TAXATION OF PARTNERSHIPS IN NIGERIA (2025): MEANING, COMPUTATION, ASSESSMENT, AND PRACTICAL EXAMPLES

The Nigeria Tax Act (NTA) 2025, which took effect on 1 January 2026, fundamentally reshaped the taxation of partnerships in Nigeria. The reforms consolidated and modernised the tax code, introducing clearer provisions on how partnership income is assessed and taxed. Partnerships, which range from informal business name arrangements to limited liability partnerships (LLPs) formed under the Companies and Allied Matters Act (CAMA) 2020, are now subject to a more defined and structured tax framework.

Unlike companies, which are taxed as separate legal entities, a partnership is treated as “transparent” for tax purposes under Nigerian law. This means the partnership itself does not pay tax. Instead, the profits of the partnership are divided among the partners according to their profit-sharing agreement, and each partner is taxed individually on their own share.

This comprehensive guide examines the taxation of partnerships under the NTA 2025, covering the meaning of partnerships, computation of taxable income, assessment procedures, practical examples, and the complex tax treatment of Limited Liability Partnerships (LLPs).

The Pain Points: Why Partnership Taxation Matters Now More Than Ever

The Pass-Through Principle

A fundamental principle of partnership taxation in Nigeria is that a partnership is not taxed as an entity. The partnership itself does not file a tax return and pay tax. Instead, the profits of the partnership are divided among the partners according to their profit-sharing agreement, and each partner is taxed individually on their own share.

Example: Bright & Associates is a consulting partnership between three individuals: Bright, Amaka, and Tunde, sharing profits equally (one-third each). In the year ending December 2025, the partnership makes a profit of ₦30,000,000. The profit is shared as follows:

• Bright: ₦10,000,000

• Amaka: ₦10,000,000

• Tunde: ₦10,000,000

Each partner reports their ₦10,000,000 share as personal income and pays tax on it at the applicable personal income tax rates, in their own name, to their own State Revenue Service. The partnership as a whole pays nothing.

The Documentation Imperative

Many Nigerian partnerships operate on nothing more than a handshake and informal agreements. This approach creates significant compliance risks. A partnership with no registered agreement to reference exposes partners to the risk that the tax authority will determine how profits are shared—and tax accordingly. On their terms, not yours.

The LLP Classification Conflict

A significant interpretive challenge has emerged under the NTA 2025 regarding the tax treatment of Limited Liability Partnerships. While Section 746 of CAMA treats a Limited Liability Partnership as a separate corporate entity with its own legal personality, Section 10(5) of the Nigeria Tax Act treats a Limited Liability Partnership as a pass-through entity. This dual identity creates a fundamental interpretive challenge for tax compliance.

What is a Partnership?

Definition

Under the NTA 2025, a partnership is defined as “an association, or a body of two or more persons who have agreed to combine their rights, powers, property, labour or skill for the purpose of carrying on a trade or business and sharing the profit”. A partnership is simply two or more individuals carrying on a trade, business, profession, or vocation together, with a view to profit.

Types of Partnerships

Traditional Partnerships (Business Names): In law, a business name is not distinct from its proprietor. Therefore, whatever law governs the proprietor governs the business name, as they are seen as one and the same person. The taxes to be paid by a business name are the same as those to be paid by the proprietor—Personal Income Tax.

Limited Liability Partnerships (LLPs): An LLP is a modern corporate vehicle designed to combine the operational flexibility of a traditional partnership with the protective “corporate shield” typically associated with a limited liability company. An LLP enables partners to carry on business without incurring the personal liability that would ordinarily attach under a traditional partnership structure. An LLP is also recognised as a separate legal personality, meaning it can own property, enter into contracts, sue, and be sued in its own name, independently of its partners.

Limited Partnerships: A Limited Partnership does not possess a separate legal personality under CAMA and remains a traditional, tax-transparent partnership.

