Calculates your annual PAYE (Personal Income Tax) and net salary in Nigeria for 2026, based on the new tax law, including reliefs for pension, NHF, and rent.
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Nigeria Withholding Tax (WHT)
Withholding Tax (WHT) is an advance payment of income tax deducted at source by a payer from certain types of payments made to a recipient. In Nigeria, the rules are governed by the Deduction of Tax at Source (Withholding) Regulations 2024. The payer (deductor) is legally required to withhold a percentage of the payment and remit it directly to the Federal Inland Revenue Service (FIRS). The recipient (deductee) can then credit this tax against their final income tax liability for the year. This system ensures efficient tax collection and reduces tax evasion.
How Withholding Tax is Calculated
The calculation is straightforward: you apply a specific percentage rate to the gross amount of the payment. The applicable rate depends on two key factors:
- Type of Payment: Different rates apply to rent, professional services, contracts, commissions, royalties, and director's fees.
- Type of Recipient: The rate often differs depending on whether the recipient is an individual or a company.
The formula is: Withholding Tax = Gross Payment Amount × Applicable Rate.
The net amount paid to the recipient is simply the gross amount minus the withheld tax. It is crucial to use the correct rate to avoid under-deduction (which leads to penalties) or over-deduction (which unfairly reduces the recipient's income).
Example Calculation: Rent Payment
Imagine a manufacturing company, ABC Ltd., rents a warehouse from a property holding company, XYZ Properties Ltd. The annual rent is NGN 1,500,000.
- Payment Type: Rent
- Recipient Type: Company
- Applicable Rate: 10% (as per the 2024 Regulations for rent paid to a company)
- Withholding Tax: NGN 1,500,000 × 10% = NGN 150,000
- Net Payable to Landlord: NGN 1,500,000 - NGN 150,000 = NGN 1,350,000
ABC Ltd. must deduct NGN 150,000 and pay only NGN 1,350,000 to XYZ Properties Ltd. The NGN 150,000 must be remitted to FIRS by the 21st of the following month. XYZ Properties Ltd. will receive a Withholding Tax Credit Note for NGN 150,000 to offset its Company Income Tax.
Example Calculation: Consultancy Services
Consider a bank that hires an independent financial consultant (an individual) for a project with a fee of NGN 500,000.
- Payment Type: Professional Services
- Recipient Type: Individual
- Applicable Rate: 5%
- Withholding Tax: NGN 500,000 × 5% = NGN 25,000
- Net Payable to Consultant: NGN 500,000 - NGN 25,000 = NGN 475,000
The bank deducts NGN 25,000. The consultant can claim this NGN 25,000 as an advance tax payment when filing their annual Personal Income Tax return.
Common Payment Types and Rates
The 2024 Regulations specify the following key rates, which are used in this calculator:
| Payment Type | Recipient (Individual) | Recipient (Company) |
|---|---|---|
| Rent | 10% | 10% |
| Professional/Technical/Consultancy Services | 5% | 10% |
| Contracts & Agency | 5% | 5% |
| Commissions | 10% | 10% |
| Royalties | 10% | 10% |
| Director's Fees | 10% | 10% |
Note: 'Contracts' typically refers to construction, supply, and related service contracts. 'Agency' covers arrangements where an agent is paid for services rendered.
Frequent Scenarios and Compliance
Businesses frequently encounter WHT in these situations:
- Paying Office Rent: Always apply a 10% WHT, regardless of whether the landlord is an individual or a company.
- Hiring a Law Firm or Audit Firm: For professional services paid to a company, the rate is 10%.
- Engaging a Freelance Consultant: For the same services paid to an individual, the rate is 5%.
- Paying Sales Commissions: A flat 10% rate applies to both individual and corporate agents.
Compliance is critical. The deductor must issue a Withholding Tax Credit Note (Form WHT 06) to the deductee as proof. The tax must be remitted to the FIRS within 21 days after the end of the month in which the deduction was made. Failure attracts severe penalties, including a 10% penalty on the unremitted tax plus interest at the prevailing monetary policy rate.
Next Steps: Documenting the Transaction
After calculating the withholding tax, proper documentation is essential for both parties' protection and compliance. The obligation to deduct WHT should be clearly stated in the underlying agreement. For service payments, use a Service Agreement or Consulting Agreement to outline the gross fee and the withholding tax clause. For rental payments, a Commercial Lease Agreement must specify that rent payments are subject to WHT deduction. Finally, the actual payment should be documented with an Invoice that itemizes the gross amount, the withholding tax deduction, and the net amount paid. This invoice serves as a clear record for accounting and tax filing purposes. Using our calculator ensures you start with the correct figures for these important documents.