A Life in Tax: “We Don’t Pay Tax in Free Zone”. There is a sentence I hear very often in practice: “We are in Free Trade Zone. We don’t pay tax.” This morning, a trucking company reached out today, 23rd February 2026.
They provide haulage services to a company operating inside the Lekki Free Trade Zone. The client in the zone did not charge VAT. But they deducted 2% Withholding Tax.
The question was simple, and very Nigerian: “If they don’t pay tax, why are they deducting tax from us?” This is where tax knowledge separates assumption from law.
Free Zone Status: What It Really Means Companies licensed under the Nigeria Export Processing Zones Authority framework enjoy generous incentives:
- Exemption from Companies Income Tax
- Exemption from VAT on approved zone transactions
- Relief from customs duties
- Certain regulatory concessions
But here is the legal clarity:
- Those exemptions apply to their own tax liabilities.
- They do not create a tax vacuum around them.
- The Technical Distinction Most People Miss
Withholding Tax (WHT) is not a tax on the company deducting it. It is an advance tax on the income of the recipient.
When a Free Zone company pays a trucking company:
- The income belongs to the trucking company
- That income is taxable in Nigeria
- The Free Zone company acts only as a collecting agent
So even though they are tax-exempt for their own profits,they still have a statutory obligation to deduct WHT on payments made to taxable vendors.
This is not contradiction. This is structure.
Why 2%?
Under Nigerian WHT rules:
- Transportation and haulage services provided by a company attract 2% WHT.
So the deduction was not arbitrary.
It was correct.
“But They Didn’t Charge VAT…”
Another common confusion. VAT and WHT are governed by different legal principles. Free Zone transactions may be VAT-exempt or treated as outside the VAT net. But WHT attaches to income earned in Nigeria.
The trucking company earned Nigerian-source income. WHT therefore applies. No VAT does not mean no WHT. Tax law does not operate emotionally. It operates categorically.
The Real Lesson
- In tax, location does not always determine liability.
- Free Zone status is a shield for specific taxes —
- not a blanket immunity from every tax mechanism in the system.
- The trucking company was not losing money.
- That 2% becomes a tax credit against their Companies Income Tax.
- What looked like unfair deduction, was actually structured compliance.
This is the life of tax. Not noise. Not assumptions. But understanding how each instrument — VAT, WHT, CIT — plays its distinct role within the system. And in this profession, clarity is currency.
Olatunji Abdulrazaq CNA,ACTI,ACIArb(UK)
Founder/CEO,Taxmobile.Online
