Directors' fees and tax in Nigeria: PAYE vs 10% withholding tax explained
How directors are taxed in Nigeria — executive directors under PAYE, non-executive directors' fees at 10% withholding tax. The distinction, the treatment, and worked examples.
Paying a director sounds simple until the tax question lands: do you run it through PAYE like a salary, or withhold tax like a vendor payment? Get it wrong and you either under-deduct (and owe the difference) or over-deduct (and annoy your board). The answer turns on what kind of director you're paying. This guide explains the distinction and how to treat each.
In Nigeria, how you tax a director depends on their role. An executive (employee) director is taxed like any employee — under PAYE on their salary. Directors' fees paid to a non-executive director are not employment income; they attract 10% withholding tax (WHT) at source, remitted to the tax authority (WHT account 2070). The test is whether the person is genuinely an employee of the company or an office-holder paid fees for board service.
Which tax applies
| Director type | Nature of payment | Tax treatment |
|---|---|---|
| Executive director (also an employee) | Salary + allowances | PAYE on employment income |
| Non-executive director | Directors' fees for board service | 10% WHT at source |
Sources: Personal Income Tax Act / relevant withholding-tax regulations; Nigeria Revenue Service; general Nigerian tax practice.
1. The distinction that decides everything
The tax treatment follows the substance of the relationship:
- An executive director runs the business day to day — a managing director, finance director, operations director. They are an employee of the company, on the payroll, drawing a salary. Their pay is employment income.
- A non-executive director sits on the board, attends meetings, and provides oversight, but is not an employee. They are paid directors' fees for holding the office, not a salary for a job.
Establish which one you're paying before you decide how to tax it. Many disputes come from treating a non-executive's fees as if they were salary, or vice versa.
2. Executive directors — PAYE
An executive director is taxed exactly like any other employee. Their salary and allowances go through PAYE, computed under the current regime (NTA 2025 from 1 January 2026 — first ₦800,000 tax-free, progressive brackets, rent relief where declared), with pension and other statutory deductions applying as normal. You deduct PAYE monthly and remit it to the relevant State Internal Revenue Service.
Example: an executive director on a ₦1,000,000 monthly salary is on the payroll. PAYE is computed on their annual employment income and deducted each month, alongside pension.
3. Non-executive directors — 10% withholding tax
Fees paid to a non-executive director for board service are subject to withholding tax at 10%. You deduct the WHT when you pay the fee, pay the director the net, and remit the WHT to the tax authority (crediting WHT payable, account 2070 until remitted).
Example: the board approves a ₦500,000 fee for a non-executive director. WHT at 10% = ₦50,000. The director receives ₦450,000; you remit ₦50,000 as WHT.
The director can later use the WHT credit against their own personal income tax. Your duty is to deduct, remit, and give the director a WHT credit note.
4. Board-meeting fees and sitting allowances
Fees for attending board meetings, and sitting allowances paid to non-executive directors, follow the directors'-fee treatment — 10% WHT — because they are payments for board service, not employment. Keep them distinct in your records from any executive salary so the right treatment is applied to each.
5. Common errors to avoid
- Running a non-executive's fees through PAYE. This mis-taxes the payment and can over- or under-deduct; the correct route is 10% WHT.
- Paying an executive director "fees" free of PAYE. If the person is genuinely an employee, their pay is employment income and PAYE applies — relabelling it "fees" doesn't change that.
- Forgetting to remit the WHT. The 10% you deduct is the tax authority's money; hold it in the WHT-payable account and remit it on time.
- Not issuing WHT credit notes. The director needs the credit note to claim the WHT against their personal tax.
6. Getting the records right
Keep each director's payments clearly classified: executive salaries in payroll (with PAYE and pension), non-executive fees in accounts payable (with WHT deducted). Clean classification means your PAYE remittance to the state and your WHT remittance to the tax authority both reconcile — and neither the director nor the authority has cause to query the treatment.
AnooreHR keeps the two treatments straight: executive directors run through payroll with correct PAYE and pension, while non-executive fees are recorded with 10% WHT deducted and tracked in the WHT-payable account ready to remit — with the credit notes to hand. Book a demo or sign up free to see director payments handled correctly.
Frequently asked questions
Frequently asked questions
Are directors' fees subject to PAYE or withholding tax in Nigeria?
What is the withholding tax rate on directors' fees in Nigeria?
How is an executive director taxed in Nigeria?
Related: Withholding tax on vendor payments under NTA 2025 · How to compute PAYE in Nigeria · See pricing
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