The Complete Guide to Vendor Verification and WHT Compliance in Nigeria

Vendor management is one of the most overlooked aspects of tax compliance in Nigeria, yet it’s also one of the riskiest. Dealing with unverified vendors can result in disallowed VAT claims, withholding tax (WHT) penalties, and serious audit complications.

With FIRS increasing scrutiny on vendor relationships and the new e-invoicing mandate requiring real-time TIN verification, businesses can no longer afford to take a casual approach to vendor compliance.

This comprehensive guide will show you how to build a bulletproof vendor verification process that protects your business and ensures full compliance with Nigerian tax law.

Why Vendor Verification Matters

The VAT Input Credit Risk

When you purchase goods or services for your business, you pay VAT to your vendor and claim it as an input VAT credit against the VAT you collect from customers. However, FIRS only allows these credits if:

The vendor has a valid Tax Identification Number (TIN)
The vendor is registered for VAT
The invoice contains the correct TIN
The TIN matches FIRS records

If any of these conditions fail, you lose the input VAT credit.

Real-world example: A construction company claimed ₦12 million in input VAT over 6 months. During a FIRS audit, ₦3.2 million was disallowed because 8 vendors had invalid TINs. The company not only lost the credit but also paid a 10% penalty (₦320,000) on the disallowed amount.

The Withholding Tax Obligation

As a business making payments to vendors, you’re required to withhold tax (WHT) on certain transactions and remit it to FIRS. The rates vary by transaction type:

5%: Rent, royalties, professional fees
10%: Dividends, interest, commissions
2.5%: Construction and related services
5%: Management and technical services

Failure to withhold and remit WHT results in:

Penalties of up to 200% of the tax not withheld
Interest charges on late remittances
Personal liability for company directors
Potential prosecution

The Fraud and Reputation Risk

Dealing with unverified vendors exposes you to:

Fraudulent invoices: Fake vendors with stolen or fabricated TINs
Money laundering: Unknowingly participating in illegal schemes
Reputational damage: Association with non-compliant or criminal entities
Supply chain disruption: Vendors shut down by FIRS for non-compliance

Understanding TIN Structure and Validation

What is a TIN?

A Tax Identification Number (TIN) is a unique identifier assigned by FIRS to every taxpayer in Nigeria. It comes in different formats:

Corporate TIN (for companies):

Format: 12345678-0001
Structure: 8 digits + hyphen + 4 digits
Example: 10234567-0001

Individual TIN (for sole proprietors and professionals):

Format: 1234567890
Structure: 10 digits
Example: 1023456789

Basic TIN Validation

Before even checking with FIRS, you can perform basic format validation:

Corporate TIN checks:

✅ Exactly 13 characters (including hyphen)
✅ First 8 characters are digits
✅ Character 9 is a hyphen
✅ Last 4 characters are digits

Individual TIN checks:

✅ Exactly 10 digits
✅ No letters or special characters

Red flags:

❌ All zeros (0000000000)
❌ Sequential numbers (1234567890)
❌ Repeated digits (1111111111)
❌ Obviously fake patterns

FIRS Database Verification

Basic format validation isn’t enough—you must verify against FIRS records:

Manual verification:

Visit FIRS TIN verification portal
Enter the TIN
Check if it returns valid taxpayer information
Verify the name matches your vendor

Automated verification (via CompliantInvoice):

Real-time API calls to FIRS database
Instant validation results
Automatic flagging of invalid TINs
Historical verification tracking

Building a Vendor Verification Process

Step 1: Vendor Onboarding

Create a standardized onboarding process for all new vendors:

Required documentation:

Completed vendor information form
Valid TIN certificate from FIRS
Certificate of incorporation (for companies)
Bank account details
Business registration documents
VAT registration certificate (if applicable)
Professional licenses (if applicable)

Verification checklist:

Approval workflow:

Procurement team submits vendor details
Finance team verifies TIN and tax status
Compliance team reviews documentation
Authorized signatory approves vendor
Vendor added to approved vendor list

Step 2: Ongoing Monitoring

Vendor compliance isn’t a one-time check—it requires continuous monitoring:

Quarterly TIN re-verification:

