For listed Nigerian employers
SEC Regulations & Tax Compliance for Employee Share Schemes in Nigeria
A comprehensive guide to SEC Nigeria rules, CAMA 2020 provisions, and FIRS tax treatment for Nigerian listed company employee share investment schemes.
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The Regulatory Framework: Who Governs Employee Share Schemes?
Employee share schemes (ESIS) in Nigeria are governed by four overlapping regulatory frameworks. Understanding which body has jurisdiction over which aspect of your scheme is the starting point for compliance.
SEC Nigeria
Primary securities regulator. Requires notification or approval when an ESIS is established. Oversees the issuance of shares under employee schemes and mandates ongoing disclosure for listed companies.
CAMA 2020
Corporate law framework. Sets the rules on a company's ability to allot new shares, acquire treasury shares for employee schemes, and the financial assistance prohibition — including the employee scheme exemption.
NGX Listing Rules
Exchange-level obligations. Requires listed companies to disclose ESIS information in annual reports, notify the exchange of allotments, and comply with insider trading restrictions for scheme participants.
FIRS / Tax Legislation
Tax administration. The Federal Inland Revenue Service administers PAYE on employment income (including share benefits), Withholding Tax on dividends, and Capital Gains Tax on share disposals.
CAMA 2020: What It Means for Your Employee Share Scheme
The Companies and Allied Matters Act 2020 introduced significant changes relevant to employee share schemes. Key provisions include:
Acquisition of Own Shares for Employee Schemes
CAMA 2020 permits a company to purchase its own shares for the purpose of a bona fide employee share scheme, provided that: the purchase is made out of distributable profits; the company is not insolvent at the time of purchase; the board of directors has passed a resolution authorising the purchase; and (in most cases) shareholders have approved the arrangement at a general meeting. Shares acquired in this way are held as treasury shares and subsequently transferred to participants on allotment.
Financial Assistance — The Employee Scheme Exemption
CAMA 2020 prohibits a company from giving financial assistance for the acquisition of its own shares. However, the Act provides a specific exemption for employee share schemes that satisfy the qualifying conditions. An independent trust structure — where the trust, not the company, holds and administers the shares — is the standard mechanism for ensuring this exemption applies correctly.
Board and Shareholder Approval Requirements
The board resolution must specify the terms of the scheme, the number of shares available, the eligible participants, and the funding mechanism. For allotment of new shares, a separate authority to allot must be in place (either from the articles or from a shareholder resolution). Shareholder consent thresholds vary by scheme type and structure — listed companies should take specialist legal advice on the precise resolution language required.
Tax Treatment by Scheme Type
The table below summarises the primary tax events and treatment for each common ESIS structure in Nigeria. This is a general summary — obtain tax advice for your specific scheme.
| Scheme Type | Tax Event | PAYE / Income Tax | Dividends | Capital Gain on Sale |
|---|---|---|---|---|
| Direct Allotment (ESIS) | Allotment date | Benefit in kind — market value of shares at allotment date is subject to PAYE | 10% WHT deducted at source (final tax) | Individual gains: 2026 thresholds and reinvestment relief apply; otherwise progressive personal income tax rates |
| Payroll Deduction (ESPP) | Purchase date (if company subsidy) or at sale | Any company subsidy or discount is a benefit in kind subject to PAYE | 10% WHT deducted at source (final tax) | Individual gains: 2026 thresholds and reinvestment relief apply; otherwise progressive personal income tax rates |
| Performance Share Plan (PSP) | Vesting date | Market value of vested shares at vesting date — PAYE applies | 10% WHT deducted at source (final tax) | Individual gains: 2026 thresholds and reinvestment relief apply; otherwise progressive personal income tax rates |
| Employee Stock Option (ESOP) | Exercise date | Gain at exercise (market value minus exercise price) — PAYE applies | 10% WHT deducted at source on any dividends after exercise | Individual gains: 2026 thresholds and reinvestment relief apply; otherwise progressive personal income tax rates |
| Phantom Share Plan | Payment date | Cash payment treated as employment income — PAYE applies in full | Not applicable (no actual shares) | Not applicable (no actual shares) |
FIRS Compliance for Employee Share Scheme Participants
Employer Obligations
Employers must operate PAYE on any taxable benefit arising from an employee share scheme. This includes: the market value of shares allotted at the allotment date; any gain realised at option exercise; and any company subsidy or below-market purchase price in an ESPP arrangement. These benefits must be included in monthly PAYE remittances to FIRS and reported on the annual PAYE return (Form A). Employers must maintain detailed records of all allotments, vesting events, and exercise transactions.
