You probably have a lot of questions about withholding tax in Nigeria. What is it? How is it calculated? Who has to pay for it? And most importantly, how can you avoid paying it?
In this article, we’ll answer all of those questions and more. We’ll take a look at what withholding tax is, who is required to pay it, and how to go about calculating it. Plus, we’ll give you some tips on how to reduce or avoid your liability for withholding tax altogether.
What Is Withholding Tax?
So, what is withholding tax? simply put, it’s a tax that’s deducted from your income at source. That is, the company you work for will deduct the tax before paying you your salary.
This is done to ensure that the government gets its fair share of taxes from people and businesses. It’s a way of ensuring that everyone pays their dues, and it’s one of the ways the government raises money to run the country.
There are different rates of withholding tax depending on your income level and occupation. The tax authorities will determine your rate, and it can change from year to year.
Make sure you familiarize yourself with the rates so that you’re not caught off guard come tax time.
What Is the Purpose of Withholding Tax?
Quite simply, withholding tax is a tax that’s withheld from payments that are made to non-resident individuals and companies. It’s a way of ensuring that non-residents pay their fair share of tax on income that’s generated in Nigeria.
The idea is that by withholding tax at the source, it’ll be easier for the Nigerian government to keep track of how much tax non-residents are paying. And it also makes it simpler for taxpayers because they don’t have to worry about filing separate tax returns in Nigeria and their home country.
The withholding tax rate varies depending on the type of payment and the recipient’s residency status, but it’s usually around 20%.
Who Is Liable to Pay Withholding Tax in Nigeria?
So, who is liable to pay withholding tax in Nigeria? The answer is anyone who is making payments to non-residents. This includes individuals, companies, and organizations.
But it’s not just payments that are subject to withholding tax. There are a number of other transactions that are subject to it as well, such as rents, commissions, and fees. And, of course, there’s the ever-popular withholding tax on dividends.
One thing to bear in mind is that the withholding tax rate varies depending on the type of payment being made and the type of taxpayer involved. The Nigerian government is always looking for ways to increase its revenue, so the rates are likely to change over time.
What Are the Current Withholding Tax Rates in Nigeria?
In Nigeria, withholding tax is a type of tax that companies are required to withhold from payments made to certain non-residents. It’s a way of ensuring that these non-residents pay their fair share of tax on the income they earn in Nigeria.
The current withholding tax rates in Nigeria are as follows:
-10% for interest and royalties
-15% for services.
-20% for goods and technical fees
As you can see, there’s a wide range of rates depending on the type of payment involved. And it’s important to remember that these rates are just for general guidance. You should always check with the relevant authorities to find out the actual rates that apply in your case.
What Are the Common Withholding Tax Deductions in Nigeria?
When it comes to withholding tax deductions in Nigeria, there are a few that are commonly made. These deductions are made in order to ensure that the correct tax is paid on the income of individuals and businesses.
Some of the most common deductions include PAYE, pensions, and dividends. Pay As You Earn is short for Pay As You Earn, and it’s a deduction that’s made from an individual’s salary. This is used to fund the National Insurance Scheme (NIS).
Pensions are another common deduction, and this is money that’s set aside to provide for an individual’s retirement. It’s usually taken out of an employee’s salary before they receive it.
And finally, dividends are payments that are made by a company to its shareholders. These payments are usually taxable.
How Can You Avoid Paying Withholding Tax in Nigeria?
In Nigeria, withholding tax is a type of tax that is deducted from an individual’s income at source by the payer. The payer is then responsible for remitting the tax to the government. A withholding tax is usually imposed on wages, dividends, interest, royalties, and rent.
There are a few ways to avoid paying withholding tax in Nigeria. One way is to invest in a tax-free investment vehicle such as a mutual fund or exchange-traded fund. Another way to avoid paying withholding tax is to hold your investments in a tax-sheltered account. Finally, you can also claim a credit for taxes paid to another country on your Nigerian tax return.
What is the difference between Value-Added Tax (VAT) and Withholding Tax?
Value-Added Tax (VAT) is a tax that is levied on the value added to goods and services. It is a consumption tax that is imposed at each stage of production and distribution. Withholding tax, on the other hand, is a tax that is deducted from an employee’s salary by the employer. The amount withheld is then remitted to the government.
In essence, Value-Added Tax (VAT) is a consumption tax levied on goods and services. It is levied at each stage of the production and distribution process, with the final consumer bearing the brunt of the tax. A withholding tax, on the other hand, is a tax levied on income earned by individuals and businesses. The person who gets paid takes out the tax and sends it to the government.
Conclusion
When it comes to payments in Nigeria, there are two main types of taxes that are deducted: Value-Added Tax (VAT) and Withholding Tax.
Withholding tax is a tax that is deducted from payments made to certain individuals or entities, including non-resident companies. It’s important to know about withholding tax in Nigeria because it can impact how much money you receive for services or goods you sell.
If you’re unclear about any aspect of withholding tax in Nigeria, be sure to speak with an expert who can help you understand the process and how to comply.