Construction and contracting in Nigeria involves some of the most complex invoicing scenarios of any industry. A single project may span months, involve multiple subcontractors, include materials and labour on the same invoice, carry retention deductions, and require progress billing at each stage.
Get your invoicing wrong and you risk delayed payments, VAT disputes, and problems during project audits. This guide covers exactly how Nigerian contractors — from small building firms to large civil engineering companies — should structure their invoices.
How VAT Works on Construction Invoices in Nigeria
Construction services are taxable supplies under the VAT Act. If your contracting business has annual taxable turnover of ₦25 million or more, you must:
- Register for VAT and charge 7.5% on taxable supplies
- Include your VAT registration number on every tax invoice
- Remit collected VAT to FIRS by the 21st of the following month
VAT on Materials vs Labour
This is where many Nigerian contractors get confused. The general rule:
- Labour supplied as a service — taxable at 7.5%
- Building materials — taxable at 7.5% (most building materials are not VAT-exempt)
- Land and bare buildings — exempt from VAT
- Supply and installation together — taxable at 7.5% on the combined value
If you are supplying both materials and labour on a single contract (the most common scenario), apply VAT at 7.5% to the entire amount.
Example:
Bricklaying and block supply, Phase 1: Materials: ₦380,000 Labour: ₦220,000 Subtotal: ₦600,000 VAT (7.5%): ₦45,000 Total: ₦645,000
Withholding Tax on Contractor Payments
When a company pays a contractor, the company is required by law to withhold tax:
- WHT on construction work: 5%
- WHT on professional or consulting services: 10%
This means your corporate client will deduct 5% WHT from your invoice amount and remit it to FIRS on your behalf, issuing you a WHT credit note. Always invoice for the full amount — do not pre-deduct WHT on your own invoice.
Example:
Invoice total: ₦645,000 WHT deducted by client (5%): ₦30,000 (on the pre-VAT subtotal of ₦600,000) Amount remitted to contractor: ₦615,000 WHT credit note to contractor: ₦30,000
Keep all WHT credit notes. They offset your corporate income tax liability at year-end.
Progress Invoicing: Billing by Construction Phase
Most Nigerian construction contracts are billed progressively — in stages tied to project milestones rather than in one lump sum at the end.
Setting Up Progress Invoices
Each progress invoice should:
- Clearly identify the project name and contract reference
- State which phase or milestone is being invoiced (e.g., "Phase 2 — Roofing Works")
- Show the cumulative amount billed and the balance remaining on the contract
- Reference the original contract value
Example — three-phase residential project (Contract value: ₦12,000,000):
Invoice 1 — Mobilisation and Foundation:
Contract: Gwarinpa Residential Duplex — Block A Contract value: ₦12,000,000 Phase 1 (Mobilisation + Foundation): ₦3,600,000 VAT (7.5%): ₦270,000 Invoice 1 Total: ₦3,870,000 Cumulative billed: ₦3,600,000 | Remaining: ₦8,400,000
Invoice 2 — Superstructure and Roofing:
Phase 2 (Block-work, Lintels, Roof): ₦4,800,000 VAT (7.5%): ₦360,000 Invoice 2 Total: ₦5,160,000 Cumulative billed: ₦8,400,000 | Remaining: ₦3,600,000
Invoice 3 — Finishes and Handover:
Phase 3 (Plastering, Tiling, Electrical, Painting): ₦3,600,000 VAT (7.5%): ₦270,000 Invoice 3 Total: ₦3,870,000 Cumulative billed: ₦12,000,000 | Remaining: ₦0
Handling Retention
Retention is a percentage of your invoice amount (commonly 5–10%) that the client holds back until the defects liability period expires — typically 12 months after project completion.
How to Show Retention on Invoices
Show the gross amount, then deduct retention as a line item before the total payable:
Phase 2 Works: ₦4,800,000 VAT (7.5%): ₦360,000 Gross Invoice: ₦5,160,000 Less: Retention (5% on pre-VAT amount): (₦240,000) Net amount payable now: ₦4,920,000 Retention balance held: ₦240,000
Note on VAT and retention: FIRS position is that VAT is due on the full taxable supply at the time of supply, not just the net-of-retention amount. Invoice for the full VAT amount; the retention deduction is a commercial arrangement, not a VAT adjustment.
Releasing Retention
When the defects liability period ends, issue a Retention Release Invoice:
Retention Release — Gwarinpa Duplex Block A Retention held from Invoices 1–3: ₦600,000 VAT previously invoiced on this amount: ₦0 (VAT was invoiced upfront) Amount due on retention release: ₦600,000
Variation Orders
When work is added or removed from the original contract scope, issue a Variation Order Invoice referencing the variation order number and the original contract:
Variation Order #3 — Additional retaining wall (approved 14 Mar 2026) Works: ₦280,000 VAT (7.5%): ₦21,000 Variation Invoice Total: ₦301,000 Ref: Contract GWA-2026-01, VO #3
Never perform variation work without a signed variation order first. The signed VO is your authority to invoice for it.
The Mandatory Fields Checklist for Contractor Invoices
Before sending any invoice, verify:
- [ ] Labelled "Tax Invoice" (if VAT-registered)
- [ ] Your registered company name and address
- [ ] RC number and TIN
- [ ] VAT registration number (if applicable)
- [ ] Unique sequential invoice number
- [ ] Invoice date and payment due date
- [ ] Client name, address, and TIN
- [ ] Project name and contract reference
- [ ] Phase/milestone description
- [ ] Labour and materials itemised separately where possible
- [ ] Subtotal, VAT (7.5%), and total
- [ ] Retention deduction (if applicable)
- [ ] Cumulative billed and contract balance remaining
- [ ] Your bank details
For the full breakdown of FIRS invoice requirements and how VAT applies across different supply types, see the InvoiceGenerator.ng invoicing guide.
Create Contractor Invoices Instantly
InvoiceGenerator.ng generates FIRS-compliant invoices with all mandatory fields — TIN, VAT calculation, sequential numbering, and notes sections for retention and project references. Download as PDF or send directly via WhatsApp to your client's project manager.
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