Every Nigerian business deals with VAT and WHT, but most business owners confuse the two. They apply at different times, to different transactions, and have different rates. Getting them wrong on your invoices doesn’t just look unprofessional — it puts you at risk of NRS penalties. Here’s the complete breakdown.
What Is VAT (Value Added Tax)?
VAT is a consumption tax charged on goods and services at every stage of production and distribution. In Nigeria, the standard VAT rate is 7.5% (increased from 5% in 2020).
When VAT Applies
- When you sell goods to a customer
- When you provide a service to a client
- On most imports into Nigeria
- On exports (at 0% for qualifying exports)
Who Charges VAT?
If your annual turnover exceeds ₦25 million, you are required to register for VAT and charge it on your invoices. If you’re below this threshold, you may still need to register depending on your industry.
VAT Categories on Invoices
Not everything is charged at 7.5%. The NRS recognizes three categories:
- Standard Rate (7.5%): Most goods and services — consulting, software, photography, catering
- Zero-Rated (0%): Basic food items, medical supplies, educational materials, exports
- Exempt: Rent, interest on savings, financial services, charitable donations
On your invoice, each line item must be categorized correctly. Charging 7.5% on an exempt item is an error that the NRS will flag.
What Is WHT (Withholding Tax)?
WHT is an advance tax deducted at the source of payment. Unlike VAT, WHT is not charged by the seller — it is deducted by the buyer before making payment. The WHT rate depends on the type of transaction.
WHT Rates in Nigeria (2026)
- 10%: Consultancy, technical services, management fees
- 10%: Royalties, rent, and leases
- 10%: Commission and agency fees
- 5%: Construction and building contracts
- 5%: Supply of goods (where the supplier is not the manufacturer)
- 2%: Insurance premiums
Who Deducts WHT?
The buyer (payer) deducts WHT before making payment to you (the payee). For example, if a client owes you ₦1,000,000 for consulting services, they will deduct 10% WHT (₦100,000) and pay you ₦900,000.
VAT vs WHT: Key Differences
- VAT is charged by the seller; WHT is deducted by the buyer
- VAT rate is 7.5% (mostly fixed); WHT rate varies (5%-10%)
- VAT is remitted to FIRS monthly; WHT is remitted by the buyer
- VAT appears on your invoice; WHT appears on the payment voucher
- Both must be included on NRS-compliant invoices
How to Calculate VAT on Your Invoice
Example: You’re invoicing a client for ₦500,000 of consulting services.
- Subtotal: ₦500,000
- VAT (7.5%): ₦500,000 × 0.075 = ₦37,500
- Total: ₦537,500
The client pays ₦537,500. You remit ₦37,500 to FIRS as VAT.
How to Calculate WHT on Your Invoice
Example: The same client deducts 10% WHT on the ₦500,000 consulting fee.
- Gross amount: ₦500,000
- WHT (10%): ₦500,000 × 0.10 = ₦50,000
- Net payment: ₦450,000
The client pays ₦487,500 (₦450,000 net + ₦37,500 VAT). The client remits ₦50,000 WHT to FIRS on your behalf.
Common Mistakes Nigerian Businesses Make
Mistake 1: Charging VAT on Exempt Items
If you charge 7.5% VAT on rent, interest, or basic food items, you’re collecting tax you shouldn’t. The NRS will flag this.
Mistake 2: Not Including WHT on Invoices
Even though the buyer deducts WHT, your invoice should show the WHT amount. This helps with reconciliation and NRS compliance.
Mistake 3: Using the Wrong WHT Rate
Using 10% WHT on a construction contract (which should be 5%) creates discrepancies that the NRS system will catch.
Mistake 4: Not Remitting VAT on Time
VAT must be remitted to FIRS by the 21st of the month following the transaction. Late remittance attracts penalties.
How InvoiceApp Handles VAT and WHT
InvoiceApp.ng automatically:
- Categorizes each line item as Standard, Zero-Rated, or Exempt
- Calculates VAT at 7.5% on applicable items only
- Calculates WHT based on the service type you select
- Shows both amounts on the invoice with clear labels
- Includes the correct totals for NRS submission
Try Our Free Tax Calculator
Not sure how much VAT or WHT to charge? Use our free calculator to get the exact amounts for your invoice.
