7 Crucial Insights on Withholding Tax (WHT) for Interest Expenses.

Withholding Tax On Interest | Tax Consulting South Africa

Navigating the landscape of Withholding Tax (WHT) on interest expenses can be intricate, and misunderstandings or oversights may arise in the process. To shed light on this matter, we’ve outlined eight key points for clarity on the deductibility of WHT on interest expenses in Nigeria:

  • WHT as an Advance Payment of Income Tax:
    • WHT serves as an advance payment of income tax. The law designates a payer to deduct this advance tax from eligible payments, specifically interest expenses. The deducted and remitted WHT by the payer is utilized by the payee to offset its Companies’ Income Tax (CIT) liability, if applicable.
  • Statutory Obligation for Companies:
    • Every company incorporated in Nigeria is legally obliged to withhold income tax from the interest payments made to its creditors.
  • Remittance to Tax Authorities:
    • WHT from an incorporated entity is remitted to the Federal Inland Revenue Service (FIRS), regardless of the creditor’s residence.
    • For natural persons or unincorporated entities, WHT is remitted to the State Internal Revenue Services (SIRS) of the creditor’s resident state.
  • Non-Resident Creditor’s Final Tax:
    • In the case of a non-resident creditor, WHT on interest expense, when deducted and remitted, is considered the final tax in Nigeria on that income.
  • WHT Rates:
    • WHT on interest expenses is levied at 10%. However, if the creditor is resident in a country with a Double Tax Treaty with Nigeria, the applicable WHT rate is reduced to 7.5%.
  • Remittance Deadlines:
    • WHT is to be remitted to both FIRS and SIRS within the next month following the month of the net payment to the creditor.
    • The statutory deadline for FIRS is the 21st day of the said next month, while it is the 31st day for SIRS.
  • Penalties for Non-Compliance:
    • Failure to deduct and remit WHT attracts penalties and interest, totaling 29% for FIRS or 31% for SIRS, along with the value of WHT not deducted or remitted initially.

Sunmola David and Co. employs various tools to assist taxpayers and administrators in streamlining tax functions, ensuring transparency and efficiency. Our tax management framework focuses on creating value through strategic concerns, offering process efficiency, time savings, and effective resource allocation. With our dynamic and objective approach, we alleviate tax-related concerns, allowing you more time for value creation.

Note: WHT serves as an advance payment of income tax, appointed by the law to be deducted from liable payments, such as interest payable to lenders/creditors.

The relevant countries that Nigeria has Double Tax Treaties (DTTs) with are: Belgium, Canada, China, Czech Republic, France, Italy, Netherlands, Pakistan, Philippines, Romania, Singapore, Slovakia, South Africa, and the United Kingdom.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.