Taxes for individuals and businesses in Ghana

The Ghana Revenue Authority (GRA) is the agency mandated to assess and collect taxes in the country. It enforces tax-related legislation, and acts as an arbitrator in the event of a dispute. It falls under the umbrella of the Ministry of Finance and Economic Planning.

Taxes in Ghana are divided into two main categories: direct taxes which are levied on income or profit, and indirect taxes which are levied on undertaken transactions. Taxable persons are categorised as either individuals or entities. Entities mainly comprise companies – including branches – trusts and partnerships.

Tax Residency

An individual is tax resident in Ghana during a year if the individual is Ghanaian, excluding Ghanaians who have permanent homes abroad and live there for the entire year. Foreign nationals who are present in Ghana for an aggregate of 183 days or more in any 12-month period – that is, at least half of the year – are likewise considered tax resident in Ghana.

A partnership qualifies as tax resident for a year if any of its partners resided in Ghana at any time during that year. Similarly, a company qualifies as tax resident for a year if it is incorporated under the Companies Act, or if management and control of the company are exercised in Ghana at any time during the year.

A Ghanaian permanent establishment is treated as a resident company for income tax purposes.

Persons who do not meet the above definitions are non-resident for tax purposes.

Income Tax

Income tax is the principal direct tax charged on the income or profit of taxpayers. Generally, the taxpayer’s nature (whether an entity or natural person), residency status and sources of income together determine the income that should be taxed and the rate of tax that should apply.

Sources of Income

The taxable income of a person for a year of assessment comprises the total of that person’s income from business, employment and investment, less the total amount of deductions allowed for that person. For resident persons, this income is defined as worldwide income, or income from sources within and outside Ghana.

For non-resident taxpayers, the income must be sourced from Ghana – that is, generated in Ghana or having sufficient connection to the country. Some of the payments that are considered sourced from – and therefore as taxable in – Ghana are as follows:

• Dividend payments made by a tax-resident company;

• Interest payments made by a tax-resident person (including Ghanaian permanent establishments) or made in relation to a debt obligation secured by a real estate property located in Ghana;

• Payments related to natural resources in Ghana;

• Rent and royalty paid for the use of, right to use or forbearance from using an asset in Ghana; and

• Payments made for conducting or forbearance from conducting an activity in Ghana.

Tax Year

Income or profit is calculated, taxed and collected in accordance with Ghana’s definitions of the tax year. A tax year is interpreted in two ways:

• Year of assessment: the fiscal or government year that corresponds with the calendar year. This does not change regardless of the taxpayer’s year, and is typically the year in which tax is collected.

• Basis period: the year or period of reference for calculating a particular type of tax. This will align with the taxpayer’s accounting year in some cases. For example, a company that has an accounting year that ends on June 30, 2021 can have a year of assessment spanning January 1, 2021 to December 31, 2021 as the basis period for its corporate income tax calculations. For an individual, the year of assessment is always the same period as the basis period.

For every tax assessment or filing, it is necessary to note the year of assessment and basis period. However, filers and applicants should focus on the basis period, as it usually is the reference period for calculating the tax.

Taxation of Individuals

Individuals who are resident in Ghana are currently taxed according to a graduated scale (see annual rate table), while non-resident individuals are taxed at a flat rate of 25%. The tax on employment income is required to be withheld at its source and remitted to the GRA by the 15th of the month, following the month for which the employment income tax was withheld. Individuals are required to account for their income and expenses on a cash basis. Thus, when computing their taxable income for each calendar year, individuals must include income received and exclude expenses paid.

Individuals may claim tax deductions for statutory contributions towards retirement, and for mortgage interest and other personal relief ranging from GHS100 ($17.09) to GHS600 ($103), or 25% of their non-investment taxable income, subject to meeting qualifying criteria and approval.

The tax year for individuals is the calendar year. Every individual is required to file personal income tax returns by the end of April each year and settle any outstanding taxes, especially on their total income.

Taxation of Entities

A typical Ghanaian company is taxed first on the company’s taxable profit, and shareholders are taxed on the residual profits distributed by the company. This is true of branches in Ghana if the profit is not repatriated to the head office. The profit of a trust is taxed, while the amount distributed to beneficiaries is not. In a partnership, only the partners are taxed; the partnership as an entity is not.

Unlike individuals, companies and other corporate bodies are required to account for income and expenses on an accrual basis for each accounting – rather than calendar – year. Most companies in Ghana are taxed at a rate of 25%; those in the extractive sector are generally taxed at a rate of 35%. However, there are varying concessionary tax rates available to companies based on the nature of their business, industry and location.

