No, freight paid to a foreign shipping line for cargo loaded in Nigeria is not subject to ordinary withholding tax. Under Section 18 of the Nigeria Tax Act 2025, that income is taxed directly on the shipping line itself, through a deemed-profit regime it must self-assess and file monthly, not one the Nigerian payer withholds at source. One Lagos freight-forwarding firm learned this only after ₦680 million in freight costs came under NRS review.
The case: a ₦680 million freight bill under review
The company, we will call it "the Firm" for confidentiality, is a mid-sized freight-forwarding and logistics operator based in Lagos, moving containerised cargo for importers across the food, retail and manufacturing sectors. In the 2025 financial year, it paid roughly ₦680 million to a handful of foreign shipping lines for ocean freight on cargo cleared through Apapa and Tin Can Island. On each payment, the Firm's finance team deducted 5% withholding tax, treating the freight charge like any other payment for a service rendered by a non-resident company, and issued the shipping lines' Nigerian agents WHT credit notes as proof of compliance.
During a routine NRS review of the Firm's 2025 accounts this year, the examiner flagged the entire ₦680 million freight expense line. The WHT credit notes, the examiner said, did not prove the income had ever been taxed at all.
Why was the withholding tax treatment wrong?
Freight income earned by a non-resident shipping or airline company from cargo loaded in Nigeria is not ordinary service income. Section 18 of the Nigeria Tax Act 2025 places it in its own regime: the shipping line itself is taxed on a deemed-profit basis. FIRS applies a deemed profit rate of 20% by default, or the carrier's home-country profit ratio where that can be verified, subject to a minimum tax of 2% of its gross Nigeria-sourced freight revenue regardless of the profit actually computed. The shipping line, not the Nigerian payer, is required to self-assess and file monthly returns, due by the 21st of the following month under the Nigeria Tax Administration Act.
Because the Firm had been deducting and remitting ordinary 5% WHT instead, the foreign shipping lines' Nigerian agents had never filed a single Section 18 return covering the Firm's cargo. From NRS's side, there was no record that the freight income had been assessed under the correct tax head at all, so the freight cost sat on the Firm's books as an expense it could not substantiate.
How was it resolved?
VOG Global was engaged once the review notice landed. We reconstructed the Firm's full FY2025 freight payment history against each carrier, confirmed which shipping lines had a registered Nigerian agent responsible for Section 18 filings, and wrote to each agent with the payment schedule and supporting shipping documents. Four of the five carriers' agents filed catch-up Section 18 returns and monthly deemed-profit payments covering the Firm's cargo within six weeks; the fifth, a smaller charter operator, needed a formal request routed through NRS before its agent complied.
With the Section 18 filings in place, we submitted a response to NRS demonstrating that the freight income had now been correctly assessed at source, and that the Firm's own 5% WHT deductions had been made in good faith under a mistaken reading of the rules. NRS accepted the full ₦680 million freight expense as deductible and closed the review without a reassessment. We also helped the Firm apply its wrongly-withheld WHT as a credit against its own tax account rather than lose it outright.
Before and after the correction
- Before: ₦680m in freight costs flagged as unsubstantiated; five carriers with no Section 18 filings on the Firm's cargo.
- After: Full ₦680m freight expense accepted as deductible; NRS review closed with no reassessment.
- Before: 5% WHT deducted on freight payments under the wrong tax head, and treated internally as proof of compliance.
- After: Freight payments correctly routed to Section 18; the wrongly-withheld WHT applied as a credit instead of lost.
What this means for your business
If your business pays a foreign shipping line, airline or charter operator for freight, cargo or passenger carriage originating in Nigeria, do not default to the standard 5% withholding tax that applies to consulting, technical or management service payments. That freight income falls under the Nigeria Tax Act's Section 18 deemed-profit regime, and it is the carrier's Nigerian agent, not you, who is responsible for filing the monthly return and paying the tax on it.
Before your next freight payment, confirm which Nigerian agent represents the carrier and ask for evidence that Section 18 returns are current. The same audit-readiness discipline we recommend before an NRS tax audit applies here: a withholding tax credit note is not proof of compliance if it was issued under the wrong tax head, and the same reconciliation habit that protects a WHT credit will catch a freight tax mismatch long before an examiner does.
FAQ
Does withholding tax apply to freight paid to a foreign shipping line in Nigeria? No. Freight income earned by a non-resident shipping or airline company from cargo loaded in Nigeria is taxed under Section 18 of the Nigeria Tax Act 2025 on a deemed-profit basis, not through ordinary withholding tax on service payments. The carrier, through its Nigerian agent, is responsible for self-assessing and filing that tax.
How is a non-resident shipping company taxed on Nigeria-sourced freight income? FIRS applies a deemed profit rate, typically 20% of the freight income, or the carrier's home-country profit ratio where it can be verified, taxed at the standard companies income tax rate. A minimum tax floor of 2% of gross Nigeria-sourced freight revenue applies regardless of the profit computed, with returns due monthly by the 21st of the following month.
What should I do if my business has already deducted WHT on freight payments in error? Reconcile your freight payment history against each carrier's Nigerian agent to confirm whether Section 18 returns have been filed. Where they have not, the agent can usually file catch-up returns; where WHT was wrongly deducted, it can often be applied as a credit against your own tax account rather than lost, but this is far easier to resolve before an NRS review than during one.
If your business pays foreign shipping lines, airlines or charter operators for freight or cargo movement, VOG Global Consult can review your payment history, confirm the correct tax treatment, and work with carriers' agents to close any gaps before they become a compliance problem. VOG Global Consult offers tax compliance and audit support at Suite 060 to 061, Orago Complex, Area 10, Garki, Abuja. Contact us today to get your freight tax position in order.