The tax system provides clear rules and incentivises certain activities

Forms Of Business Organisation

The main forms of business organisation in Ghana are private and public limited liability companies, branches of foreign companies, partnerships, sole traders, companies limited by guarantee and unlimited liability companies.

Limited Liability Companies

A limited liability company is a company in which the liability of its members is limited to any unpaid amount on the shares held by them. Ghana’s Companies Code, 1963 (Act 179) allows an individual to have 100% shareholding in a company. Companies in Ghana must have at least two directors, of which one must be resident in Ghana at all times. A company may be private or public. A private company must limit the total number of its members and debenture holders to 50. A private company is prohibited from making any invitation to the public at large to acquire any shares or debentures of the company. The transfer of shares in a private company is restricted. Any company with more than 50 shareholders is categorised as a public company and is thus permitted to make invitations to the public to acquire its shares or debentures. A public company may choose to be listed on the Ghana Stock Exchange.

Partnerships

A partnership is the association of two or more individuals carrying out business activities with the aim of making a profit.

Sole Proprietorships

A business name registered by an individual without a partner to carry on the business is a sole proprietorship. Sole proprietors’ personal liability is unlimited in this case.

Unlimited Companies

An unlimited company is a company that does not have any limit on the liability of its members.

Companies Limited By Guarantee

A company limited by guarantee is a firm in which the liability of its members is limited to the amount that the members undertake to contribute to the assets of the firm should it be wound up. Such a company may not create or issue shares. Such companies are not incorporated with the object of carrying on business to make a profit.

External Companies

A company incorporated outside of Ghana that has an established place of business in Ghana is known as an external company and is similar to a branch operation. These firms appoint a local manager via power of attorney.

Foreign Investment In Ghana

Foreign investments into Ghana are facilitated by the Ghana Investment Promotion Centre (GIPC) under the GIPC Act, 2013 (Act 865). All enterprises with foreign participation are required to be registered with the centre. The act sets out minimum capital requirements as follows:

• For a 100% foreign-owned company (other than a trading company) a minimum foreign capital of $500,000 in cash and/or capital goods is required, and $200,000 for a joint venture with a Ghanaian holding at least 10% equity.

• A fully foreign owned trading company (engaged in purchase and sale of imported goods in Ghana) requires $1m in capital in the form of cash, goods and services relevant to the investment.

• The minimum capital requirements do not apply to registration of a branch (permanent establishment) of a foreign company in Ghana.

Taxation Legal Framework

Taxation is administered by the Ghana Revenue Authority (GRA) through its Domestic Tax Revenue and Customs Divisions. The main enactment that provides for income taxes, capital gains tax and gift tax is the Internal Revenue Act, 2000 (Act 592) as amended. Value Added Tax Act, 2013 (Act 870) provides for the imposition of value-added tax (VAT) on all taxable supply of goods and services made in Ghana. Other principal enactments include:

• Petroleum Income Tax Law, 1987, PNDCL 188;

• National Health Insurance Act, 2003 (Act 650);

• Customs, Excise and Preventive Service ( Management) Law, 1993 (PNDCL 330), as amended;

• Communications Service Tax Act 2008 (Act 754), as amended;

• Transfer Pricing Regulation, 2012 (LI 2188); and

• The Free Zone Act, 1995 (Act 504).

Currency & Exchange Controls

The monetary unit is the Ghana cedi (GHS). As of beginning of October 2014 GHS1 is equivalent to $0.31. There are no restrictions on the repatriation of profits, dividends, interest, management and technical service fees, royalties and capital through authorised banks provided such transfers are supported with relevant documentation and there is evidence that appropriate taxes have been paid. Foreign employees may repatriate part of their net earnings through an approved commercial bank. An August 8, 2014 notice from the Bank of Ghana allows up to $50,000 transfers abroad without initial documentation. Foreign currency earnings may be retained in bank accounts in Ghana. Foreign currency can be sold to authorised dealers. The Domestic Tax Revenue Division of the GRA and the Registrar of Companies accept financial statements in major currencies if prior approval has been granted.

