When a Nigerian payer must deduct withholding tax
Which Nigerian payers must deduct withholding tax, the moment the duty arises on payment or settlement, and how to record the net payment.
By Achekam · · 4 min read · For Running a business businesses in Nigeria
Withholding tax problems rarely start with the rate. They start with timing. A finance team pays a supplier in full because the invoice "was not due for withholding yet", or sets an invoice off against money the supplier owes and forgets that settling a debt that way counts too. Months later the gap shows up in a review, along with penalties.
The Nigerian rule on when to deduct is short, and it is worth knowing exactly. This guide covers who must deduct, the moment the duty arises, the special rule for related parties, and how to keep the books right when you pay a supplier net.
Who must deduct
The NRS says the following must deduct tax at source on eligible transactions:
- bodies corporate or unincorporate, other than individuals;
- government ministries, departments and agencies;
- statutory bodies and public authorities;
- other institutions, even tax-exempt ones; and
- their payment agents.
Two items on that list surprise people. Being exempt from tax yourself does not take you out of the duty to deduct from others: a school or a charity paying a contractor is still a payer. And a payment agent acting for one of these bodies carries the duty too. The NRS's Withholding Tax page lists who deducts, what the return must show for each payee, which transactions are exempt and what happens on failure.
Payment or settlement, whichever comes first
The NRS says the duty to deduct arises when payment is made or the amount due is otherwise settled, whichever is earlier.
"Otherwise settled" is the phrase that catches people. Settlement does not have to be a bank transfer. If your company sets a supplier's invoice off against a balance the supplier owes you, the debt is settled at that moment and the duty to deduct arises then, even though no money moved. A contra between two companies' trading accounts works the same way.
What does not trigger the duty, for unrelated parties, is the invoice itself. An unpaid, unsettled invoice sitting in payables is not yet a deduction event.
Related parties: payment or recognising the liability
For related parties the NRS sets an earlier trigger. Between related parties, the duty arises at payment or when the liability is recognised, whichever is earlier.
So a management fee charged by a parent company to its Nigerian subsidiary can create a duty to deduct as soon as the subsidiary books the liability, long before any cash crosses. Group companies that accrue intercompany charges at month-end and settle them once a year need to deduct, and remit, on the accrual timetable, not the settlement one.
Part payments, set-offs and the remittance date
Each payment or settlement is its own event. If you pay a supplier's invoice in three instalments, the duty arises on each instalment as you pay it, on the amount paid.
The remittance date follows the event. The NRS says tax deducted at source that is payable to the NRS must be remitted not later than the 21st day of the month following the month of payment. The LIRS FAQs give the same 21st-day date for amounts due to the NRS, and a 10th-day date for capital gains tax and PAYE payable to a State revenue service. They add that the due date runs from the earlier of the date the amount was deducted or the date the obligation to deduct arose, which matters for a set-off where nothing was physically deducted.
Late remittance is expensive. Under section 107(1) of the Nigeria Tax Administration Act, 2025, a person who fails to remit by the 21st day of the following month is liable for the amount, an administrative penalty of 10% per annum of it, and interest at the Central Bank of Nigeria's monetary policy rate. Section 105 sets a penalty of 40% of any amount not deducted at all. Withholding tax remittance penalties goes through them.
Paying a bill net in Achekam
In Achekam the supplier's bill goes in at its full value, line by line with VAT, and it can be paid in full or in parts from whichever bank account you choose. A bill entered without a purchase order waits for approval before it posts, which is a natural point for the approver to note whether withholding applies.
When you pay:
- Record a payment against the bill for the net amount the supplier receives.
- Post a manual journal for the tax withheld, moving that part of the supplier's balance to a withholding tax payable account. Achekam refuses an unbalanced journal or one dated in a closed month, and corrects a posted journal only by reversing it.
- When you remit to the NRS, pay the liability account down.
Paying a supplier in Achekam only records the payment: no bank payment file is produced for suppliers, so the transfer itself is made in your bank. Agree the account names and the journal pattern with your accountant once, then follow it every time. Rates for each kind of payment are covered in deducting withholding tax from Nigerian suppliers.
A month-end deduction check
Before the month closes:
- list every supplier payment and every set-off in the month;
- confirm withholding was considered on each, including contras;
- list intercompany liabilities recognised in the month, paid or not;
- total the tax withheld and agree it to the payable account;
- diarise the 21st for the remittance and the return.
The deduction date is the one fact every later step depends on. Fix it at the moment of payment or settlement, record it with the payment, and the remittance and the return will follow from it.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
