Withholding Tax is the tax that catches Nigerian business owners by surprise more than any other. You send an invoice for ₦500,000. Your client pays ₦450,000. The remaining ₦50,000 has been deducted "at source" — and if you don't know why, you can't account for it, you can't claim it back, and you end up effectively paying tax twice.
This guide explains everything you need to know about WHT in Nigeria: what it is, what rates apply, how to handle it on your invoices, and how to use your credit notes to reduce your annual tax bill.
Just want the plain-English essentials? See: Withholding Tax in Plain English — The Short Version
Withholding Tax (WHT) is an advance payment of income tax, deducted at the point of payment by the payer (your client) and remitted directly to the tax authority on your behalf.
It is not a separate tax on top of your income — it is part of your annual income tax liability, collected early. When you file your annual tax return, your WHT credit notes offset what you owe. If the WHT deducted exceeds your total tax liability, you are entitled to a refund (or can apply the excess against future tax years).
The key point: WHT is your client's obligation to deduct and remit. It is not an additional cost to your client — it comes out of what they were going to pay you anyway.
Under Nigerian tax law, the obligation to deduct WHT falls on the payer, not the recipient. Specifically, WHT must be deducted when:
Individuals paying for personal services (e.g. a sole customer hiring a freelancer for personal use) are generally not required to deduct WHT. However, the moment payment is made by a company — even a small Ltd, an NGO, or a government agency — WHT applies.
Not sure which category you fall into? Here are common Nigerian business types and the WHT rate their clients are required to deduct:
Rule of thumb: If what you sell is primarily your time and expertise, expect 10%. If what you deliver involves a significant goods component, it's likely 5%. If you only sell physical goods with no service, WHT typically does not apply.
Here is the full payment journey when WHT applies:
① You issue the invoice
Management consulting services — 3-month engagement: ₦1,000,000
② Your client deducts WHT before paying
WHT applies at 10% on consulting services.
- Invoice: ₦1,000,000
- WHT deducted (10%): ₦100,000
- Amount paid to you: ₦900,000
③ Client remits WHT to the tax authority
The ₦100,000 is sent to NRS (or State IRS) by the 21st of the following month. You do not handle this step.
④ Client issues you a WHT credit note
This is your receipt proving the ₦100,000 was paid on your behalf. You must collect this.
⑤ You use the credit note when filing your annual tax return
The ₦100,000 offsets what you owe at year-end. If you owe ₦80,000 in income tax, your net tax bill is zero — and you can claim the ₦20,000 excess as a refund or carry it forward.
What the credit note is worth: Every ₦1 in WHT credit notes is ₦1 off your annual tax bill. Uncollected credit notes are money left on the table.
There is no single mandatory format for showing WHT on a Nigerian invoice, but best practice is to note it explicitly so your client's finance team processes it correctly and you have a record.
Recommended format:
INVOICE
Services: Management Consulting — Q2 Engagement
Invoice Amount: ₦1,000,000
WHT (10% — deductible at source): ₦100,000
Net payable to supplier: ₦900,000
Note: WHT credit note required upon remittance.This approach:
The WHT credit note (or credit certificate) is the document your client issues you after remitting WHT to NRS. It is your proof that the tax was paid.
What it contains:
Why it matters:
Without the credit note, you cannot claim the offset at annual tax filing. You will have effectively paid that tax twice — once when your client deducted it, and again when NRS has no record to match against your return.
Always chase the credit note. It is your money. Make requesting it a standard part of your invoicing process. A simple WhatsApp message 30 days after payment:
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"Hi [Name], following up on the WHT credit note for Invoice INV-XXX — could you confirm when that will be issued?"
1. Not accounting for WHT when setting prices
If you quote ₦500,000 for a job and your client deducts 10% WHT, you receive ₦450,000. If your margins assumed ₦500,000, you are working at a loss you didn't plan for. Either price gross (knowing WHT comes out) or gross up your price to net what you actually need.
Example of grossing up: If you need ₦500,000 net, invoice ₦555,556. After 10% WHT deduction (₦55,556), you receive ₦500,000.
2. Forgetting to collect credit notes
Many Nigerian MSMEs have thousands of naira in uncollected WHT credit notes sitting with clients who have already remitted to NRS. That money is sitting in your tax account — but only if you have the credit note to claim it.
3. Confusing WHT with VAT
These are different taxes:
Never deduct WHT yourself. Never charge WHT to your client. It is their obligation to deduct and remit; your obligation is to receive the credit note.
4. Applying the wrong rate
The rate depends on the nature of the service, not the industry. A tech company providing consulting services pays 10% WHT, same as a law firm. A construction company providing a mixed supply contract pays 5%. Know your category.
5. Assuming WHT applies to all transactions
WHT does not apply when:
This is the most commonly misapplied rule in Nigerian WHT.
10% applies to: Pure service engagements — consulting, management, professional advice, technical work, agency, commission.
5% applies to: Contracts that involve a mix of goods supply and services, or construction and building contracts. The logic is that goods supply carries a lower margin than pure services, so a lower WHT rate applies.
Example: If you are an IT firm that supplies hardware AND sets it up:
When in doubt, ask your client what category they will apply. NRS will assess the payer (your client) if the wrong rate is used — but disputes about the right rate can delay your payment.
If you operate as a sole proprietor or freelancer (not incorporated), the same WHT rules apply when you are paid by companies and government entities. Your WHT credit notes are used to offset your Personal Income Tax (PIT) liability at year-end.
Key points:
Keep a simple log. For every payment from a corporate client, record:
At year-end, total your WHT credits column — that is the amount you can offset against your tax bill. Chase every "Pending" entry before you file your return.
Track every corporate invoice you send. For each one:
Lucrive tracks your invoices and lets you flag which ones are subject to WHT. Our Nigerian tax calculator shows your estimated income tax liability so you can see in real time how much your WHT credits will reduce your annual bill.
Free to start at lucrive.io.
Sources & further reading