When it comes to the obligation to deduct and remit WHT to the relevant tax authority as it relates to interest expense on loans, there seem to be some sort of confusion or negligence. As a way of keeping our audience informed, we have itemized below 8 points to note as it relates to the deductibility of WHT on interest expense in Nigeria:
- Essentially, WHT is a means for the advance payment of income tax. Under the WHT system, the law appoints a payer to deduct this advance payment of income tax, otherwise known as WHT, from liable payments, in this case, the interest expense. The WHT when deducted and remitted by the payer is used by the payee to offset its companies’ income tax (CIT) liability, if any.
- Any Company incorporated in Nigeria has a statutory obligation to withhold income tax[1] from the interest it pays its creditors. The withheld income tax is thereafter to be remitted to either the Federal Inland Revenue Service (FIRS) or any of States’ Internal Revenue Services (SIRS), depending on the corporate status and or residence of the creditor.
- Where the creditor is an incorporated entity, the WHT is to be remitted to the FIRS, regardless of the creditor’s residence. Where the lender/creditor is a natural person or other unincorporated entity, the WHT is to be remitted to the SIRS of the State where the creditor is resident.
- In the case of a non-resident creditor, that is a creditor that is not incorporated in Nigeria, the WHT is to be remitted to FIRS. The WHT on the interest expense payable to a non-resident creditor, whenever it is duly deducted and remitted to the relevant tax authority, is deemed as the non-resident creditor’s final tax in Nigeria on that income.
- WHT on interest expense is levied at a 10%; except in the case of a creditor that is resident in a country with which Nigeria has a Double Tax Treaty, in which case, the applicable WHT rate will be 7.5%[2].
- WHT is to be remitted to both FIRS and a SIRS within the next month following the month of the net payment to the creditor. In the case of FIRS, the statutory deadline is the 21st day of the said next month, while it is the 31st day in the case of a SIRS.
- A Company’s failure to deduct and remit WHT attracts penalty and interest at a combined 29% for FIRS or a combined 31% for a SIRS of the WHT plus the value of the WHT that was not deducted or remitted in the first place.
Taxaide Professional Services Ltd (Taxaide) deploys different tools to help taxpayers and administrators pursue streamlined, discreet, transparent, and efficient tax functions that skilfully addresses tax management and administration issues. This leaves room for efforts to be directed at more strategic concerns. Our tax management framework explores several dimensions to ensure every tax decision results in value creation in as many possible ways.
We work with the organisational model, policies, processes, and technologies that are available; we are that dynamic. We explore, assess, prioritize, and implement improvement opportunities; we are that objective. At the end, we always arrive at process efficiency, cost /time saving and more effective resource allocation, generally. With us, your benefits include having additional time on your hands for greater value creation. We take care of the tax-related headaches that would not have allowed the sustainable health of your economic unit.
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[1] Essentially, WHT is a means for the advance payment of income tax. Under the WHT system, the law appoints a payer such as The Company to deduct this advance payment of income tax, otherwise known as WHT, from liable payments, in this case, the interest payable to your lenders/creditor.
[2] The relevant countries that Nigeria has DTTs with are: Belgium, Canada, China, Czech Republic, France, Italy, Netherland, Pakistan, Philippines, Romania, Singapore, Slovakia, South Africa and United Kingdom.
