Nigeria: Reduced withholding tax rate on dividends, interest and royalties terminated

Termination of the reduced 7.5% withholding tax rate on dividends, interest and royalties

Dividends, interest and royalties terminated

The Federal Inland Revenue Service issued a public notice regarding the termination of the reduced 7.5% withholding tax rate on dividends, interest and royalties earned by taxable persons resident in countries with income tax treaties with Nigeria. 

Consequently, effective 1 July 2022, the applicable withholding tax rate on dividends, interest and royalties will be the rate specified in the relevant tax laws, except when such rate exceeds the maximum rate provided in the respective income tax treaty.

The Federal Inland Revenue Service issued an updated Information Circular No.: 2022/15 on The Claim of Tax Treaties Benefits and Commonwealth Relief in Nigeria, which introduces additional information on the new applicable withholding tax rates, requirements for permanent establishments in Nigeria, and guidelines for the claim of Commonwealth Tax Relief under Section 44 of the Companies Income Tax (CIT) Act.

KPMG observation

The 7.5% reduced withholding tax rate had been administratively applied since 1999, and income tax treaties signed by Nigeria since 1999 reflect the 7.5% rate. The reversal of the reduced rate will thus create a disparity between pre-1999 and post-1999 income tax treaty partners. Affected income tax treaty partners, whose residents will revert to a 10% withholding tax rate effective 1 July 2022, must initiate negotiations with the Nigerian government in order to codify the 7.5% withholding tax rate in their respective income tax treaties with Nigeria.

Read a May 2022 report [PDF 260 KB] prepared by the KPMG member firm in Nigeria

 

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