Classes Of Taxpayers

Taxpayers are classified as companies, individuals and body of persons, or estates. Companies are taxed separately from their shareholders. Ghana does not have group tax provisions. Each company in a group is treated as a separate entity for tax purposes. Groups of companies are not allowed to file consolidated tax returns. The tax year runs from January to December. Individuals are assessed for tax with reference to the calendar year. Companies are allowed to choose their accounting year as their tax year.

Taxation Of Corporate Bodies

A company is tax resident in Ghana if it is incorporated under the laws of Ghana or has its management and control of its business exercised within Ghana at any given time during the year. Resident companies are effectively liable for corporate income tax on worldwide profits. Income derived from, accrued in, brought into and received in Ghana is taxable. Non-resident companies, on the other hand, are only taxed on income sourced in Ghana.

Tax Rate And Incentives

The standard corporate tax rate is 25% on profit. Mining and petroleum exploration companies pay tax at 35% (based on concluded petroleum agreements) and hotels at 20%. Various tax and non-tax incentives are offered to investors according to the industry and/or location of the business. The incentives range from reduced corporate tax rates on certain income to tax holidays.

Chargeable Income

Ordinarily, a company’s chargeable income is based on the operating net profits reported in its annual financial statements, as adjusted by any differences between accounting requirements and tax laws. Such adjustments include non-deductible or disallowable expenses, capital allowances, exempt income and special reliefs allowed under the current tax law.

Deductions Allowed

Expenses wholly, exclusively and necessarily involved in the production of business income are tax deductible except where specifically disallowed. Deductible expenses include interest, royalties, rent, repair and maintenance expenses, employee/staff costs and all other costs incurred for the purposes of producing the income of the entity.

Capital Allowance

Capital allowances are granted, in lieu of depreciation, for each year of assessment in respect of depreciable assets owned by a company and used in carrying on business. A depreciable asset is an asset used in carrying on a business, provided that the asset is likely to lose value because of wear and tear, obsolescence or the effluxion of time, but does not include trading stock. Depreciable assets are placed in classes. Assets under classes 1, 2 and 4 are placed into separate pools for each class of asset, and capital allowance is granted for each pool on a reducing balance method. Capital allowance is granted for each class 3, 5 and 6 asset and is depreciated on straight-line basis. The rate of capital allowance ranges from a maximum of 40% on the reducing balance and straight-line basis depending on the class of assets.

Filing Of Returns & Payment Of Taxes

Company returns, together with financial statements, are to be submitted to the GRA within four months of the end of the company’s financial year. Any balance of tax outstanding, based on the estimates made in the taxpayer’s return, is payable at that time.

Companies are also required to make a quarterly tax payment on the current year’s income based on a provisional assessment made by the GRA or by the company itself (where the commissioner general of the GRA has granted that company permission).

Taxation Of Non-Resident Entities

Permanent establishments of non-resident persons are taxable only on income accrued in or derived from Ghana. All profits earned from business or investment carried on by a non-resident in Ghana will be deemed to have been derived from Ghana and will, therefore, be subject to tax. Permanent establishments of non-resident companies are taxable at the same rates and in accordance with the rules applicable to resident companies.

Branch Profit Tax

A 10% tax is imposed on the repatriated profits of permanent establishments of non-resident persons operating in Ghana. A person who has earned repatriated profits shall pay final tax on the gross amount of the earned repatriated profit to the GRA within 30 days after the basis period.

Tax Treatment Of Individuals

Resident individuals are taxable on their Ghanaian-sourced income and income brought into or received in Ghana. Non-resident individuals are taxable only on income derived from or accrued in Ghana. An individual will be classified as a resident if he or she spends a period of at least 183 days in any 12-month period in Ghana. Tax residence only begins on an expatriate’s initial arrival and ends on the date of final departure. A citizen of Ghana is always deemed to be tax resident in Ghana, unless they have a permanent home outside the country throughout the calendar year.

A non-resident is an individual, subject to the above, who is ordinarily resident outside Ghana or who is in Ghana for a temporary purpose only and does not have the intention of establishing residence in the country.

Personal Income Tax Rates

Individuals are taxed at progressive tax rate ranging from 5% to 25% after the first GHS1584 ($604) of income. The rate of tax for non-resident individuals is set at a flat rate of 20%.

