Withholding Tax on Invoices in Nigeria: Rates, Rules & How to Show It

For many Nigerian freelancers, agencies, and independent contractors, nothing triggers a panic attack quite like sending a ₦1,000,000 invoice, only to receive a bank alert for ₦900,000.

Where did the remaining ₦100,000 go? The corporate client replies calmly: "We deducted Withholding Tax (WHT)."

Withholding Tax is one of the most misunderstood concepts by small business owners in Nigeria. It causes disputes, disrupts cash flow, and creates accounting nightmares. In this guide, we break down exactly what WHT is, the rates you should expect, and how to handle it professionally on your invoices.

What is Withholding Tax (WHT)?

Withholding Tax is not an additional or separate tax. It is an advance payment of Income Tax.

Because the Federal Inland Revenue Service (FIRS) knows that many companies try to evade Company Income Tax at the end of the year, they mandate that the buyer (the client) withhold a small percentage of the invoice value at the point of payment. The client then remits this explicitly to the FIRS on the supplier's behalf.

Later, when you (the supplier) calculate your total Income Tax for the year, the FIRS looks at all the WHT your clients remitted for you and gives you a tax credit. In English: you subtract what was already withheld from what you owe.

Key Takeaway: WHT is the government's way of forcing your clients to be tax enforcers. If they fail to withhold it from you, the FIRS will severely penalize them. This is why large corporations never bypass WHT.

Current Nigerian Withholding Tax Rates (2026)

The percentage your client deducts depends entirely on (A) the type of service provided, and (B) whether your business is an incorporated company (LLC) or an individual/enterprise.

Here are the most common rates applicable to SMEs:

• Professional & Management Services (Consultancy, Tech Services, Legal, Audit):
  • Companies: 10%
  • Individuals/Enterprises: 5%
• Contracts of Supply & Agency (Supply of goods, cleaning, security):
  • Companies: 5%
  • Individuals/Enterprises: 5%
• Rent (Property lease):
  • Companies: 10%
  • Individuals/Enterprises: 10%
• Dividends & Interest:
  • Companies: 10%
  • Individuals/Enterprises: 10%
• Construction Operations:
  • Companies: 2.5%
  • Individuals/Enterprises: 5%

Always consult the official FIRS circular or a tax professional for edge cases.

How WHT Interacts with VAT

This is where rookie accountants get confused. Do you charge Withholding Tax on the Total (including VAT) or the Subtotal (excluding VAT)?

The Rule is Absolute: Withholding Tax is calculated on the amount EXCLUSIVE of VAT (the Subtotal).

Never allow a client to calculate a 10% WHT deduction on a figure that already includes 7.5% VAT. VAT is government money held in trust; you cannot tax a tax.

How to Show WHT on Your Invoice

There are two schools of thought on how to present this to clients.

Method 1: Do Not Show It (Standard B2B Approach)

Professionally speaking, it is the client's legal obligation to calculate, deduct, and remit the WHT. You simply issue your invoice for the base price + VAT. The corporate client's finance department handles the deduction on their backend and pays you the net amount.

• Invoice Subtotal: ₦100,000
• VAT (7.5%): ₦7,500
• Invoice Total: ₦107,500 (Client pays ₦97,500 to you, and ₦10,000 to the FIRS).

Method 2: Explicitly Netting it Down (For Clarity)

If you frequently deal with clients who dispute final payments or don't understand the math, you can pre-calculate the deduction to avoid arguments.

• Subtotal for Web Design Services: ₦100,000
• Add 7.5% VAT: ₦7,500
• Less 5% WHT (calculated on subtotal): (₦5,000)
• Net Amount Payable to Vendor: ₦102,500

How to Ensure You Don't Lose Money

If your client deducts WHT, that money is yours—it’s just sitting with the government as a credit offset. To claim it, you must ensure the client actually remits it and provides proof.

1. Always include your TIN on your invoices. A client cannot remit WHT in your name without your Taxpayer Identification Number.
2. Request Credit Notes. Once the client pays you, immediately request your WHT Credit Notes generated from TaxPro Max.
3. Do not let clients treat WHT as a "discount." It is a statutory deduction that must carry a receipt.

Keep Your Invoicing Clear and Legally Binding

If you are a consultant or contractor dealing with blue-chip companies, your invoice must be flawless so their procurement team can easily isolate the subtotal, the VAT liability, and the WHT deduction.

Using messy word documents guarantees errors. Instead, use a highly structured tool like InvoiceGenerator.ng to create beautiful, mathematically precise invoices that corporate finance departments respect immediately.