Check if TIN is still active
Verify VAT registration hasn’t been suspended
Update vendor status in your system

Annual documentation refresh:

Request updated TIN certificates
Verify business registration is current
Confirm bank account details unchanged

Transaction monitoring:

Flag unusual invoice patterns
Monitor for duplicate TINs across vendors
Alert for high-value transactions with new vendors

Automated monitoring (via CompliantInvoice):

Scheduled TIN re-verification
Automatic alerts for status changes
Risk scoring based on compliance history
Dashboard showing vendor health

Step 3: Invoice Processing Controls

Implement controls at the point of invoice processing:

Pre-payment verification:

Invoice contains valid TIN
TIN matches approved vendor list
Invoice amount within approved limits
Proper authorization obtained
WHT calculation verified

Three-way matching:

Purchase order
Goods receipt/delivery note
Vendor invoice

Automated controls (via CompliantInvoice):

Block invoices with invalid TINs
Auto-calculate correct WHT
Enforce approval workflows
Generate WHT certificates automatically

Withholding Tax (WHT) Management

Understanding WHT Obligations

As a business, you must withhold tax when making certain payments:

Services subject to WHT:

Professional fees (lawyers, accountants, consultants): 5%
Technical and management services: 5%
Construction and related services: 2.5%
Rent and lease payments: 10%
Commissions and agency fees: 10%
Royalties and license fees: 10%
Interest payments: 10%
Dividends: 10%

Exemptions:

Payments to companies with annual turnover < ₦25 million
Payments for goods (as opposed to services)
Payments to government agencies
Payments specifically exempted by law

Calculating WHT Correctly

Example 1: Professional Services

Invoice amount: ₦1,000,000
WHT rate: 5%
WHT to withhold: ₦50,000
Amount to pay vendor: ₦950,000

Example 2: Rent

Monthly rent: ₦500,000
WHT rate: 10%
WHT to withhold: ₦50,000
Amount to pay landlord: ₦450,000

Common mistakes:

❌ Calculating WHT on VAT-inclusive amount
❌ Using wrong WHT rate
❌ Failing to withhold when required
❌ Withholding when not required

Correct approach:

✅ Calculate WHT on base amount (excluding VAT)
✅ Verify correct rate for service type
✅ Check for exemptions
✅ Issue WHT certificate to vendor

WHT Remittance and Reporting

Remittance deadlines:

WHT must be remitted to FIRS within 21 days of the month following payment
Example: WHT withheld in January must be remitted by February 21

Required documentation:

WHT remittance schedule
List of vendors and amounts withheld
Payment evidence
WHT certificates issued

Penalties for non-compliance:

10% penalty on late remittance
5% interest per annum on outstanding amounts
Potential prosecution for persistent default

Issuing WHT Certificates

You must provide WHT certificates to vendors within 90 days of withholding:

Certificate must include:

Your company name and TIN
Vendor name and TIN
Payment date and amount
WHT rate and amount withheld
Certificate number
Authorized signature

Why it matters:

Vendors use WHT certificates to claim credit on their tax returns
Failure to issue certificates damages vendor relationships
FIRS may disallow your WHT if you can’t prove issuance

Automated WHT management (via CompliantInvoice):

Auto-calculate correct WHT based on service type
Generate compliant WHT certificates
Track remittance deadlines
Maintain certificate issuance records

Vendor Risk Management

Risk Categories

Classify vendors by risk level to prioritize verification efforts:

High-risk vendors:

New vendors (< 6 months relationship)
High-value transactions (> ₦1 million)
Foreign vendors
Vendors in high-risk industries
Vendors with compliance history issues

Medium-risk vendors:

Established vendors (6-24 months)
Moderate transaction values
Standard services
Clean compliance record

Low-risk vendors:

Long-term vendors (> 24 months)
Low transaction values
Utilities and standard services
Excellent compliance record

Risk-Based Verification Frequency

High-risk: Monthly TIN verification, quarterly documentation review Medium-risk: Quarterly TIN verification, annual documentation review Low-risk: Annual TIN verification and documentation review

Red Flags to Watch For

Vendor behavior red flags:

