The example
Say you designed a brand identity for a client and agreed a price of ₦150,000. Your client withholds tax on the payment, and you are registered to charge VAT at 7.5%. The invoice works out like this:
| Service price | ₦150,000 |
| VAT at 7.5% (added) | + ₦11,250 |
| Gross invoice | ₦161,250 |
| Withholding tax at 5% (client withholds) | − ₦7,500 |
| Net payment to you | ₦153,750 |
Step 1: VAT goes on top
VAT is added to the price, so the client is invoiced for ₦150,000 + ₦11,250 = ₦161,250. That is the gross invoice. The ₦11,250 is not extra income for you: it is VAT you have collected and are expected to pass on to the tax authority.
Step 2: withholding tax comes off what they pay you
Withholding tax (WHT) is deducted by the client at the time of payment and sent to the tax authority on your behalf, so you do not pay it twice. In this example it is 5% of the service price: 5% × ₦150,000 = ₦7,500. Here it is calculated on the price before VAT.
Step 3: what actually lands in your account
The client pays you the gross invoice less the tax they withheld: ₦161,250 − ₦7,500 = ₦153,750. That is why the money you receive is not the number on the quote.
Who remits what
- VAT (₦11,250): you collected it, so you remit it.
- Withholding tax (₦7,500): your client withheld it and remits it. Ask them for the withholding tax credit note, because it is your record that the tax was already paid on your behalf.
Why rates differ
The 7.5% and 5% above are for illustration. VAT and withholding rates depend on the country, the type of service and sometimes the residency of the parties. For example, VAT is 7.5% in Nigeria, 16% in Kenya, 15% in Ghana and 18% in Uganda and Tanzania, and withholding bands differ again in each country.
gabis calculates VAT and withholding on each invoice, picks a rate band for the service and corridor, and lets you override it. The invoice shows service price, VAT, gross invoice, withholding and net payment as separate lines, and you can prepare reports for your tax authority.
This is general information, not tax advice. Rates and rules change, and your situation may differ. Confirm the right treatment with your tax adviser.