Withholding tax at source: who must deduct, and who bears it

The instrument

The Deduction of Tax at Source (Withholding) Regulations 2024 were gazetted on 2 October 2024. Regulation 11(1) made them effective from 1 January 2025, with early adoption permitted from 1 July 2024, and they revoked every prior withholding regulation. Section 51 of the Nigeria Tax Administration Act 2025 is now the enabling provision, and we have found no replacement regulations made under it. Practitioners continue to treat the 2024 Regulations as operative, and so do we, but the savings position has not been put beyond doubt.

Who must deduct

Regulation 4(1) lists the deduction agents: a body corporate or unincorporate other than an individual; a government ministry, department or agency; a statutory body; a public authority; any other institution, organisation, establishment or enterprise including those exempt from tax; and payment agents acting for any of them.

Two consequences follow. The first is that an individual is not a deduction agent. Paragraph (a) carves individuals out in terms. A private client paying a professional fee in a personal capacity has no obligation to deduct anything, and the full fee is payable. The second is that an entity which is itself exempt from tax must still deduct from its own payments; exemption from tax is not exemption from the collection machinery.

There is an arguable middle case. The carve-out in paragraph (a) is for “an individual” without qualification, and an unincorporated business is not a body distinct from its proprietor. Whether a sole trader must deduct is therefore not free from doubt, since paragraph (e) is wide enough to catch an “enterprise”. We are aware of no authority on the point.

Rates

On commission, consultancy, technical, management and professional fees the First Schedule sets 5% for residents, corporate and non-corporate alike, and 10% for non-residents. For non-residents the deduction is a final tax under section 51 of the Administration Act. Ratified treaty rates override the Schedule.

Regulation 3(c) doubles the rate where the recipient has no Tax Identification Number: 10% for residents, 20% for non-residents. It does not apply to passive income such as dividends. The practical lesson is blunt — a supplier who cannot produce a TIN pays twice the tax.

The exemption that is widely misdescribed

Regulation 4(2) exempts a small company, and a body unincorporate of equivalent attributes, from the requirement to deduct tax at source, provided the supplier has a valid TIN and the transaction value is ₦2,000,000 or less in the relevant calendar month.

Read that again with the roles the right way round. The small business is the payer. The conditions attach to its supplier. This is relief from the administrative burden of operating the withholding machinery on money going out. It is not an exemption from having tax deducted from money coming in. Regulation 10, which lists the transactions exempt from deduction altogether, contains no paragraph for payments to small companies.

That distinction matters commercially. A small company on 0% companies income tax that suffers withholding tax has no liability to credit the deduction against, so the tax becomes a cash-flow cost recoverable only by making a refund claim.

We flag two live problems. First, regulation 4(2) defines the small company by cross-reference to section 105 of the Companies Income Tax Act, and that Act was repealed on 1 January 2026. Whether the cross-reference now reads across to the Nigeria Tax Act definition, at what figure, and carrying the professional-services proviso, is unresolved. If it does read across, a professional practice could never fall within regulation 4(2) at all. Second, the Presidential Fiscal Policy and Tax Reforms Committee’s published list of exemptions effective from 1 January 2026 states both that small companies are exempt from deduction on their payments to suppliers and that they are exempt from withholding tax deduction on their income. We can find no basis for the second limb in the Regulations as gazetted. Do not rely on it without checking for new regulations.

Remittance and credit notes

Regulation 7(1) requires remittance to the federal authority by the 21st day of the month following payment. For state authorities, PAYE and capital gains tax go by the 10th and everything else by the 30th.

Regulation 8 requires the deducting party to issue a receipt, and allows the recipient to use it to claim credit irrespective of whether the deducting party has actually remitted. That clause reverses a long-standing practical injustice and is worth knowing about: a supplier’s credit does not depend on the customer’s compliance.

Penalties, and a drafting gap

Regulation 9 imposes penalties for failure to deduct and for deducting without remitting. It does so by cross-reference to section 40 of the FIRS (Establishment) Act and section 74 of the Personal Income Tax Act. Both of those statutes have since been repealed. Equivalent penalties now sit in the Nigeria Tax Administration Act, but regulation 9 has not been updated to point at them. Nor is the “administrative penalty” referred to in regulation 9(2) defined anywhere. This is a real gap and we would expect it to be argued.