Withholding tax is an advance payment of income tax – Companies Income Tax (CIT) and Personal Income Tax (PIT). Withholding tax is deducted at source when payments are made to companies or individuals. Tax withheld from payments to a company or an individual is a tax credit or withholding tax credit, which is used to reduce the tax liability of a company or an individual when the final tax liability is determined.
Payments to companies exempted from income tax are not liable to withholding tax deductions. Tax withheld from payments to companies not exempted from income tax are paid to the Federal Inland Revenue Service (FIRS). Tax withheld from payments made to individuals or individuals trading as business name, ventures or enterprises – legal firms, accounting firms, partnerships, etc., are paid to the Tax Authority of the State where they reside. Transactions liable to withholding tax deductions include payments for contracts, professional fees, consultancy fee, directors fee, management fee, legal fee, commission, royalty, rent, interest and dividend. The due date for filing withholding tax returns is on or before the 21st day of every month. The penalty for non-compliance is 10% of amount not withheld or not remitted plus interest at the commercial lending rate.

Source: insight