Taxable Income

An individual’s taxable income for a year of assessment is his or her gross income, less reliefs. Certain incomes are exempt, including inheritances under a will, pensions, social security contributions and interest earned from a bank.

Employment Income

Taxable income from employment includes salaries and wages, bonuses, overtime and any kind of benefits. Remuneration earned by resident individuals for work performed abroad is normally taxable when brought into Ghana.

Personal Reliefs To Resident Individuals

Reliefs are granted to resident individuals on their gross income in determining their annual chargeable income. The reliefs include GHS200 ($76) for a married taxpayer supporting a spouse or an unmarried taxpayer supporting at least two children; GHS200 (76$) on income from employment or business to an aged (at least 60 years) individual; child education relief of GHS200 ($76) per child (up to a maximum of three children); and an additional relief of GHS100 ($38) for taxpayers supporting an elderly relative (up to a maximum of two such relatives). Also, an individual undergoing training is granted relief of GHS400 ($152), and in the case of a disabled individual, relief is granted on 25% of that individual’s assessable income from any business or employment. Subject to limits, social security contributions and life insurance premiums are also deductible from taxable income.

Personal Assessments & Payments

An employer is responsible for withholding employee income tax at time of payment of salary or other emoluments. The tax withheld is payable to the tax authorities on or before the 15th day of the following month. Individuals must file an annual tax return and pay the tax or balance of tax owed on other income. The instalment system applied to corporate taxpayers also applies to unincorporated businesses, including self-employed persons, traders and professionals in private practice. These groups are issued provisional assessments by the commissioner at the beginning of each tax year.

Withholding Taxes

Resident entities are required to withhold tax at various rates when making payments to resident and non-resident persons.

Double Taxation Treaties

Ghana has double taxation treaties with Belgium, France, Germany, Italy, the Netherlands, the Republic of South Africa, the UK and Switzerland. These treaties may reduce the withholding tax rates on payments to non-residents. The terms of a double tax treaty prevail over all provisions of the local income tax law. However, where the rates of taxes set out in a treaty are higher than those of the laws of Ghana, the lower rates are used.

Capital Gains Tax

Capital gains tax is payable at 15% on the capital gains derived from the realisation (disposal) of chargeable assets. Both corporate entities and individuals are subject to the tax, although there are exemptions for transfers among family members. Chargeable assets include business assets, entire businesses, permanent and temporary buildings, land (except agricultural land), stock rights and share interests, and any other assets declared by law as taxable. Capital gains tax applies on the excess of the amount realised over the cost of acquiring the asset and the cost of improvements and costs incidental to the sale. Gains are taxable even if the amount realised is paid in kind rather than in cash. However, gains up to GHS50 ($19) in a year are not taxable. There are exemptions for capital gains arising from the disposal of securities of companies listed on the Ghana Stock Exchange, and on mergers and other reorganisations provided there is substantial (25%) continuity of underlying ownership.

Capital gains of venture capital finance companies are exempt for 10 years from the commencement date. Also, under a rollover provision, a gain is not taxable if the proceeds of the disposal of the asset are used to acquire an asset of the same nature within one year following the date of disposal. A taxpayer who derives capital gains is required to submit a return to the GRA within 30 days from the disposal of a chargeable asset.

Gift Tax

Gift tax is levied at 15% on specified assets received as gifts, including land, buildings, securities, cash, goods and chattels. Exempt gifts include those not exceeding GHS50 ($19) in value, inheritances, gifts from a spouse, child, parent, aunt, nephew or niece, gifts given to religious bodies and gifts for charitable or education purposes.

VAT & The National Health Insurance Levy

VAT and the National Health Insurance Levy (NHIL) are imposed on the supply of goods and services made in Ghana and on the importation of goods and services into Ghana. The tax base for local supplies is the invoice value, whereas the tax base for imports is the duty-inclusive cost, insurance and freight value. The standard VAT rate is 15% and the NHIL rate is 2.5%. Businesses making turnover in excess of GHS120,000 ($45,744) over a 12-month period or proportionately are required to register for VAT. VAT-registered suppliers must submit returns and pay any tax due to the tax authorities on or before the last working day of the subsequent month. A new VAT Act has been enacted effective January 8, 2014. The new VAT Act is intended to widen the coverage of the tax and includes supplies that were hitherto exempted. The new taxable supplies include sale of immovable property by real estate companies, financial services provided for a fee, non-life insurance and domestic air transport services.