Reluctance to provide TIN or documentation
Requests for cash payments
Invoices without proper details
Frequent changes in bank account
Unusually low prices (possible tax evasion)

TIN red flags:

TIN fails FIRS verification
Name mismatch between TIN and invoice
Same TIN used by multiple vendors
Recently issued TIN for “established” vendor

Invoice red flags:

Missing or incorrect TIN
No VAT breakdown
Round numbers (possible estimates)
Handwritten invoices for large amounts
Duplicate invoice numbers

Technology Solutions for Vendor Management

Manual Process Limitations

Managing vendor compliance manually is:

Time-consuming: Hours spent on verification and documentation
Error-prone: Human mistakes in data entry and calculations
Difficult to scale: Process breaks down as vendor count grows
Audit-risky: Incomplete records and missed verifications

Automated Vendor Management

Modern platforms like CompliantInvoice automate the entire vendor lifecycle:

Onboarding automation:

Digital vendor registration forms
Automatic TIN verification
Document upload and storage
Approval workflow routing

Ongoing monitoring:

Scheduled TIN re-verification
Automatic risk scoring
Compliance alerts
Performance tracking

Transaction processing:

Real-time TIN validation on invoices
Automatic WHT calculation
Three-way matching
Payment authorization

Reporting and analytics:

Vendor compliance dashboard
WHT remittance reports
Audit trail documentation
Risk analysis

Compliance Best Practices

1. Maintain a Centralized Vendor Database

What to include:

Vendor name and contact details
TIN and verification status
VAT registration status
Bank account information
Service categories
Risk classification
Compliance history

Benefits:

Single source of truth
Easy audit preparation
Consistent vendor data
Better vendor management

2. Implement Maker-Checker Controls

Segregation of duties:

Maker: Procurement team adds vendors
Checker: Finance team verifies TIN and tax status
Approver: Authorized signatory approves

Benefits:

Reduces fraud risk
Catches errors before they become problems
Provides accountability
Meets audit requirements

3. Document Everything

Essential documentation:

Vendor onboarding forms
TIN verification results
Approval emails
WHT certificates
Remittance receipts
Correspondence with vendors

Retention period: Minimum 6 years (FIRS requirement)

4. Train Your Team

Who needs training:

Procurement staff (vendor onboarding)
Accounts payable (invoice processing)
Finance team (WHT calculations)
Management (risk oversight)

Training topics:

TIN verification procedures
WHT rates and calculations
Red flag identification
System usage (if automated)

5. Conduct Regular Audits

Internal audits (quarterly):

Sample vendor files for completeness
Verify TIN validation was performed
Check WHT calculations
Review high-risk vendors

External audits (annual):

Independent review of vendor processes
Compliance assessment
Recommendations for improvement

How CompliantInvoice Simplifies Vendor Management

CompliantInvoice provides a complete vendor management solution:

Automated TIN Verification

Real-time checks against FIRS database
Instant validation results
Automatic flagging of invalid TINs
Historical verification tracking

Vendor Onboarding Workflow

Digital registration forms
Document upload and storage
Approval routing
Automated reminders

WHT Automation

Auto-calculate correct WHT rates
Generate compliant WHT certificates
Track remittance deadlines
Maintain issuance records

Risk Management

Automatic risk scoring
Compliance alerts
Performance dashboards
Audit trail documentation

Integration Capabilities

Connect to accounting systems
Sync with ERP platforms
API for custom integrations
Bulk import/export

Conclusion

Vendor verification and WHT compliance are critical components of tax compliance in Nigeria. The risks of non-compliance—disallowed VAT credits, WHT penalties, fraud exposure—are simply too high to ignore.

By implementing a robust vendor verification process, you can:

Protect your input VAT claims
Ensure correct WHT withholding and remittance
Reduce fraud and reputational risk
Streamline vendor management
Prepare for FIRS audits with confidence

CompliantInvoice makes vendor compliance effortless with automated TIN verification, WHT calculation, and comprehensive vendor management tools.

Ready to eliminate vendor compliance risk? Start your free trial of CompliantInvoice and join thousands of Nigerian businesses that have already automated their vendor verification process.