25 February 2015 EY Global Tax Alert Library Access both online and pdf versions of all EY Global Tax Alerts. • Copy into your web browser: http://www.ey.com/GL/en/ Services/Tax/InternationalTax/Tax-alert-library#date Global Tax Alert Nigeria reduces the rate of withholding tax on building construction and related activities Reduction in the withholding tax rate1 The Nigerian Finance Minister, in exercise of her powers,2 has issued new withholding tax (WHT) regulations to amend the Companies Income Tax (Rates etc., of Tax Deducted at Source (Withholding Tax)) Regulations, 1997. These new regulations reduce the WHT to be deducted at source for all aspects of building, construction, and related activities from the previous rate of 5% to 2.5%. However, payments relating to survey, designs and deliveries in relation to construction and building projects will not benefit from the reduced WHT rate of 2.5% but remain subject to withholding tax at the prevailing rate. Commencement date The new regulations are cited as the Companies Income Tax (Rates etc., of Tax Deducted at Source (Withholding Tax)) Amendment Regulations, 2015 and have a commencement date of 1 January 2015. Implications These new regulations require further scrutiny to be undertaken in determining the applicable WHT rate on certain construction projects executed under a single contract covering related activities such as surveys, designs and deliverables with composite fee payments as different WHT rates may apply to different aspects of the contract. Taxpayers responsible for making payments under such contracts must therefore analyze them properly before applying WHT as it presents contract structuring and planning opportunities. Endnotes 1. Statutory Instrument (S.I. No 2 of 2015). 2. Section 81 (8) of the Companies Income Tax Act, Cap C21, Laws of the Federation of Nigeria, 2004. For additional information with respect to this Alert, please contact any of the following: Ernst & Young Nigeria, Lagos • A ► bass Adeniji • Edem Andah • Chinyere Ike • Ogochukwu Isiadinso • Oluwawatumininu Familusi +234 802 301 3597 +234 708 768 1113 +234 803 571 7211 +234 802 712 5450 +234 146 304 7980 [email protected] [email protected] [email protected] [email protected] [email protected] Ernst & Young Advisory Services (Pty) Ltd., Johannesburg • Justin Liebenberg +27 11 772 3907 [email protected] Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London • Leon Steenkamp +44 20 7951 1976 [email protected] • G ► onçalo Dorotea Cevada +44 20 7951 2162 [email protected] Ernst & Young LLP, Pan African Tax Desk, New York • D ► ele A. Olaogun +1 212 773 2546 • M ► zukisi Ndzipo +1 212 773 9917 Global Tax Alert [email protected] [email protected] 2 EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2015 EYGM Limited. All Rights Reserved. EYG No. CM5244 This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com