the Government of the Federation or State in respect of services rendered by such individual under a contract of service with that Government and described as gratuities in the contract.
- The income of a trade union registered under the Trade Union Act, in so far as the income is not derived from a trade carried on by such institution.
- Gratuities payable to an employee in the private sector in respect of services rendered by him under a contract of service with his employer and described as gratuities in the contract of service.
- Gains arising from the acquisition of shares of a company either taken over or absorbed by another company as a result of which the acquired company loses its identity as a limited company provided no cash payment is made in connection to the shares acquired.
- Gains accruing to unitholders of a Unit Trust in respect of the disposal of securities given that the proceeds are re-invested.
- The income of a cooperative society is registered under the Nigerian Cooperative Societies Act, given that such income is not derived from a trade or business carried on by the Society other than the activities geared towards its members.
- Wound and disability pensions are granted to members of armed forces as a result of enemy action.
- Dividends paid to a person for whom the dividends are paid own not less than 10% of the equity share capital of the company.
- The income of a friendly or statutory society provided such income is not derived from a trade carried on by such society.
- Income accrues to the manufacturer when normal delivery of products is made to distributors for sale.
- The income of a Local government or government institutions.
- Interest accruing to a person on a foreign currency domiciliary account.
- Income of a foreign national from employment by any government or agency of which there is an arrangement between the individual and the Government of the Federation for technical assistance provided the employment is solely for the technical arrangement.
- Income of a Chief representative of a Commonwealth country.
- Income of a person attending a Commonwealth conference in Nigeria provided that the income is not derived from any trade carried on by such individual.
- Income of a person upon whom consular immunity is conferred by regulations of the Diplomatic Immunities and Privileges Act.
- Income of a foreign convoy in Nigeria given that the income is not derived from any business carried on by such convoy.