Deduct Withholding Taxes from invoices? This is who you pay to

Ok! I know I have been blogging so much about tax lately but then I believe its an area of life that is as they say as permanent as rain. I was once asked this question by someone and I though I should share my response.

Scenario 1 : Mr Mike Umoh, am Architect designed a building for XYZ company. The building is in Lagos and has now been completed. Mr Umoh, who lives in Calabar beat other tenders for the job (even those living in Lagos) as his fee of N1m was the most cost effective. He has a registeres business name called Mike Umoh Enterprises. Mr Umoh’s fee of N1m is subject to a withholding tax of 5%. Who do I pay the tax deducted to??

Response: Mr Umoh is not registered as Limited Liability Company and as such his withholding tax will be deducted and paid to the State Government. In this case, the deduction will be 5% of N1m being N50,000 only. That amount will be paid to Cross River State Government. Reason; withholding tax deducted from Sole Traders, Business Names, One Man business (provided they are not registered company) are remitted to the address (place of residence of the business) of the company rendering the service or supply. In this case, since Mr Umoh’s business is resident in Calabar, XYZLtd will deduct and pay same to Cross River State. If Mr Umoh is resident in Lagos or any other state apart from Abuja, he will remit to that specific state. If he is resident in Abuja, he will however pay to the FIRS.


Scenario 2 – ABC Ltd a supplier of bottled water was given a contract of N2m to supply water to Too Clean Hotel. Should I deduct withholding tax? If yes whom do we pay to?


Response:ABC Ltd is thus subject to a withholding tax of 5% of their invoice of N2m. Being an incorporated company, ABC Ltd will have a sum of N100k deducted from their invoice by Too Clean Hotel. That amount will be paid to the Federal Inland Revenue Service. Reason; withholding tax deduction from registered limited liability company are remitted to the FIRS and not States.


Scenario 3 – James Baker Ltd, a company resident in the UK provides consultancy services to Wale Ahmed and Company Ltd. He invoices Wale Ahmed and Company $5,000 for job done. Is he liable to pay withholding tax? If yes, whom do I remit to?


Response: James Bakers Invoice of $5,000 will be subject to a charge of 5% withholding tax being $250. The amount will be paid in dollars or in Naira at the prevailing official exchange rate. The $250 deducted will be remitted to the Federal Inland Revenue Service. 


In all of this write a Bank draft in the name of the relevant tax authority (Federal Inland Revenue Service or the State Inland Revenue Service). Once payment is made, obtain a receipt and subsequently a tax credit note, on behalf of the Supplier/Service provider. Once received hand it over to the Supplier/Service provider. You can check my other blogpost on withholding tax for more.

14 COMMENTS

  1. Sir,
    I am in real estate business where i rent a property and rent the property to interested individuals or corporate body. When paying my rent to the owner of the property, i pay 5% VAT inclusive in the rent paid.

    Sir, my question is that under the VAT law, am i entitled to claim input vat of amount of vat paid thereon when filing my vat return for that period to the relevant tax authority?

  2. Thank you for those wonderful explanation. Please, can hotel be charged on hotel bill incurred by its clients?

  3. Please can withholding tax be deducted from an invoice in dollar, where the company that provided the service resides in Nigeria.

  4. The Penalty is 50% on the cost charged for the service or goods rendered.

    So if you did a job or sold a good worth N1m, and failed to render the 10% WHT charge (N100k), when caught, your penalty would include payment of a fine of 50% of N1m i.e. N500k and then the deduction also (N100k).

    So in essence, you will be paying 60% to the government from that “sweet deal”, if the Judge is lenient to you.

    Penalty Provisions
    Section 29 & 31 of the VAT Act provides stiff penalty for failure to issue tax invoice. A person who fails to issue tax invoice for goods sold or services rendered is guilty of an offence and liable on conviction to a fine of 50% of the cost of the goods or services for which the invoice was not issued.

    Taxable firms are free to print their Tax Invoice from any source, but they must ensure that their registered addresses and VAT registration numbers are printed on the Invoices.

  5. Is WHT on the whole amount on Invoice or on Labour fee
    i.e Amount for goods supplied and Labour fee separated

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