Employee Share Scheme Regulatory Guide — Nigeria

A comprehensive overview of the legal and regulatory framework governing Employee Share Investment Schemes (ESIS) for listed Nigerian companies — covering CAMA 2020, SEC Nigeria, NGX listing obligations, FIRS tax requirements, and CSCS registration.

This guide provides general information only. Always obtain qualified Nigerian legal and tax advice before establishing or amending an employee share scheme.

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Companies and Allied Matters Act 2020 (CAMA 2020)

Company Law Foundation

•A company may issue shares to employees or trustees for the benefit of employees under Section 173 of CAMA 2020
•The board of directors must pass a resolution authorising the employee share scheme, within the limits of the authorised share capital
•Shareholder approval is required if the scheme involves the allotment of new shares beyond the limits of directors' existing authority
•The scheme must not result in the company holding its own shares through the trust in a manner that violates CAMA 2020 prohibitions on financial assistance
•CAMA 2020 removed several restrictions that made ESIS structurally difficult under the 1990 Act — listed company boards now have greater flexibility to design modern schemes

Securities and Exchange Commission (SEC Nigeria)

Capital Markets Regulator

•SEC Rules on Share Purchase Plans (Appendix to the SEC Rules and Regulations) govern the formal registration and operation of ESIS for listed companies
•The scheme must be approved by the company's board and shareholders, and notified to SEC before the first allotment
•SEC requires submission of annual reports on scheme activity — allotments made, participants enrolled, and shares outstanding
•The scheme trust deed must be filed with SEC and is subject to SEC review
•SEC may require that the scheme be managed by a SEC-licensed trust company or registrar, depending on the scheme structure

Nigerian Exchange Group (NGX)

Listing Obligations

•NGX post-listing rules require that any employee share scheme for a listed company be disclosed in the company's annual report
•Material changes to the scheme (e.g. changes to eligibility, vesting terms, or share pool size) must be announced to the market through the NGX X-Disclosure portal
•The scheme must not be used in a way that creates a market manipulation risk or conflicts with NGX rules on insider trading and closed periods
•Allotment of shares under the scheme during a closed period (typically 30 days before interim or final results) requires careful legal advice on market abuse rules

Federal Inland Revenue Service (FIRS)

Tax Administration

•The value of shares allotted to an employee under a share purchase plan is a taxable benefit and must be included in the employee's gross income for PAYE purposes in the year of allotment
•The employer must account for PAYE on the allotment value through the payroll withholding process and remit to FIRS as part of monthly PAYE filings
•Dividends received by employees on scheme shares are subject to 10% withholding tax (WHT) — the company paying the dividend deducts WHT before payment
•Under current Capital Gains Tax Act provisions, disposal of shares traded on the NGX is exempt from CGT — this applies to employee share plan shares sold on the NGX
•Employer costs of establishing and administering a formal ESIS are generally deductible as business expenses against company profits — confirm with a qualified tax adviser

Central Securities Clearing System (CSCS)

Securities Depository

•All NGX-listed shares in Nigeria are dematerialised and held in digital form at CSCS
•Each employee participant must be registered at CSCS with a CHN (CSCS Holder Number) before shares can be credited to their account
•The scheme administrator must submit participant registration requests and allotment instructions to CSCS through the approved channel (API or standardised file submission)
•CSCS issues a confirmation of credited shares to both the administrator and the participant — this is the authoritative record of ownership
•Participants can verify their holding independently at CSCS or through any licensed NGX stockbroker at any time

Regulatory FAQs

Does an employee share scheme require SEC Nigeria approval?

For a formally structured Employee Share Investment Scheme (ESIS) for a listed company, notification to and compliance with SEC Rules on Share Purchase Plans is required. The scheme trust deed must be filed with SEC and the company must submit annual scheme reports. The exact approval requirements depend on the specific scheme structure — some arrangements require prior SEC clearance, others proceed on a notification basis. Shares Saver works with qualified Nigerian legal counsel to ensure each scheme is established within the correct regulatory framework.

When is shareholder approval required for an employee share scheme?

Shareholder approval is required when the scheme involves allotting new shares to employees (as opposed to purchasing existing shares in the market or using treasury shares). Under CAMA 2020, the board can allot shares within the limits of the directors' existing share allotment authority — typically granted by shareholders at the AGM. If the scheme exceeds that authority, a special resolution at a general meeting is required. The scheme rules should clearly document the share allotment authority basis.

What are the PAYE obligations on share allotments?

When shares are allotted to an employee, the market value of those shares at the allotment date is treated as employment income for Nigerian tax purposes. The employer must include this value in the employee's PAYE computation for that month, withhold the applicable PAYE, and remit it to FIRS with the monthly PAYE return. Where the employee cannot fund the PAYE liability from their cash salary, the scheme rules typically provide for a sell-to-cover mechanism — selling a portion of the allotted shares to fund the tax.

Are employee share scheme gains exempt from Capital Gains Tax in Nigeria?

Under the Capital Gains Tax Act, gains arising from the disposal of shares traded on the NGX are currently exempt from CGT. This exemption applies to shares sold on the NGX regardless of how they were acquired — including shares received under an employee share plan. Note that this exemption does not extend to CGT on shares in private (unlisted) companies. Tax law is subject to change — always confirm current treatment with a qualified Nigerian tax adviser before establishing a scheme.

What ongoing reporting is required after the scheme is launched?

Once an ESIS is operational, the company has the following recurring compliance obligations: (1) Annual scheme report to SEC Nigeria — covering allotments made, shares outstanding, participants enrolled, and trust account status; (2) Annual disclosure in the company's audited accounts and annual report — NGX listing requirement; (3) Monthly PAYE filing for any allotment month — FIRS requirement; (4) WHT deduction and filing on dividend payments; (5) Market announcement for material scheme changes — NGX X-Disclosure. Shares Saver's administration platform generates the SEC annual report and dividend WHT workings automatically.

This guide provides general information only. Tax law and regulatory requirements change. Always confirm current obligations with qualified Nigerian legal and tax advisers before establishing or amending an employee share scheme.

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Set Up a Compliant Employee Share Scheme

Shares Saver guides Nigerian listed companies through the full regulatory process — from board resolution and trust deed preparation to SEC notification, CSCS registration, and ongoing annual compliance reporting.

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Employee Share Scheme Regulatory Guide — Nigeria

This guide provides general information only. Always obtain qualified Nigerian legal and tax advice before establishing or amending an employee share scheme.