Partnerships of Companies

Section 11 of the NTA 2025 addresses partnerships involving companies. When two or more companies engage in a partnership, joint venture, or similar arrangement in Nigeria, the income or profit is treated as a source of profits, and each company’s share is taxed separately. This establishes the principle of separate taxation rather than taxing the partnership as a single entity.

Key provisions:

• If a non-resident company is part of the partnership, its share of income or profit is taxable under the Act

• If the partnership is carried out outside Nigeria, a Nigerian-taxable partner must include its share of revenue, costs, or profits in its assessable profits

• Partnerships engaged in petroleum operations are excluded; they are governed by a separate chapter

Tax Treatment of Partnerships

The Pass-Through Principle

Section 15 of the NTA 2025 establishes how income taxes apply to a partnership. The partnership itself is not taxed. The profits are divided among the partners according to their profit-sharing agreement, and each partner is taxed individually on their own share.

Personal Income Tax for Individual Partners

Under the new tax regime, before ascertaining the taxable profit of business names, certain allowable deductions must be made. Business owners are taxed only on their net profit, after deducting expenses that were wholly and exclusively incurred in generating their income.

Allowable deductions include:

• Interest on loans or debts used for the purpose of running the business

• Rent or premiums paid for land or buildings used in generating income

• Staff costs, including salaries, wages, benefits, and allowances paid to employees

• Repairs and maintenance expenses on premises, machinery, equipment, or tools used for business purposes

• Expenses incurred to establish, preserve, or defend ownership rights over an asset used in the business

• Contributions to approved staff pension or retirement schemes in line with the Pension Reform Act or similar laws

• Losses or damages to stock or inventory, where proven to the satisfaction of the tax authority

• Bad or doubtful debts arising from genuine business transactions, if they were not owed by related parties

• Pre-business expenses, meaning costs incurred within six years before starting the business that would have been deductible if incurred after commencement

Personal Income Tax Rates (2025)

The NTA 2025 introduces a tax-exemption threshold of ₦800,000 per annum, meaning individuals whose total annual income does not exceed this amount are not required to pay personal income tax. Beyond this threshold, the Act adopts a progressive tax structure:

Loss Treatment

If the partnership makes a loss instead of a profit, each partner’s share of the loss is treated as a personal loss, which can be carried forward and deducted from that partner’s future income from the same partnership. Losses follow the partner, just like profits do.

Registration and Documentation Requirements

Tax Identification Number (TIN): The NTAA 2025 mandates that trusts, partnerships, and incorporated companies must obtain a Tax ID. The obligation to register applies regardless of whether the individual or entity currently owes taxes.

Profit-Sharing Ratio: Partners must register their partnership with the tax authority and submit their partnership agreement. If profit-sharing ratios change—a new partner joins, someone leaves, or profit-sharing ratios change—partners must notify the tax authority within 30 days. If partners don’t tell the tax authority how profits are shared, the tax authority will decide for themselves—and their decision may not favour the partners.

Where Each Partner Pays Tax: Using the example of Bright, Amaka, and Tunde—if Bright lives in Lagos, Amaka in Abuja, and Tunde in Rivers State—each pays their personal income tax to their own State Revenue Service, not one central authority.

Late Filing Penalties: Failure to notify changes in particulars attracts an administrative penalty of ₦100,000 for the first month and ₦50,000 for each subsequent month of non-compliance.

Limited Liability Partnerships (LLPs): The Classification Conflict

The Legal Status Under CAMA

Section 746 of CAMA 2020 defines an LLP as “a body corporate formed and incorporated under this Act and is a legal entity separate from the partners”. An LLP is recognized as a separate legal personality, meaning it can own property, enter into contracts, sue, and be sued in its own name, independently of its partners.

The Tax Treatment Under NTA 2025

Section 10(5) of the NTA 2025 provides that “in the case of a limited liability partnership, all of the profits of the partnership shall be deemed as distributed, and taxable income, proportionately, in the hands of the respective partners”. The implication is that an LLP is not subject to company income tax in its own right. Rather, its profits would be treated as flowing through to the partners, who are then individually liable to personal income tax on their respective shares.

