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What to Do If Your Clients Withhold Tax on Your Invoice: A Guide for Nigerian Suppliers

Introduction:

As a supplier providing goods or services to clients in Nigeria, encountering Withholding Tax (WHT) deductions on your invoices is not uncommon. Understanding how to navigate this situation is essential for ensuring compliance and protecting your financial interests. In this guide, we'll explore what to do if your clients withhold tax on your invoice and how to address this effectively.


Understanding Withholding Tax (WHT):

Withholding Tax (WHT) is a tax deducted at source by clients from payments made to suppliers for goods or services rendered. While the responsibility for deducting WHT lies with the client, suppliers must be aware of their rights and obligations in cases where WHT is withheld from their invoices.


  1. Verify WHT Deductions: Upon receiving payment from your client, carefully review the documentation provided to verify any WHT deductions made from your invoice. Ensure that the deduction aligns with the applicable WHT rate for your specific goods or services. This is usually between 5 - 10% depending on the type of product or service being sold. Your tax consultant or accountant can confirm the rate applicable to your business.

  2. Communicate with Your Client: If you discover discrepancies or have questions regarding WHT deductions, communicate promptly with your client. Request clarification on the reasons for the deduction and seek documentation supporting the WHT calculation, if unclear.

  3. Obtain Documentation: Ask your client to provide you with a withholding tax certificate or other relevant documentation confirming the WHT deduction. This documentation serves as evidence of tax compliance and can be used for your records and reporting purposes. It can even be as simple as any correspondence from your client confirming their deduction, how much and the rate.

  4. Adjust Your Records: Once you have verified the WHT deduction and obtained the necessary documentation, adjust your accounting records accordingly. Deduct the WHT amount from your income and update your financial statements to reflect the net amount received.

  5. Report WHT Deductions: When filing your tax returns, ensure that you accurately report the WHT deductions made by your clients. Include the relevant documentation as supporting evidence to demonstrate compliance with tax regulations. If your company is already registered on the Federal Inland Revenue Service (FIRS) self-service platform called TaxProMax and you had provided your client with your company’s Tax Identification Number (TIN), a credit note for the tax remitted on your behalf by the client will be seen on TaxProMax. If not seen, you should follow up with the client for proof of remittance.

  6. Seek Professional Advice: If you encounter complex or unfamiliar situations regarding WHT deductions, consider seeking advice from tax professionals, our accountants at Charles Ardor or regulatory authorities. They can provide guidance tailored to your specific circumstances and help you navigate any challenges effectively.


Conclusion:

Encountering Withholding Tax (WHT) deductions on your invoices as a supplier in Nigeria can be a manageable process with the right approach. By verifying deductions, communicating with your clients, obtaining documentation, adjusting your records, reporting deductions accurately, and seeking professional advice when needed, you can effectively address WHT deductions and ensure compliance with tax regulations. Through proactive management of WHT obligations, you can safeguard your financial interests and maintain the health of your business.


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