What Are the Withholding Tax Obligations of Companies Paying Dividends in Nigeria?

Withholding tax (WHT) on dividends is an important aspect of Nigerian corporate taxation that affects both the companies paying dividends and the shareholders receiving them. Understanding the withholding tax framework for dividends is essential for Nigerian company secretaries, tax managers, shareholders, and investment advisers.

Under the Companies Income Tax Act (CITA) Cap C21 LFN 2004 and the Petroleum Profits Tax Act, dividends paid by Nigerian companies to shareholders are subject to withholding tax. For dividends paid to Nigerian resident individuals and corporate shareholders, the WHT rate is 10 percent of the gross dividend amount.

For dividends paid to non-resident shareholders, the same rate of 10 percent applies unless a Double Taxation Agreement (DTA) between Nigeria and the recipient’s country of residence provides for a lower rate.

Step-by-Step Procedure to Resolve This Legal Matter:

1. Preserve Contemporaneous Evidence: Collate physical receipts, verified bank timestamps, stamped letters, and electronic communication logs prior to formal intervention.
2. Deliver Statutory Pre-Action Notice: Issue a formal written demand outlining the specific statutory breach and giving the opposing party statutory time to remedy the grievance.
3. Engage Accredited Legal Counsel: Initiate judicial proceedings before the competent court of record or submit an official petition to the relevant regulatory commission.

The company paying the dividend acts as a withholding tax agent and is responsible for deducting the WHT from the dividend at the time of payment, remitting it to the relevant tax authority within 30 days of the month of payment, and filing the corresponding WHT schedule with the Federal Inland Revenue Service (FIRS). Failure to deduct and remit WHT attracts penalties under Section 75 of CITA and interest on the unpaid amount.

Key Evidential Considerations & Statutory Benchmarks:

• Documented statutory breach and verified timeline of events.
• Jurisdictional competence of the regulatory agency or superior court.
• Contemporaneous written correspondences, notices, and financial records.
• Quantifiable proof of pecuniary loss or civil rights violation.

“The rule of law ensures that statutory rights and duties cannot be compromised by informal arrangements or administrative fiat; every citizen has the constitutional right to due process.”
— Nigerian Legal Precedent & Constitutional Jurisprudence

The company may also become personally liable for the unremitted tax as a primary obligor if it fails to deduct and remit.

Shareholders from countries with which Nigeria has DTAs — including the United Kingdom, South Africa, France, Netherlands, Spain, China, Pakistan, and Romania — may be entitled to reduced WHT rates on dividends. To claim treaty benefits, the non-resident shareholder must provide a certificate of residence issued by the tax authority of their home country, and the company must apply to FIRS for a lower WHT rate to be applied.

FIRS has issued guidelines on treaty application procedures that must be followed carefully to avoid disputes.

The Finance Act 2020 introduced an exemption from companies income tax for dividends received from small companies operating in the agricultural sector and from companies with turnover below N25 million annually (micro enterprises). While this exemption affects the recipient company’s income tax position, the WHT deductibility obligations of the paying company remain unchanged — it must still deduct and remit WHT on dividends regardless of the recipient’s tax exemption status.

Recipients who qualify for tax exemptions may subsequently claim refunds of the WHT from FIRS through the WHT credit system.

The withholding tax deducted from dividends serves as a final tax for individual resident shareholders — they are not required to include the dividend in their personal income tax return or pay additional personal income tax on the dividend income. For corporate shareholders, the WHT deducted is a credit against their companies income tax liability for the relevant tax year.

For direct regulatory verification, official complaints, or accessing statutory registers without third-party fees, members of the public can consult the official portal of the Federal Inland Revenue Service (FIRS) Portal.

Companies must maintain accurate WHT credit documentation to utilise these credits during FIRS assessments and audits of their corporate income tax positions.

Ignorance of the law is no excuse.