The Interpretive Tension

A further difficulty emerges from an apparent inconsistency within the Nigeria Tax Act itself. Section 10(5) treats a Limited Liability Partnership as a partnership for tax purposes, thereby applying the pass-through principle. However, the Interpretation Section of the same Act, in Section 198, expressly includes a Limited Liability Partnership within the definition of a “company”:

“Company’ means any company or corporation, including limited liability partnership, established by or under any law in force in Nigeria or elsewhere…”

This drafting creates a significant interpretative tension. By categorizing a Limited Liability Partnership as a “company,” the Act appears to subject it to entity-level company income tax, consistent with the treatment of corporate bodies. Yet Section 10(5) simultaneously directs that the income of the LLP be taxed only in the hands of the partners.

Expert Perspectives on LLP Taxation

Pass-Through View: Section 11 of the NTA provides that “where two or more companies carry out a trade or business in a partnership, joint venture or a similar arrangement in Nigeria, any income or profit arising therefrom shall constitute a source of profits and each company’s share shall be taxed separately”. This means that any income arising from any business carried on by an LLP will be taxed in the hands of the respective partners and not at the LLP level, effectively creating a pass-through structure. This view applies to LLPs whose partners are companies.

Corporate Entity View: Under the NTA 2025, a “company” is now clearly defined as including an LLP. At first glance, it appears that an LLP will be treated as a company under the NTA, including being liable to companies income tax just like every other company. Once companies form an incorporated vehicle, whether a company or an LLP, the entity itself becomes the taxpayer, liable to CIT on its profits, with distributions to partners or shareholders then taxed separately under withholding tax.

Key Takeaways:

• While the policy objective behind the LLP is clear, its tax treatment under the Nigerian Tax Act is not. The current drafting creates avoidable uncertainty for investors, fund sponsors, and professional firms seeking to use the structure.

• It would be prudent for the Nigeria Revenue Service to issue clarifying interpretive guidance or undertake a targeted statutory review.

• Clear alignment between corporate status and tax treatment would enhance certainty, reduce compliance risk, and strengthen Nigeria’s attractiveness as a jurisdiction for private capital and structured investment vehicles.

Computation of Partnership Taxable Income

Step 1: Determine Partnership Profit

The partnership must prepare its accounts to determine the net profit for the year. This involves:

• Recording all income from the partnership’s trade or business

• Deducting allowable expenses wholly and exclusively incurred in generating income

Step 2: Divide Profit According to Profit-Sharing Ratio

The net profit is divided among the partners according to their profit-sharing agreement. This ratio must be documented and registered with the tax authority.

Step 3: Apply Individual Tax Rates

Each partner applies the applicable personal income tax rates to their share of the profit. The tax-exemption threshold of ₦800,000 applies to each partner’s total income, not to the partnership as a whole.

Step 4: File Individual Tax Returns

Each partner must file their own personal tax return with their relevant State Revenue Service, disclosing their share of the partnership profit as income.

Practical Examples

Example 1: Traditional Partnership

Scenario: Ade & Associates is a consulting partnership between Ade, Bola, and Chidi, sharing profits 40%, 35%, and 25% respectively. In the year ending 31 December 2025, the partnership makes a profit of ₦20,000,000.

Profit Sharing:

• Ade: ₦20,000,000 × 40% = ₦8,000,000

• Bola: ₦20,000,000 × 35% = ₦7,000,000

• Chidi: ₦20,000,000 × 25% = ₦5,000,000

Tax Calculation (Assuming no other income):

Assessment: Each partner must file their own tax return with their respective State Revenue Service. The partnership itself pays no tax.

Example 2: Partnership of Companies

Scenario: ABC Ltd and XYZ Ltd form a joint venture partnership to execute a construction project. The partnership generates a profit of ₦50,000,000, shared 60% and 40% respectively.

