You want to start a business in Nigeria, but you have troubles with withholding tax? You should worry no more! Here you can find answers to the top 10 questions about withholding tax in Nigeria!
Withholding tax Nigeria – Top 10 questions and answers!
1. Withholding Tax Definition
What is withholding tax? It`s an advance payment of income tax that can be used to reduce tax liabilities. The main idea of this tax is to reduce the quantity of possible tax evading payers. The withholding tax is a reliable source of taxes in Nigeria. Depending on the type of transaction, the tax rates can vary from 5% to 10%.
2. How does it work?
What can be issued as an evidence of any transaction? It`s usually an invoice with details about the purchase. Let`s take a look at how the taxes can work in both ways. For instance, if a purchaser gets a product or service from a supplier which costs one million Naira, then he should deduct N100,000 Naira upon payment (the tax rate is 10%).
He should remit the payment to the relevant tax authority. In addition, the purchaser also gets the evidence of remittance. This evidence comes in the form of a withholding tax credit note. The supplier can use this note to reduce income tax at the end of the financial year.
3. According to withholding tax law – do all transactions involve withholding tax?
When it comes to the withholding tax define – then you should understand t*hat it involves a contract of purchase. Therefore, it should only be introduced to you through- your invoice. This invoice includes supplying goods and services to the destination of your client. You can`t deduct the withholding tax in Nigeria by ordinary purchase. For instance, if you go to the supermarket and buy something from there – you can`t deduct withholding tax from the receipt.
However, if you ask a supplier to supply goods to you, then you will get a contract. From this contract, you can ask for invoice from your supplier. This invoice should include withholding tax!
4. Who is the Relevant Tax Authority?
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People do not always understand who is or what is the relevant tax authority. In many cases, it can be just the Federal Government or State. According to the withholding tax law in Nigeria:
- The State Governments has authority to collect withholding tax from sole and individual traders under the PITA (Personal Income Tax Act).
- The Federal Government has authority to collect taxes from companies. It`s provided by the CITA (Company Income Tax Act).
5. Withholding tax credit note – what is it?
This document can be provided to you by the Tax Authority. It should show that a taxpayer has already undergone the tax deduction. No other authority, except the Tax Authority, can provide or authorize the withholding tax credit note.
6. What can be included in the withholding tax credit note?
When you receive this kind of note you should be very attentive as it should include the following:
- Credit Number – you can`t provide the tax payment without this number;
- Tax payer`s name – it should be the name of the goods` purchaser. He/she deducts the tax;
- Beneficiary`s name – it should be the name of the goods` supplier or seller;
- The Date of the transaction. It should also include the nature of this transaction;
- The name of Bank which is used to make your transaction;
- The amount you dedicate to the transaction;
- The period that covers the transaction;
7. What are the penalties for non-remittance/deduction of withholding tax?
According to the CITA, you can get 10% penalty for annum if the withholding tax was deducted within 21 days of the date of the transaction. The withholding tax liabilities should also be collected in term of 30 days. The failure to remit the tax will incur a 200% penalty.
8. What are the withholding rates for Nigerians?
Most of the withholding rates payment in Nigeria are at the level of 10% for corporate bodies! Nevertheless, the individuals can expect 5% withholding tax rates. If you want details about all the tax rates, then check the rates for all categories of tax payers mentioned above.
9. What are the claims for withholding tax rates?
Tax payers who provide services can expect to obtain withholding tax credit notes from the relevant tax authority. The contract employer in these terms is regarded as the agent of the collection. Do not forget that all credit notes should be forwarded to the tax authorities. Unutilized withholding tax credits are provided for the subsequent tax years.
10. Who can be the agents of the withholding tax?
It`s rather a simple question if you compare it to the previous top 10 withholding tax Nigeria items. It can be anyone connected to the withholding tax payment process:
- Local Government;
- Tax Department;
- Government Ministry;
- Sole Traders;
- Residents and non-residents of Nigeria.
If contractors and vendors want to have mutual beneficial relationships, then the withholding tax payment is crucial. It also provides additional type of income for the government or local states. Keep in mind that the government will not tolerate the tax evaders. The withholding tax law in Nigeria has penalties for the vendors who does not abide the law. The government can't exist without taxes. Therefore, withholding tax Nigeria is one more step to help the country!
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