Taxation of Partners and Partnerships in Nigeria

Abstract

Partners, not partnerships, are taxed in Nigeria. But partnership arrangements affect the computation of the tax liability of partners. Taxation of partners is governed by the Personal Income Tax Act (PITA). Under PITA, partners are taxed as individuals with chargeable incomes derived from the partnership business and other sources. They are taxed according to their profit shares from partnership income. To determine partners’ tax liabilities, the partners first compute the partnership income and then distribute it to the partners according to the articles of partnership. The partners deduct allowances and reliefs. Afterward, the balance is taxed under PITA. Understanding how partners are taxed in Nigeria requires first understanding the meaning and nature of partnerships as well as the financial relationship that exists between partners.