Who Pays Withholding Tax on Rent in Nigeria
What is the difference between withholding tax and VAT in Nigeria? Note: Originally published in THISDAY LAWYER, 16.02.2010, p. 14, this article is also available under the title LeLaw Thought Leadership Insights at: lelawlegal.com/2019/03/22/withholding-tax-the-a-z-of-grossing-up/. This withholding tax must be added monthly and paid directly to the Federal Inland Revenue Service (for withholding tax on limited liability companies) or to the state`s Internal Revenue Service (for withholding tax on individuals and corporations). This includes rental income for real estate and personal property. As a general rule, income from a property located in Nigeria (rent, rent, lease payments or royalties) is taxable in Nigeria – regardless of the place of payment. As mentioned earlier, withholding tax is an income tax that you pay in advance. Therefore, at the end of the year, you can offset your income tax with the source deductions you paid during the year. For example, if your income tax calculated at the end of the year is N35,000 and you paid N5,000 as a WHT. You don`t have to pay the full N35,000 to the government again.
You can safely subtract the N5,000 WHT you have suffered from the N35,000. Therefore, the amount of tax payable is only N30,000. Many people pay double taxation out of ignorance because they don`t know it. That`s why I usually encourage individuals or businesses to hire a tax advisor. What a tax advisor will save you will be much more than what you throw away in double taxation. Withholding tax is administered under the Income Tax Act (for individuals and corporations) and the Corporate Income Tax Act (for corporations). In order for you to understand how withholding tax and VAT are handled, it is best to give an example. The withholding tax is generally deducted from the invoice amount (excluding VAT). In this case, the withholding tax is 5% on N100,000 N5,000. This gives us the net amount of N95,000. Then the customer must always pay you the VAT of N5,000. If you add this VAT to the net amount of N95,000, you will receive N100,000.
However, if the customer is an oil company or government agency, you will receive N95,000. The company allegedly deducted N5,000 from withholding tax and another VAT of N5,000. A withholding tax is a statutory tax that must be withheld by one party from any payment to another party from income earned or services provided. In summary, the WHT improves the collection efforts of tax authorities and ensures that revenues are generated in advance. The deduction of withholding tax does not relieve any business or person of the obligation to pay income tax. The law that regulates or regulates the payment of corporate fees is the Corporate Tax Act (CITA) and the Income Tax Act (PITA). Information Circular No. 2006/02, issued by the Federal Inland Revenue Services (FIRS) in 2006, provides a more in-depth overview of the practice of withholding tax in Nigeria.
Withholding tax (WHT) was introduced into the tax system in 1977, with limited flexibility for rent, dividends and directors` fees. The withholding tax has since been extended to include the following: In practice, some income is not subject to withholding tax. These revenues include: at best, the “penalty” to the extrapolation provided for in Article 2 is that the revenues may add the amount of the WHT to the payer`s taxable profits; but this regulatory response (the forbidden “cost” of WHT) does not make extrapolation illegal. In TOTAL v. AKINPELU  17 NWLR (Pt. 903), 509-524, the CA stated that a tenant, having accepted the gross-up, could not circumvent the contractual obligation by relying on the legal provisions of whT: if the WHT was deducted, “the full rent would be agreed […] were paid on the spot? The Court easily answered this question in the negative. Some people said that their customers did not pay VAT, that customers deducted the VAT charged on their invoices before payment. Well, that may be true to some extent. If your customer happens to be an oil company or government agency, this category of customers has been legally allowed to deduct VAT at source.
But if you`ve noticed, they deduct not only VAT, but also withholding tax. This is to tell you that withholding tax and VAT are two different taxes. It is the responsibility of the company that deducted WHT and VAT to pay the taxes to the competent tax authority. If someone has withdrawn your money, you can track them to make sure the person or company hasn`t just pulled out to keep it. You need to determine the transfer. This is the only way to benefit from the withholding tax credit. The same goes for you. If you deduct WHT from your supplier`s invoices, you should not just withhold the tax, but also transfer it to the government. If the customers are more than one, you can stack the payment while adding the calendar with the names of the suppliers, their addresses, the TIN, the invoice date, the invoice amount, the applicable WHT rate, and the WHT amount.
The tax administration uses the annex to display the WHT on the account of the individual supplier so that he can claim the credit. The applicable withholding tax rates are as follows: A recurring point in source deduction (WHT) application transactions is: Does the payer (who is required to deduct WHT from the corresponding payment) have to bear the recipient`s WHT burden by paying the gross amount and transfer the WHT to income? Usually, the party who insists that his payment be extrapolated so that he receives the same amount he would have received if there had been no whT requirement is the party in a “stronger” negotiating position. A ready-made illustration is the typical situation of Nigerian landlords and tenants – the tenant is the “weak” party for demand/supply reasons and is under pressure to “close the deal”. Extrapolation is also common in credit transactions, while companies sometimes pay gross remuneration by paying personal income taxes on behalf of their employees/consultants living abroad. 2 The gross rental income of non-residents is subject to a withholding tax of 10%. The tenant deducts the amount and transfers it to the tax authorities. This classification is broad enough to encompass any transaction, with the exception of the purchase or complete sale of property and real estate. The Ministry of Finance considers that the majority of activities in the oil industry are carried out by shrinkage and should fall into this category.
The issue of contracts and transactions that are not performed in the ordinary course of business has been the subject of a number of reviews and changes over the years aimed at improving the withholding tax system in order to achieve efficiency and minimize the costs of doing business. The purpose of withholding tax is not to exacerbate the problems of producers, manufacturers and those who practice anything other than services. To submit withholding tax, you will need the following documents: All withholding tax transfers must be accompanied by the list of beneficiaries/contractors in order to receive the payment certificate for them. Please note that you are paying a withholding tax on behalf of another party. Therefore, you need to make sure that you get the payment certificate for them. The certificate automatically becomes a tax credit for the other party whose income has been deducted. This allows them to take advantage of it as part of their tax benefits when filing their year-end tax returns. .