Tax Treatment:

• ABC Ltd includes ₦30,000,000 (60%) in its assessable profits and pays Companies Income Tax at 30%

• XYZ Ltd includes ₦20,000,000 (40%) in its assessable profits and pays Companies Income Tax at 30%

• The partnership itself does not pay tax

Assessment: Each company must maintain clear records of their share of income, expenses, and profits to avoid disputes with tax authorities.

Example 3: Partnership with Loss

Scenario: The partnership from Example 1 makes a loss of ₦5,000,000 instead of a profit.

Loss Sharing:

• Ade: ₦5,000,000 × 40% = ₦2,000,000 loss

• Bola: ₦5,000,000 × 35% = ₦1,750,000 loss

• Chidi: ₦5,000,000 × 25% = ₦1,250,000 loss

Treatment: Each partner’s share of the loss is treated as a personal loss. It can be carried forward and deducted from that partner’s future income from the same partnership.

Practical Recommendations for Partnerships

1. Formalise the Partnership Agreement

A business built on friendship deserves the protection of proper paperwork. Formalise your partnership, register it, and document everything. Many Nigerian partnerships are running today on nothing more than a handshake and a WhatsApp agreement. No written deed. No registration with the tax authority. No clear profit-sharing ratio on paper.

2. Register with the Tax Authority

Partners must register their partnership with the relevant tax authority and submit their partnership agreement. If profit-sharing ratios change, partners must notify the tax authority within 30 days.

3. Maintain Clean Partnership Accounts

The tax authority needs to see how profits were determined before they can be divided and taxed. Keep clean partnership accounts.

4. Ensure Each Partner Files Their Own Tax Return

Ensure every partner files their own personal tax return, disclosing their share of partnership profits as income. The partnership has no tax bill. But every partner does. And the law expects each of them to meet it.

5. Understand the LLP Tax Treatment Uncertainty

For LLPs, the tax treatment remains uncertain. It would be prudent for the Nigeria Revenue Service to issue clarifying interpretive guidance or undertake a targeted statutory review. In the meantime, seek professional advice to manage compliance risks.

Frequently Asked Questions

Q: What is the tax treatment of a partnership under the NTA 2025?
A: A partnership is treated as “transparent” for tax purposes. The partnership itself does not pay tax. The profits are divided among the partners according to their profit-sharing agreement, and each partner is taxed individually on their own share.

Q: What are the allowable deductions for partnership income?
A: Allowable deductions include interest on loans, rent, staff costs, repairs and maintenance, expenses to establish ownership rights, pension contributions, losses to stock or inventory, bad debts, and pre-business expenses.

Q: What is the tax-exemption threshold under the NTA 2025?
A: Individuals earning ₦800,000 or less per annum are exempt from personal income tax.

Q: What are the personal income tax rates under the NTA 2025?
A: The rates range from 0% on the first ₦800,000 to 25% on income above ₦50,000,000.

Q: Where does each partner pay tax?
A: Each partner pays their personal income tax to their own State Revenue Service, not one central authority.

Q: Is an LLP taxed as a partnership or a company?
A: This is currently unclear. Section 10(5) of the NTA treats an LLP as a pass-through entity, while Section 198 includes it in the definition of a “company,” creating an interpretive tension.

Q: What is the deadline for notifying the tax authority of changes in profit-sharing ratios?
A: Partners must notify the tax authority within 30 days of any change in the profit-sharing ratio.

Q: How are partnership losses treated?
A: Each partner’s share of the loss is treated as a personal loss, which can be carried forward and deducted from that partner’s future income from the same partnership.

The Bottom Line

The NTA 2025 has provided a clearer framework for the taxation of partnerships in Nigeria. The pass-through principle—where the partnership itself does not pay tax, and partners are taxed individually on their share of profits—remains the cornerstone of partnership taxation.

Key Takeaways:

Understand the Pass-Through Principle: The partnership itself does not pay tax. Profits are divided among partners, and each partner is taxed individually on their own share.

Formalise Your Partnership Agreement: Many Nigerian partnerships are running today on nothing more than a handshake. Formalise your partnership. Register it. Document everything.

