Redefining The Tax Status Of Limited Liability Partnerships In Nigeria

• Published date: 02 April 2024
• Subject Matter: Corporate/Commercial Law, Tax, Corporate and Company Law, Income Tax, Corporate Tax
• Law Firm: SimmonsCooper Partners
• Author: Mr Bashir Ramoni and Oluwadolapo Owoyokun

Introduction: A Game Changer for Nigerian Business

To simplify business operations, the Federal Government of Nigeria made significant changes to the Companies and Allied Matters Act 2020 (CAMA) which is the principal legislation for the formation, management and administration of companies and other business forms in Nigeria.

Among the notable advancements introduced in CAMA is the establishment of Limited

Liability Partnerships (LLPs). This innovative legal structure allows partnerships to be incorporated as separate legal entities from their partners, thereby combining the flexibility of a partnership with the benefits of limited liability. At its core, CAMA's LLP framework aims to offer a business structure that balances the flexibility of partnerships with the security of limited liability. This setup promotes operational efficiency, governance, and introduces a layer of limited liability for partners, aligning them with corporate governance standards while safeguarding personal assets against business risks. However, this innovation introduces new complexities, especially regarding the tax status and obligations of LLPs.

This article aims to examine the legal framework of LLP in Nigeria focusing on tax implications and broader legal considerations. It evaluates the Federal Inland Revenue Service (FIRS) stance on the tax status of LLPs and proposes a new perspective on tax status of LLPs.

Legal Considerations of the LLP Framework in Nigeria

The establishment of LLPs by CAMA introduces significant legal considerations in Nigeria, affecting both tax obligations and broader operational aspects. With Section 746(1) CAMA recognizing LLPs as corporate bodies, these entities enjoy a legal identity distinct from their partners.¹

CAMA not being a tax law, does not address the tax status of the LLPs, leaving their tax treatment to be inferred from existing common law practices, which typically involve taxing the partners directly. Again, despite LLPs having a distinct legal personality from its partners, the Companies Income Tax Act ("CITA") remains silent on how these entities should be taxed.

Taxation at a Crossroads: FIRS's Stance and Legal Questions

This gap in legislation has been partially filled by the Federal Inland Revenue Service (FIRS), which issued a circular defining LLPs as corporate bodies subject to corporate taxes² , i.e. under the umbrella of the CITA. This interpretation significantly broadens the scope of tax liabilities for LLPs, extending...