Employee Self-Assessment
Employees who receive shares under an ESIS should ensure their individual tax returns correctly reflect the taxable benefit received. Where PAYE has been correctly operated by the employer, no additional income tax liability arises. However, employees should retain their allotment confirmations and any PAYE deduction certificates as evidence of correct tax treatment.
WHT on Dividends
Dividends on CSCS-registered shares are subject to 10% WHT deducted at source by the company or its registrar. Employees who are registered shareholders — including ESIS participants who have had shares allotted in their name — will have WHT deducted before receiving their dividend payment. This WHT is a final tax for individual shareholders: no further income tax is due on the dividend.
Frequently Asked Questions
Does SEC Nigeria need to approve an employee share scheme?
SEC Nigeria requires listed companies to notify the Commission when establishing an ESIS. The specific requirements — including whether pre-approval or post-establishment notification is required — depend on the scheme structure and the method of share acquisition. Shares Saver works alongside legal advisers to ensure the correct filing process is followed.
Are employee shares subject to PAYE in Nigeria?
The tax treatment depends on the scheme type and the point at which the benefit arises. For direct allotment schemes, a benefit in kind arises at allotment and is subject to PAYE based on the market value of the shares at that date. For option plans, PAYE typically arises at exercise. Employers are responsible for operating PAYE on these benefits. Employees should also report the benefit in their individual self-assessment filings where applicable.
What is the Capital Gains Tax (CGT) treatment of employee shares in Nigeria?
The Nigeria Tax Act 2025 came into force on 1 January 2026 and replaced the previous capital gains tax framework. For individuals, chargeable gains are taxed at personal income tax rates (progressive bands). Gains on disposing of shares are exempt where total disposal proceeds are below ₦150 million and chargeable gains do not exceed ₦10 million in any 12 consecutive months; the amount of share-disposal proceeds reinvested in shares of Nigerian companies is also exempt. Employees should confirm how the rules apply to them with a qualified Nigerian tax adviser.
How are dividends on employee shares taxed in Nigeria?
Dividends on Nigerian shares are subject to Withholding Tax (WHT) at 10% at source. This WHT is deducted by the company (or its registrar) before distributing dividends to registered shareholders, including employee scheme participants. For most individuals, WHT on dividends is a final tax — no further income tax is due on the dividend income.
What does CAMA 2020 say about financial assistance for employee share schemes?
CAMA 2020 restricts a company from giving financial assistance for the acquisition of its own shares. However, the Act provides an exemption for bona fide employee share schemes that satisfy specified conditions, including that the scheme is established by the company's board, participates broadly in the workforce, and the financial assistance does not materially prejudice the interests of the company or its shareholders.
What FIRS compliance obligations do employers have for employee share schemes?
Employers must operate PAYE on any benefit in kind arising from an employee share scheme, including the value of shares allotted and any gain on option exercise. These benefits must be included in monthly PAYE remittances and reported on annual PAYE returns. Employers should maintain records of allotments, vesting events, and exercise transactions to support FIRS compliance and audit.
Speak to Our Team About Compliance
Shares Saver administers employee share schemes in compliance with SEC Nigeria rules, CAMA 2020, and NGX obligations. We work alongside your legal and tax advisers to ensure every aspect of your scheme is correctly structured and reported.