Register with the Tax Authority: Partners must register their partnership with the tax authority and submit their partnership agreement.

Notify Changes Within 30 Days: If profit-sharing ratios change, a new partner joins, or someone leaves, notify the tax authority within 30 days.

Each Partner Files Their Own Tax Return: Each partner must file their own personal tax return with their State Revenue Service, disclosing their share of partnership profits.

Understand the LLP Uncertainty: LLPs face an uncertain tax treatment under the NTA 2025. Seek professional advice to manage compliance risks.

Your job is to be prepared. Understand the new partnership tax rules. Formalise partnership agreements. Register with tax authorities. Maintain proper records. Seek professional guidance.

With the right approach and the right partner, you can turn partnership tax compliance from a potential burden into a manageable and transparent process.

Suggested Reading from Our Blog

Tax Administration in Nigeria: Roles, Functions, Composition and Powers of JTB, NRS, SBIR, JSRC, LGRC, Tax Appeal Tribunal and the Taxes and Levies Act – Comprehensive guide to Nigeria’s tax administration landscape under the 2025 reforms.

VAT & Nigeria 2025 Tax Reforms: Key Changes for Businesses – Understand VAT reforms under NTA 2025.

Tax Strategies and Planning – Structure your business to optimise your tax position.

Reference Links / Sources

Balogun Harold – Limited Liability Partnerships: Potential Structural Tax Leakage Under the NTA 2025 – Analysis of conflict between CAMA and NTA regarding LLP classification, Section 10(5) pass-through treatment, and Section 198 definition of company

BusinessDay – How moving from business name to LLC exempts you from CIT – Taxation of business names under PIT, small company exemption (₦100m turnover), and compliance benefits of incorporation

Mondaq – What The New Tax Reform Acts Mean For Business Owners – Detailed breakdown of allowable deductions for business names, tax-exemption threshold (₦800,000), and progressive tax rates from 0% to 25%

LinkedIn – Section 11 NTA 2025: Partnership of Companies – Clear explanation of separate taxation for corporate partnerships, non-resident partner taxation, and foreign partnership income declaration

LinkedIn – Partnership Taxation: How Profits Are Divided and Taxed – Step-by-step guide on Section 15 NTA 2025, pass-through principle, profit-sharing mechanics, loss treatment, and compliance requirements

Mondaq – New Tax Identification Rules Under NTAA 2025 – TIN requirements for partnerships, registration obligations, and 30-day notification rule for changes

LinkedIn – LLP Tax Treatment Uncertainty Under NTA 2025 – Summary of Section 10(5) vs Section 746 CAMA conflict, structural tax leakage concerns, and implications for PE/VC fund managers

LinkedIn – Nigeria Tax Act 2025: LLP Classification Clarified – Section 202 definition of company includes LLPs, formal recognition of LLPs as taxable entities, and harmonisation between CAMA and NTA

LinkedIn – LLPs Are Passthrough Vehicles in Nigeria – Creative argument for pass-through treatment under Section 11, but acknowledges opposing view that LLPs remain corporate taxpayers

Mondaq – Tax Administration In Nigeria: Review of 2025 Tax Reform Laws – Overview of small company definition (₦100m turnover), NTA consolidation, and key reform provisions

BusinessDay – 12 New Tax Terms Emerging from Nigeria’s Tax Reforms – Definitions of key tax terms including input VAT recovery, development levy, presumptive tax, and EDI

Let’s Talk About Your Partnership Tax Needs

Navigating partnership taxation under the NTA 2025 can be complex. At Qeeva Advisory, we understand the challenges faced by partnerships and their partners in understanding tax obligations, computing taxable income, and ensuring compliance.

Whether you need help with partnership structure, tax computation, or compliance support, we are here to support you.

📞 Call us: (+234) 802 320 0801, (+234) 807 576 5799

📧 Email: info@qeeva.com

📍 Visit us: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria

Contact us today to schedule a consultation. Let us help you navigate partnership taxation with confidence.

Your journey to tax compliance starts with a conversation. Let’s talk.