Limited Liability Partnerships: Potential Structural Tax Leakage Under the Nigeria Tax Act 2025

There appears to be a fundamental conflict between the fiscal treatment of Limited Liability Partnerships under the Companies and Allied Matters Act (CAMA) 2020 and the newly enacted Nigeria Tax Act 2025. This statutory friction may necessitate urgent interpretive guidance from the Nigeria Revenue Service or a formal legislative amendment to the Nigeria Tax Act. In this update, we examine the legal basis of this conflict and its implications for investment vehicles.

1. What is a Limited Liability Partnership?

A Limited Liability Partnership 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. In practical terms, a Limited Liability Partnership enables partners to carry on business without incurring the personal liability that would ordinarily attach under a traditional partnership structure.

A Limited Liability Partnership is also 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. Because of this hybrid character, which merges partnership-style management flexibility with corporate-style liability protection, a Limited Liability Partnership has become a globally preferred structure for organizing certain types of private investment funds.

2. Legal Status of a Limited Liability Partnership under the CAMA

The Companies and Allied Matters Act 2020 (CAMA) mirrors this commercially-driven hybrid structure by expressly recognizing the Limited Liability Partnership as a body corporate. Accordingly, under Section 746(1), (2), and (3) of CAMA, a Limited Liability Partnership is not merely a collection of partners, but also a distinct legal entity separate from its partners. By virtue of this statutory recognition, an LLP can own property, enter into contracts, sue, and be sued in its own name, independently of the partners who compose it. In a strict legal sense, this implies that the entity is an "opaque" corporate body rather than a "transparent" partnership. Crucially, this feature distinguishes a Limited Liability Partnership from a Limited Partnership. While both partnership structures offer limited liability to certain partners, a Limited Partnership does not possess a separate legal personality under CAMA and remains a traditional, tax-transparent partnership.

3. Tax Treatment under the Nigeria Tax Act: The Pass-Through Concept

Despite its corporate status under CAMA, the Nigeria Tax Act contains provisions that suggest a Limited Liability Partnership should be treated as a "pass-through" entity. Section 10(5) of the Nigeria Tax Act provides as follows:

“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 of the foregoing is that a Limited Liability Partnership 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. This pass-through treatment under Section 10(5) appears, at least conceptually, to conflict with the corporate personality conferred on a Limited Liability Partnership by Section 746 of CAMA. While Section 746 recognizes the LLP as a body corporate with separate legal existence, Section 10(5) effectively disregards that corporate status for tax purposes.

4. Further Conflict: The Definition Trap

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.

Key Takeaways

(a) While the policy objective behind the LLP is clear, its tax treatment under 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 therefore be prudent for the Nigeria Revenue Service to issue clarifying interpretive guidance or undertake a targeted statutory review.

(b) 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.