Withholding tax rates on Nigerian construction work
The withholding tax a Nigerian payer deducts from contractors building roads, bridges and buildings, how interim payments are handled, and what is exempt.
By Achekam · · 4 min read · For Running a business businesses in Nigeria
Construction contracts pay out in stages. A developer, a school board or a factory owner building an extension pays a contractor against interim certificates over months, sometimes years, and each payment is a withholding tax event. Apply the wrong rate on the first certificate and the error repeats on every one after it.
The rates for construction are not all the same. Building a road is treated differently from fitting out an office, and a contractor based abroad is treated differently again. This guide covers the categories, the rates as one State revenue service publishes them, when each payment triggers a deduction, and what to check before paying a contractor's invoice.
Roads, bridges, buildings and power plants, and the rest
The Lagos State Internal Revenue Service publishes a withholding tax rate table that splits construction into two lines:
| Type of work | Resident supplier | Non-resident supplier |
|---|---|---|
| Construction of roads, bridges, buildings and power plants | 2% | 5% |
| Any other form of construction and related activities | 5% | 10% |
These are the rates in that table at the time of writing. The LIRS withholding tax rate table lists the rates for every type of payment, from dividends and rent to professional fees and construction. The table itself is undated and states no legal basis, and the LIRS FAQs repeat the same rates, so check the current regulations with your adviser before relying on a rate for a large contract.
Which line applies depends on the work, not on what the contractor calls itself. A firm building a warehouse falls on the first line. The same firm doing site clearance, repairs or interior fit-out on someone else's building may fall on the second. Where one contract mixes both, ask the contractor to invoice the elements separately so each can be taxed at its own rate.
Resident and non-resident contractors
The column matters as much as the row. A contractor resident in Nigeria is deducted at the lower rate on each line; a non-resident contractor at the higher one. The LIRS FAQ table adds a remark that the amount deducted from a non-resident on other construction work is final, meaning it settles that contractor's Nigerian tax on the income rather than being a credit against a later return.
Each interim payment is a deduction event
The NRS says the duty to deduct arises when payment is made or the amount due is otherwise settled, whichever is earlier. On a staged contract that means every interim payment, every variation paid, and the payment that eventually releases any retention, is its own event. Deduct on each one, on the amount actually paid.
The NRS says tax deducted that is payable to it must be remitted not later than the 21st day of the month following the month of payment. Under section 107(1) of the Nigeria Tax Administration Act, 2025, failing to remit by then makes the payer liable for the amount, a 10% per annum administrative penalty and interest at the Central Bank's monetary policy rate. For the full timing rule, including set-offs and related parties, see when a Nigerian payer must deduct withholding tax.
Materials and other exempt items
Not every line on a contractor's invoice attracts withholding. The NRS lists transactions exempt from deduction at source, including:
- goods manufactured or materials produced by the supplier;
- insurance premiums;
- distinguishable out-of-pocket expenses;
- interest and fees paid to a Nigerian bank by direct debit; and
- supplies of petroleum products such as PMS, AGO, LPG and CNG.
The NRS's full list is longer. The words that matter for construction are "manufactured" and "distinguishable". Blocks made in the contractor's own yard are the kind of item the exemption describes; materials it bought from someone else were not produced by the supplier, whatever the invoice calls them. Out-of-pocket costs are exempt only where they are shown separately. A contractor that lumps materials, labour and expenses into one figure leaves you no choice but to treat the whole as the service.
Matching the invoice before paying net
The deduction is only right if the invoice is right. In Achekam, a contractor's invoice recorded against a purchase order is matched with what was ordered and what arrived; if the price or quantity differ, it is held until someone writes a resolution note. For staged work, that check is where a certificate amount that does not match the order gets caught before money moves.
Supplier bills are recorded line by line with VAT, so materials, labour and expenses can sit on separate lines with the withholding treatment of each visible. A bill can be paid in full or in parts from the bank account you choose: pay the contractor the net amount, and post a manual journal moving the tax withheld to a payable account until you remit it. Journals that do not balance, or that are dated in a closed month, are refused. Recording a payment in Achekam does not produce a bank file for suppliers, so the transfer is made in your banking channel. Rates for other supplier types are in deducting withholding tax from Nigerian suppliers.
A contract payment checklist
- Classify the work: roads, bridges, buildings and power plants, or other construction.
- Confirm whether the contractor is resident or non-resident.
- Ask for materials, labour and out-of-pocket costs on separate lines.
- Match the certificate or invoice to the order before approving it.
- Deduct on the amount actually paid, at the rate for that line.
- Remit to the right authority by the 21st of the following month and give the contractor evidence.
Set the classification once, at contract award, and record it with the order. Every interim payment after that becomes a matter of applying 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.
