FIRS terminates uniform WHT rate for residents of treaty countries
The Federal Inland Revenue Service (FIRS or “the Service”) has issued a Public Notice informing taxpayers of the termination of the reduced 7.5% withholding tax (WHT) rate applicable on dividends, interest and royalties earned by taxable persons resident in countries with Double Tax Agreements (DTAs) with Nigeria.
The FIRS noted that the termination follows the approval of the Honourable Minister of Finance, Budget and National Planning (HMoFBNP) to discontinue the unilateral application of a uniform 7.5% WHT rate deducted on dividends, interest and royalties earned by residents of its treaty partners under the DTAs with Nigeria. Consequently, effective from 1 July 2022, the applicable WHT rates on the above incomes will be the rates specified in the relevant tax laws, except where such rates exceed the maximum rate provided in the respective DTAs.
Based on the foregoing, the FIRS has issued an updated Information Circular No.: 2022/15 on The Claim of Tax Treaties Benefits and Commonwealth Relief in Nigeria (“the Circular”). The Circular, which replaces the FIRS Information Circular No. 2021/05 issued on 3 June 2021, retains the clarifications on available tax treaty benefits provided in the erstwhile Circular, and introduces additional information on the new applicable WHT rates, requirements for permanent establishments (PE) in Nigeria, and guidelines for the claim of Commonwealth Tax Relief (CTR) under Section 44 of the Companies Income Tax (CIT) Act. We have provided below, a summary of the key aspects of the Circular and Public Notice:
1. Applicable WHT Rates:
The FIRS noted that the government policy statement on unilateral reduction of WHT rate to 7.5% contained in the 1999 Budget Speech was not promulgated into a Decree and published in the Official Gazette of the Federal Government. Consequently, there is no legal basis for the reduction of the applicable WHT rates to taxpayers resident in the treaty countries. Further, the FIRS argued that relevant protocols were not executed between Nigeria and the treaty partners to mandate any reduction in the WHT rates specified in the relevant DTAs.
Accordingly, effective from 1 July 2022, dividend, interest, and royalty payments will be subject to WHT rates .
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