When to Deduct WHT: Complete Guide to Payment Types Covered

One of the most common questions Nigerian businesses face is: "Should I deduct WHT from this payment?" Getting it wrong—either deducting when you shouldn't or failing to deduct when required—can lead to penalties. This guide provides clear rules for knowing when WHT applies.

The Basic Rule

WHT must be deducted when:

1. You make a qualifying payment (listed in WHT regulations)
2. The payment is made in the course of business
3. The recipient is either a company or individual in business
4. The payment exceeds the practical threshold (if applicable)

Payments That Require WHT Deduction

1. Professional and Consultancy Fees

Always deduct WHT from:

• Legal fees
• Accounting and audit fees
• Tax advisory fees
• Management consulting fees
• IT consulting fees
• Engineering consulting
• Architecture fees
• Any other professional service fees

Example:

Paid to: ABC Consulting Limited
Service: Strategic advisory services Invoice: ₦500,000 + VAT WHT: 10% × ₦500,000 = ₦50,000

2. Technical Fees

Always deduct WHT from:

• Technical support services
• Maintenance contracts
• Installation services
• Software development (custom)
• Engineering services
• Project management

3. Construction and Building Contracts

Always deduct WHT from:

• Building construction
• Civil engineering works
• Road construction
• Renovation and refurbishment
• Electrical installation
• Plumbing work

Rate: 5% for all construction contracts

4. Supply Contracts

Always deduct WHT from:

• Supply of raw materials
• Office equipment and supplies
• Inventory purchases
• Furniture and fittings
• General goods procurement

Rate: 5% for supply of goods

5. Rent and Lease Payments

Always deduct WHT from:

• Office rent
• Warehouse rent
• Shop rent
• Equipment rental
• Vehicle hire
• Plant and machinery lease

Rate: 10%

6. Dividends

Always deduct WHT from:

• Interim dividends
• Final dividends
• Dividend-in-specie (valued amount)

Rate: 10%

7. Interest Payments

Always deduct WHT from:

• Interest on loans between companies
• Interest on shareholder loans
• Bond interest
• Debenture interest

Rate: 10%

Note: Banks withhold on interest paid to depositors.

8. Royalties

Always deduct WHT from:

• Intellectual property licenses
• Trademark royalties
• Patent fees
• Copyright payments
• Know-how fees

Rate: 10%

9. Commission and Brokerage

Always deduct WHT from:

• Sales commission
• Brokerage fees
• Agent fees
• Finder's fees

Rate: 10% (corporate) / 5% (individual)

10. Directors' Fees

Always deduct WHT from:

• Board meeting fees
• Directors' allowances
• Honoraria to directors

Rate: 10%

Payments That Do NOT Require WHT

1. Employee Salaries and Wages

Salaries are subject to PAYE (Pay-As-You-Earn), not WHT.

Payment Type	Tax Treatment
Basic salary	PAYE
Allowances	PAYE
Bonuses	PAYE
Overtime	PAYE

2. Petty Cash Purchases

Very small purchases typically don't attract WHT. Use practical thresholds (e.g., below ₦10,000 per transaction).

3. Personal Transactions

Payments made purely for personal purposes (not in the course of business) don't require WHT deduction.

4. Utility Bills

Standard utility payments typically don't attract WHT:

• Electricity bills to DISCOs
• Water bills
• Internet service (consumer plans)

Exception: If the utility provider renders services under a specific contract, WHT may apply.

5. Government Levies and Fees

• Regulatory fees
• License renewals
• Government charges
• Statutory payments

6. Bank Charges

Standard bank charges don't attract additional WHT from the customer.

7. Insurance Premiums

Insurance premiums paid to insurers are generally not subject to WHT (insurance is exempt from most taxes).

8. Purchases from Retailers

Purchases from retailers at retail prices (walk-in purchases) typically don't require WHT.

Decision Framework

Use this flowchart to determine if WHT applies:

Step 1: Is It a Business Payment?

• Yes → Continue to Step 2
• No (personal) → No WHT required

Step 2: Is the Recipient in Business?

• Yes (company or business individual) → Continue to Step 3
• No (purely personal recipient) → No WHT required

Step 3: What Type of Payment?

• Professional/Technical fees → WHT applies (10%/5%)
• Construction → WHT applies (5%)
• Supply of goods → WHT applies (5%)
• Rent → WHT applies (10%)
• Dividend/Interest → WHT applies (10%)
• Salary/Wages → No WHT (PAYE applies)
• Retail purchase → Generally no WHT
• Utility bills → Generally no WHT

Step 4: Is the Amount Significant?

• Above practical threshold → Deduct WHT
• Petty amounts → May not require WHT (document decision)

Special Situations

Mixed Contracts (Goods + Services)

When a contract includes both goods and services:

Option 1: Apply Higher Rate If not clearly separated, apply the services rate (10% corporate) to the entire amount.

