E-SERVICE · DEDUCTION AT SOURCE
Withholding tax
Withholding tax is an advance payment of income tax, deducted by whoever makes a payment and remitted on behalf of whoever receives it. Where the recipient is an individual, an enterprise or a partnership, it belongs to the State.
How withholding tax works
When a payment is made for rent, a contract, professional services, commission, consultancy, dividends, interest or royalties, the payer deducts a percentage before paying and remits it to the relevant tax authority within thirty days. The recipient receives a credit note for the amount deducted and sets it against their own final tax liability for the year. It is not a separate tax; it is the same income tax, collected earlier and by a different hand.
Which authority receives it depends on the recipient, not the payer. If the recipient is a limited company, the deduction goes to the Federal Inland Revenue Service as an advance of company income tax. If the recipient is an individual, a sole proprietor, an enterprise or a partnership, it goes to the State Internal Revenue Service of the State where that person is resident. A State ministry paying a registered company therefore remits to the FIRS; the same ministry paying a sole proprietor remits here.
For a handful of income types the deduction is final rather than an advance. Withholding tax on dividends, interest and rent received by an individual is a final tax: the income is not aggregated with other income and no further tax is charged on it. The credit note is still worth keeping, because it is the evidence that the income has borne tax.
Withholding tax rates for individuals and unincorporated bodies
| Nature of payment | Rate | Revenue head | Final or advance? | Remittance deadline |
|---|---|---|---|---|
| Rent — land and buildings | 10% | 11010004 | Final tax for individuals | 30 days from payment |
| Contracts and supplies | 5% | 11010005 | Advance — credited on assessment | 30 days from payment |
| Professional and technical fees | 5% | 11010006 | Advance — credited on assessment | 30 days from payment |
| Consultancy fees | 5% | 11010008 | Advance — credited on assessment | 30 days from payment |
| Management fees | 5% | 11010006 | Advance — credited on assessment | 30 days from payment |
| Commission | 5% | 11010008 | Advance — credited on assessment | 30 days from payment |
| Agency and brokerage | 5% | 11010008 | Advance — credited on assessment | 30 days from payment |
| Directors’ fees | 10% | 11010007 | Advance — credited on assessment | 30 days from payment |
| Dividends | 10% | 11010007 | Final tax | 30 days from payment |
| Interest | 10% | 11010007 | Final tax | 30 days from payment |
| Royalties | 10% | 11010007 | Advance — credited on assessment | 30 days from payment |
| Construction — roads, buildings, bridges | 5% | 11010005 | Advance — credited on assessment | 30 days from payment |
| Hire of equipment and vehicles | 10% | 11010004 | Advance — credited on assessment | 30 days from payment |
Remitting a deduction
Establish the recipient’s status
Ask for the recipient’s TIN and, if a company, the CAC number. This is what decides whether the deduction goes to the State or to the FIRS. Get it wrong and you will remit twice.
Apply the correct rate
Use the table above. The rate applies to the gross amount before VAT, not to the VAT-inclusive figure.
Deduct and pay the net
Pay the supplier the net amount and tell them, in writing, the amount withheld and the rate applied.
File the WHT schedule
On the portal, listing each payee with their TIN, the gross payment, the rate, the amount withheld and the nature of the payment.
Remit within 30 days
A payment reference is generated on submission of the schedule. Remit through any accredited channel.
Issue the credit note
The Service generates a credit note for each payee, posted directly to their tax account. Send them a copy for their records.
Who must deduct
- Every ministry, department and agency of Government making a qualifying payment.
- Every company, whether or not resident in the State, paying an individual or enterprise resident here.
- Every partnership and enterprise making a qualifying payment.
- Every individual carrying on a trade or profession and paying rent, fees or commission in that capacity.
- Every landlord’s agent collecting rent on behalf of an individual landlord.
- Banks and financial institutions paying interest to individual depositors.
- Companies paying dividends to individual shareholders resident in the State.
Penalties
Failure to deduct, or deducting and failing to remit within thirty days, attracts a penalty of ten per cent of the amount not remitted, plus interest at the Central Bank monetary policy rate plus five per cent from the due date.
The person who should have deducted becomes personally liable for the tax. It cannot be recovered from the recipient after the event, which is why the obligation is taken seriously in contract administration.
A recipient who is denied a credit note because the payer never remitted should report it: the Service pursues the payer, and the recipient’s credit is restored on proof of deduction.
Questions about withholding tax
Do I deduct on the VAT-inclusive amount?
My tenant deducted 10% of my rent. Have I lost that money?
I am a contractor and my credit note never arrived.
Is withholding tax deductible from a payment to a government agency?
What is the threshold below which I need not deduct?
File a withholding tax schedule
One upload, one payment reference, and a credit note posted to every payee’s tax account.