AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
Since the Withholding Tax Regulations 2024 took effect on 1 July 2024, a company paying a Nigerian resident firm or lawyer for professional services deducts 5% WHT, down from the old 10%; payments to non-residents stay at 10%. Professional service providers are excluded from the small-business VAT exemption under the Nigeria Tax Act 2025, so law firms charge VAT at 7.5%. Retainers paid in advance are not earned fees until the work is done.
Many fee notes and client finance teams in Nigeria still assume 10% withholding tax on legal fees. That was the rate for professional fees paid to Nigerian companies before the Deduction of Tax at Source (Withholding) Regulations 2024. Getting the rate wrong means either the firm is short-paid or the client under-deducts and carries the liability. This guide covers the current WHT position, VAT on legal services, what a fee note should contain and how to treat retainers.
Withholding tax on legal fees
BusinessDay's July 2024 analysis of the 2024 Regulations reports that WHT on professional, management, technical and consultancy fees paid to Nigerian companies fell from 10% to 5%, while non-resident companies remain at 10% as a final tax. PwC Nigeria's highlights of the same Regulations give the rate for professional fees as 5% for resident individuals and 10% for non-resident individuals.
| Payee | WHT on professional fees (2024 Regulations) |
|---|---|
| Resident company (e.g. a law firm incorporated as a company) | 5% |
| Resident individual or partnership of lawyers | 5% |
| Non-resident company | 10% (final tax) |
| Non-resident individual | 10% |
| Payee without a Tax ID | Double the normal rate |
Other rules worth knowing from the same sources:
- The duty to deduct arises on the earlier of payment or settlement (BusinessDay).
- A small business payer with turnover of ₦25 million or less need not deduct on transactions up to ₦2 million in a month where the supplier has a Tax ID.
- The payer remits to the federal tax authority by the 21st of the following month, or to the state by the 30th, and must give the payee a WHT receipt (PwC).
- The firm claims the deduction as a credit against its own tax using that receipt.
The Nigeria Tax Act 2025 took effect on 1 January 2026, and the Nigeria Revenue Service (NRS) replaced FIRS. We did not find a later set of WHT regulations replacing the 2024 rates, so treat these as the latest published rates and confirm with the NRS or your tax adviser. This is information, not tax advice.
VAT on legal services
VAT stays at 7.5% under the Nigeria Tax Act 2025. The Act exempts small businesses with turnover up to ₦100 million and fixed assets up to ₦250 million from charging VAT, but Forvis Mazars' March 2026 summary notes that professional service providers are excluded from that exemption. A small chambers is therefore not exempt from VAT just because its turnover is low. VAT is remitted by the 14th and returns filed by the 21st of the following month, according to a May 2026 Mondaq examination of the Act.
What the fee note must show
Mondaq's summary of section 153 of the Nigeria Tax Act 2025 lists what a VAT invoice must show:
- The supplier's Tax ID and incorporation or registration number
- An invoice number and date of supply
- The supplier's name and address and the client's name
- The gross amount, the VAT charged and the rate
Add the matter reference, a short description of work done and the period it covers, and your bank details. Large taxpayers are being moved to NRS e-invoicing through the Merchant Buyer Solution; smaller firms should watch for their phase.
Worked example (labelled example)
A firm bills a corporate client ₦2,000,000 in fees. VAT at 7.5% is ₦150,000, so the fee note totals ₦2,150,000. The client deducts 5% WHT on the fee of ₦2,000,000, which is ₦100,000, and pays ₦2,050,000. In this example WHT is applied to the fee excluding VAT, which is the common treatment; confirm the basis with your adviser. The firm records ₦2,000,000 as fee income, ₦150,000 as VAT payable and ₦100,000 as a WHT receivable, and asks the client for the WHT receipt. Under the old 10% rate, the client would have deducted ₦200,000.
Retainers and advance fees
A retainer paid in advance for work not yet done is not yet the firm's income. Hold it as a liability, bill against it as work is done, and refund unused amounts on the terms agreed. If the retainer is held for the client, the profession's rules on client money apply; see client money rules for Nigerian law firms. A general retainer paid simply to secure availability is earned on the terms of the engagement letter, so say clearly which kind it is.
Billing mistakes that cost firms money
- Quoting 10% WHT on a fee note to a resident client, so the client deducts too much and the firm waits for a refund or credit it may struggle to use.
- Leaving VAT off fee notes because the firm is small, when professional service providers are outside the small-business exemption.
- Not asking for the WHT receipt. Without it the firm cannot claim the credit, and the deduction becomes a straight loss.
- Mixing disbursements such as filing fees with professional fees on one line, so WHT and VAT are worked out on the wrong amount.
- Billing only at the end of a long matter, when interim fee notes at agreed stages would keep cash coming in.
A simple rule helps: every fee note shows fee, disbursements, VAT and total on separate lines, and states that WHT should be deducted at 5% on the fee for resident clients, with a request for the receipt.
Where Pryme fits
Pryme's invoicing lets a firm send fee notes, and the Finance agent can prepare a list of WHT receipts still to collect for a person to approve. For chasing credit notes, see withholding tax on invoices.
Questions people ask
What is the WHT rate on legal fees in Nigeria now?
5% for payments to resident companies and individuals, and 10% for non-residents, under the Withholding Tax Regulations 2024 effective 1 July 2024. The old rate for resident companies was 10%. Payees without a Tax ID face double the rate.
Do lawyers charge VAT in Nigeria?
Yes. VAT is 7.5%, and professional service providers are excluded from the small-business VAT exemption under the Nigeria Tax Act 2025.
Is WHT deducted on the VAT part of a legal bill?
Common practice is to deduct WHT on the fee excluding VAT. Confirm the basis with your adviser for your client's case.
Is a retainer income for a law firm?
An advance retainer for future work is held for the client until the work is billed. A general retainer for availability is earned on the terms of the engagement letter.
Sources
- Nigeria's withholding tax reforms: key changes and implications (BusinessDay, 11 Jul 2024) · accessed Oct 2026
- Highlights of the Deduction at Source (Withholding) Regulations 2024 (PwC Nigeria, Jul 2024) · accessed Oct 2026
- 2025 NTA: VAT key business changes (Forvis Mazars, 16 Mar 2026) · accessed Oct 2026
- Examination of the VAT provisions under the Nigeria Tax Act 2025 (Mondaq, 28 May 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.