Deduction of Tax at Source (withholding) Regulations 2024 Highlights

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DEDUCTION OF TAX AT SOURCE (WITHHOLDING) REGULATIONS 2024 HIGHLIGHTS

The Deduction of Tax at Source (Withholding) Regulations 2024 outline the procedures, rates, and responsibilities for the withholding of taxes at source on various types of income under these Acts: Companies Income Tax Act (CITA), Capital Gains Tax Act (CGTA), Personal Income Tax Act (PITA), and Petroleum Profits Tax Act (PPTA). These regulations are designed to enhance tax compliance and simplify the tax collection process.

1. Scope and Application

  • These regulations apply to all individuals, companies, partnerships, and other entities required to withhold tax at source on specified payments.
  • Withholding tax must be deducted from payments including, but not limited to, salaries, interest, dividends, rents, royalties, and payments to contractors.
  • The regulations are effective from July 1, 2024.

2. Tax to be deducted at source

  • The specified eligible transactions and their corresponding deduction rates at the source can be found in the "First Schedule" of these Regulations. Reduced rates, as outlined in a treaty between Nigeria and another country to avoid Double Taxation, will be applicable to eligible recipients who are residents in a treaty country, in accordance with the rates stipulated in the relevant Treaty or protocol ratified by the National Assembly.
  • In the case of the supply of goods, provision of services, or any eligible transaction involving non-passive income, the amount to be deducted at the source shall be twice the rate specified in the Schedule if the recipient does not have a Tax Identification Number.

3.  Persons Required to Deduct:

  • Obligated parties include corporations, governments, statutory bodies, and payment agents acting on behalf of others.
  • Small companies are exempt if the supplier has a valid Tax Identification Number and the transaction value does not exceed N2,000,000 during the relevant calendar month.

4. Nature of Deduction:

  • Emphasizes that deduction is not an additional cost but an advance or final tax payment on behalf of the supplier.

5. Obligation to Deduct:

  • Arises at the earlier date of payment or settlement of liability; immediate for transactions between related parties.

6. Remittance Requirements:

  • Payments to the Federal Inland Revenue Service (FIRS) must be remitted: 
    • Not later than the 21st day of the month following the month of payment.
  • For payments to State Internal Revenue Services:
    • Capital Gains Tax and Pay-As-You-Earn: Not later than the 10th day of the month following the payment.
    • For any other deductions: not later than the 30th day of the month following the payment.

7. Submission of Returns:

  • Submission of returns to the relevant tax authority must include:
    • Evidence of remittance of the deducted amount.
    • Information about the supplier, including name, address, Tax Identification Number (TIN), National Identification Number, RC number, or its equivalent
    • Nature of the transaction, gross amount paid, amount of tax deducted, and the relevant calendar month.

8. Receipt and Reporting:

  • Issuance of receipts upon deduction, providing:
    • Name, address, and TIN (or National Identification Number or RC number if TIN is not available) of the person from whom the deduction was made.
    • Nature of the transaction, gross amount paid, amount deducted, and the relevant calendar month.
  • Receipts can be submitted to the relevant tax authority as evidence for claiming tax credits.

9. Offences and Penalties:

  • Failure to deduct, remit, or report withholding tax as required may result in penalties, including fines and interest on unpaid amounts under section 40 of the Federal Inland Revenue Service (Establishment) Act or section 74 of the Personal Income Tax Act.
  • Administrative penalties and annual interest may apply for non-compliance.

10. Exemptions :

  • Includes compensating payments under registered securities lending transactions, dividends to Real Estate Investment Trusts (REITs), and specific securities transactions, manufactured goods, winnings from a game of chance or reality show with contents exclusively for entrepreneurship, academics, technological or scientific innovation.

   Note:

  • The agency fee has been renamed to a brokerage fee and adjusted to 5% for residents and 10% for non-residents.
  • Compensation for loss of employment will no longer be subject to taxation for corporate residents.
  • Directors' fees are now exempt from deduction at source.

Citation : Officially titled the Deduction at Source (Withholding) Regulations 2024, these regulations supersede any previous ones on withholding tax in Nigeria.