Option 2: Apportion If invoice clearly separates goods and services:

• Apply 5% to goods portion
• Apply 10% to services portion

Example:

Contract: ₦1,000,000 total
Equipment supply: ₦600,000 → 5% = ₦30,000
Installation services: ₦400,000 → 10% = ₦40,000
Total WHT: ₦70,000

Advance Payments

WHT is due when payment is made, not when work is completed:

• Deduct WHT on advance payments
• Issue credit note immediately
• Don't wait for work completion

Milestone Payments

For projects with multiple milestones:

• Deduct WHT on each milestone payment
• Issue separate credit notes per payment
• Track cumulative WHT deducted

Reimbursable Expenses

Scenario	WHT Treatment
Contractor bills for their expenses	No additional WHT
You reimburse out-of-pocket costs	Depends on nature
Pass-through charges	Generally no WHT

Intercompany Transactions

WHT applies to payments between related companies:

• Management fees to parent company → WHT
• Intercompany loans → WHT on interest
• Transfer pricing must be arm's length

Payments to Non-Residents

WHT applies to payments to foreign entities:

• Check for applicable tax treaty
• May need to withhold higher rate
• Ensure compliance with CBN regulations

Industry-Specific Guidance

Construction Industry

Payment Type	WHT?	Rate
Main contractor	Yes	5%
Subcontractor	Yes	5%
Materials supply (separate)	Yes	5%
Equipment hire	Yes	10%
Site supervision	Yes	10%

Professional Services

Service	Corporate Recipient	Individual Recipient
Legal advice	10%	5%
Audit services	10%	5%
Tax consulting	10%	5%
Valuation services	10%	5%

Oil and Gas

Special WHT considerations apply to petroleum operations. Consult industry-specific guidelines.

Real Estate

Transaction	WHT?	Rate
Property rent	Yes	10%
Property management	Yes	10%
Sales commission	Yes	10%/5%
Property purchase	No	N/A

Common Mistakes

Mistake 1: Not Deducting from Small Businesses

Wrong: "They're a small business, so WHT doesn't apply." Correct: WHT applies regardless of business size.

Mistake 2: Only Deducting from Companies

Wrong: "Individual suppliers don't need WHT deduction." Correct: Individuals in business are subject to WHT (usually at 5%).

Mistake 3: Ignoring Related Party Payments

Wrong: "It's our subsidiary, so no need for WHT." Correct: Intercompany payments are subject to WHT.

Mistake 4: Not Deducting on Advance Payments

Wrong: "We'll deduct when the work is done." Correct: Deduct when you make the payment.

Mistake 5: Treating All Services as 10%

Wrong: Applying 10% to individual service providers. Correct: Individuals attract 5% for most services.

Record Keeping Requirements

For every WHT deduction, maintain:

1. Supplier invoice - Shows payment details
2. WHT calculation - Documents rate used
3. Payment evidence - Proves amount paid
4. Credit note copy - Confirms issuance to supplier
5. Remittance proof - Shows payment to NRS

Keep records for at least 6 years.

How Finora Identifies WHT Payments

Finora automates WHT identification:

Supplier Setup

When you add a supplier:

• Specify supplier type (company/individual)
• Select payment category
• System auto-assigns WHT treatment

Invoice Processing

When you record an invoice:

• Finora identifies payment type
• Applies correct WHT rate
• Calculates amount automatically

Payment Processing

When you make payment:

• System reminds of WHT obligation
• Generates credit note
• Records for monthly return

Exception Handling

For non-standard situations:

• Override defaults when needed
• Document exception reason
• Maintain audit trail

Frequently Asked Questions

What if my supplier is not VAT registered?

WHT applies regardless of VAT registration status. The two are independent obligations.

Do I deduct WHT from foreign payments?

Yes. Payments to non-residents are subject to WHT. Check if tax treaties provide reduced rates.

What about payments to government agencies?

Payments to government agencies (e.g., regulatory fees) typically don't require WHT. They're not "suppliers" in the commercial sense.

Can a supplier ask me not to deduct WHT?

No. WHT deduction is your legal obligation. Supplier preferences don't override tax law.

What if I've been paying without deducting WHT?

You have two options:

1. Start deducting going forward (minimum)
2. Voluntarily disclose past non-deduction (recommended for large amounts)

Consult a tax advisor for the best approach.

Conclusion

Knowing when to deduct WHT is essential for Nigerian business compliance. The key principles are:

1. Most business payments require WHT - Professional fees, construction, supplies, rent, etc.
2. Rates vary - 5% for goods/construction, 10% for services/rent (corporate), 5% for services (individual)
3. Salaries use PAYE, not WHT - Different tax regime
4. When in doubt, deduct - It's safer to deduct and issue a credit note than to fail to deduct

Finora makes this simple by automatically identifying WHT payments and applying the correct rates, ensuring you never miss a required deduction.

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