The Lagos State Internal Revenue Service (LIRS) has released a public notice to provide clarification on the taxation of share schemes where an employee derives a gain or benefit from the arrangement.
Employers are required to deduct PAYE on the benefits at the date of exercise. The amount to be subject to tax is the difference between the price paid for the shares and the value of the shares at the date of exercise. For listed entities, the value of the shares will be the price of the stock as traded on the relevant exchange, while for non-listed entities, the value of the stock will be the net asset per share. Where the employee pays no price, the total number of the shares (based on market value) awarded to the employee will be subject to tax.
Any gains accruing to the employee post exercise will be treated as capital gains which is currently exempt from tax. Any dividend or phantom dividend earned by the employee during the vesting period will be treated as employment income and taxed at applicable rates rather than withholding tax.
See below for more:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.