Deductible Input VAT & Refunds

A taxable person may deduct the following from the output tax due for the period: tax on goods and services purchased in Ghana or goods imported by the taxable person and used wholly, exclusively and necessarily in the making of taxable supplies provided the taxable person is in possession of a VAT invoice or relevant Customs entries indicating the VAT paid. Where the deductible input tax exceeds the output tax due in respect of the accounting period, the excess amount can be credited. Businesses exporting more than 25% of their total supplies may apply for refund of excess input tax credit attributable to the exports that remains outstanding for a continuous period of three months or more.

Exempted Goods & Services

Export of goods and services are zero-rated VAT supplies. The following supplies are exempt from VAT: agricultural inputs, livestock and agricultural products in a raw or preserved state; machinery for use in agriculture, fisheries, horticulture and animal care; oil and gas products; as well as many basic necessities, such as domestic electricity and water supply, salt and mosquito nets, education services, medical supplies and medical services.

Miscellaneous Taxes

Other taxes levied include: stamp duties (0.5%) on the issue of shares, also chargeable on the transfer of land/real estate and other property and the registration of certain legal documents; registration fees; municipal rates on the occupation of real property; Customs and excise duties; tax on airport departures; special taxes on beer and cigarettes; tax on casino revenues; and various other taxes on petroleum products. Mineral royalties range between 3% and 6% of all company revenues earned. In addition there is a 6% communication services tax applied to all communications-related transactions.

Income Splitting

Where a person attempts to split income with another person, the commissioner of the GRA may adjust the chargeable income of both persons to prevent a reduction in tax payable as a result of the splitting of income. A person is treated as having attempted to split income where that person transfers income, directly or indirectly, to an associate, or that person transfers property, including money, directly or indirectly, to an associate with the result that the associate receives or enjoys the income from that property, and the reason or one of the reasons for the transfer is to lower the tax payable on the income of that person and the associate.

In determining whether a person is seeking to split income, the commissioner shall consider the value given by the associate for the transfer. A transfer of income or property indirectly from a person to an associate of that person includes a transfer made through the interposition of other entities.

Transfer Pricing

Transfer pricing regulations provide guidance on the determination of an arm’s length price and set out transfer pricing documentation requirements. The regulations require taxpayers to demonstrate that all related-party transactions are carried out at arm’s length. Transactions among related parties must be consistent with those which would have been entered by independent or unrelated entities under similar circumstances.

Thin Capitalisation

There are thin capitalisation provisions that impose restrictions on the tax deductibility of interest charges applicable to related party loans. The rules restrict the deductibility of interest and foreign exchange losses on foreign parent (and related party) debt to a debt-to-equity ratio of 2:1. Interest charges (and foreign exchange losses) on the excess of the threshold 2:1 ratio relating to the non-resident-related party loan will not be allowed as tax deductible by the Ghana company.

Thin capitalisation restrictions apply where the resident entity is controlled by a non-resident entity or by a resident entity for whom interest income or any foreign exchange gain will be exempt.

Tax Incentives

There are several tax incentives provided for in Act 592, as amended, and other laws that aim to attract investment which would support the development of certain sectors of the economy or certain parts of the country. These incentives include reduced rate of taxes, exemption from the payment of duties and other taxes for specified periods, and carry-over of losses, among others.

Carry-Over Losses

For the purposes of ascertaining the income for a basis period from a person operating in the agro-processing, farming, information and communications technology, tourism, manufacturing or mining sectors, a loss in the previous five basis periods incurred by that person in carrying out business activity shall be deducted for a period of five years. Losses incurred by a qualifying venture capital financing firm from the disposal of share invested in a venture capital subsidiary company shall be carried forward for a period of five years after the date of disposal.