Nigerian withholding tax on rent, dividends and interest
Nigerian withholding tax rates on rent, dividends, interest, royalties and directors' fees, and how to record each deduction in your books.
By Achekam · · 4 min read · For Running a business businesses in Nigeria
Supplier invoices are where most businesses first meet withholding tax, but they are not the only payments it reaches. The cheque to the landlord, the dividend to the shareholders, the interest on a loan from a director, the royalty to the owner of a brand or a song, the fees paid to non-executive directors: each of these is a payment from which a Nigerian company is expected to keep back tax.
These payments are often large, infrequent and handled by the owner rather than the accounts clerk, which is exactly why they get missed. This article sets out the rates at the time of writing and how to record each deduction properly.
Rent paid to a landlord
Withholding tax on rent is 10%. If your company rents an office, a shop or a warehouse, it deducts 10% of the rent, pays the landlord the balance and passes the deduction to the tax authority.
Rent in Nigeria is commonly paid a year or more in advance, which makes the deduction a single large figure that is easy to overlook in a month when cash is already stretched. Agree the treatment with the landlord before the payment, in writing. A landlord expecting the full rent who receives 90% of it will think you have short-paid, unless your lease and your remittance advice say otherwise.
Dividends and interest
Dividends and interest also attract withholding tax at 10%.
For a company declaring a dividend, the deduction belongs in the dividend payment routine: the board resolution sets the gross dividend, each shareholder receives the net amount, and the tax goes to the authority. Owner-managed companies are the usual offenders here, because the dividend is often paid to the founder in pieces, as cash is available, and no one treats each transfer as a dividend payment with tax to withhold.
Interest works the same way. If your company borrows from a director, a related company or a private lender and pays interest, deduct 10% from each interest payment. Interest paid to a bank is a case to confirm with your adviser before you deduct anything.
Royalties: companies and individuals
Royalties are split by who receives them. Withholding tax on royalties is 10% where the recipient is a company and 5% where it is an individual.
That covers a franchise fee for the use of a brand, licence fees for software or content, and payments to musicians, authors or designers for the use of their work. For individual recipients, keep in mind that tax withheld from individuals is usually administered by the State where they are taxed, so confirm where that deduction goes.
Directors' fees for residents and non-residents
Fees paid to directors carry the highest rates in this group: 15% where the director is resident and 20% where the director is non-resident.
This applies to fees for serving as a director, such as sitting fees for a non-executive. A director who is also an employee and draws a salary is paid through payroll, where PAYE applies to the salary. Keep the two apart in your records, so that a fee is not run through payroll by mistake or a salary paid as a fee.
At a glance
| Payment | Rate at the time of writing |
|---|---|
| Rent | 10% |
| Dividends | 10% |
| Interest | 10% |
| Royalties to a company | 10% |
| Royalties to an individual | 5% |
| Directors' fees, resident | 15% |
| Directors' fees, non-resident | 20% |
Lagos State's revenue service publishes a table of withholding tax rates by type of payment, including dividends, interest, royalties and rent, for corporate and individual payees. Use it as a cross-check, and remember that the rates in force come from the Deduction of Tax at Source (Withholding) Regulations 2024, not from the Nigeria Tax Act itself. Where any table disagrees with the Regulations, the Regulations win.
Recording the deduction and the net payment
Every one of these payments has three parts in your books: the gross amount, the amount paid to the recipient, and the amount now owed to the tax authority. All three need to show.
In Achekam, a landlord's or licensor's invoice can be recorded as a supplier bill and paid in part, so the bank payment is the net amount. A dividend or interest payment usually has no supplier invoice behind it, so it is recorded by manual journal. Achekam refuses a journal that does not balance or that is dated in a closed month, and a posted journal can only be corrected by a reversal, so plan the entry before you post it:
- Record the gross dividend, interest or fee as it falls due.
- Record the payment of the net amount from the bank.
- Leave the withheld part on a withholding tax liability account until it is remitted.
- Clear that liability when you pay the authority, keeping its payment reference with the entry.
Ask your accountant to set up the liability accounts, so that every type of withholding lands in the same place and the month-end total is easy to check. The remittance itself is due by the 21st of the following month; deadlines and penalties are explained in remitting Nigerian withholding tax on time.
Confirming rates before the rules are approved
Achekam's Revenue Service Centre is built to compute Nigerian withholding tax, among other taxes, once its rules are approved. Every Nigerian tax figure in its rule book was loaded "under review", and nothing is computed until an Achekam platform administrator approves it. Until then, the rates above, confirmed by your adviser, are the figures to work with.
The rates for consultants and goods suppliers, which are different again, are covered in deducting withholding tax from Nigerian suppliers. Before your next rent or dividend payment, write the gross amount, the rate and the net amount on the payment approval, and have the person approving it check all three.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