Companies pay taxes through self-assessments and withholding at the source, with the companies themselves acting as withholding agents for the government (see table for the various withholding tax rates). In the third month of each resident company’s accounting year, the firm is required to file a self-assessment form declaring an estimate of taxes payable for the accounting year. The estimated tax must then be paid to the GRA in quarterly instalments, and the amount paid must constitute at least 90% of the actual tax payable for the accounting year. Resident companies are also required to file corporate income tax returns no more than four months after the end of their accounting year.

Double Taxation

Resident taxpayers ( excluding partnerships) can claim a tax credit in Ghana for income tax they pay in a foreign country with respect to foreign-sourced income, to the extent that the foreign-sourced income is included in the taxable income of that taxpayer. Ghana has operational double tax treaties with France, Germany, the UK, South Africa, Italy, Belgium, the Netherlands, Switzerland, Denmark, Mauritius, Czech Republic, Singapore and Morocco. There are a few other treaties that are at different levels of completion. These treaties are intended to relieve residents of the contracting states of an obligation to pay taxes on income accrued in both states.

Deductions

In ascertaining taxpayers’ taxable income, taxpayers are permitted to deduct expenses incurred in generating their income, subject to certain conditions. Permitted deductions include:

• Depreciation or capital allowance;

• Tax losses for the five previous years, in line with specified conditions; and

• Research and developments costs, even if they are capital in nature. Deductions may also be granted as an incentive for hiring recent graduates.

Meanwhile, non-deductible payments include:

• Accounting depreciation;

• Domestic expenditure;

• Bribes, fines and penalties;

• Losses incurred on the realisation of business or investment assets and liabilities; and

• Interest on established excessive debt. Payment for repairs and improvements, financial costs and bad debts are restricted under certain conditions.

Tax Incentives

Tax incentives offered in Ghana usually take the form of tax holidays, tax exemptions and concessionary tax rates. Fixed-term tax holidays include a five-year tax exemption on the business income of real estate companies, livestock farmers, agro-processing companies and young entrepreneurs operating in certain industries; and a 10-year tax exemption for free zone developers and enterprises, rural banks, venture capital financiers, tree crop farmers and cattle farmers.

Tax exemptions are also available for the following sources of income:

• Proceeds paid to life insurance policyholders by a resident insurer;

• Income of approved real estate investment trusts, unit trusts and mutual funds;

• Dividends paid by one resident company to another, where the company receiving the dividend controls at least 25% of the voting power in the company paying the dividend. This exemption does not apply to certain special industries;

• Profit after tax of a private university, on condition that 100% of the profits be ploughed back into the business; and

• Interest paid to individuals by resident financial institutions or on bonds issued by the government. Lastly, concessionary tax rates on certain kinds of income are available to individuals and companies active in specified industries:

• Income of manufacturing companies located outside Accra or Tema is taxed at 18.75% if they are located in another regional capital, and 12.5% if they are located outside the regional capitals;

• Income of free zone developers and enterprises derived from exports is taxed at 15%;

• Overtime payments to qualifying junior employees are taxed at either 5% or 10%;

• Bonus payments below 15% of the recipient’s annual basic salary are taxed at 5%; and

• Income of young entrepreneurs operating in certain businesses is taxed at 15% for the five years following the five-year tax holiday.

Fiscal Stabilisation

The National Fiscal Stabilisation Levy is a direct tax levied at 5% of the accounting profits of companies in specific industries, including selected financial services; telecommunications; breweries; mining support services, inspection and valuation; and shipping, maritime and airport terminals. The tax was designed to be temporary when it was introduced in 2013, but it has been repeatedly extended and is now scheduled to expire in December 2024.

Similarly, the Financial Sector Levy is a direct tax levied at 5% of the accounting profits of banks, with an exception granted for the country’s rural and community banks. The tax is designed to be a temporary tax and aims to raise revenue to support financial sector reforms. The levy was introduced in March 2021 and is expected to expire in December 2024.

Value-added Tax

Value-added tax (VAT) is charged and remitted to the GRA by VAT-registered suppliers on all goods and services made in or imported to Ghana, provided that these goods and services are not exempt. VAT-registered suppliers are generally defined as those with annual taxable supplies that exceed or are expected to exceed a turnover threshold of GHS500,000 ($85,500). The VAT rates are 0% for exported supplies and other designated supplies, 3% on taxable supplies made by retailers with turnover thresholds between GHS200,000 ($34,200) and GHS500,000 ($85,500), and 12.5% for all other taxable supplies.

The VAT base for local supplies is equal to the sum of the invoice value, plus the values of the National Health Insurance Levy (NHIL) and the Ghana Education Trust Fund Levy (GETFL). In the case of imported supplies, the VAT base is equal to the sum of duty-inclusive costs, insurance costs and freight value. VAT-registered suppliers are required to submit monthly VAT returns and remit VAT payable to the GRA by the last working day of the month following the month to which the return relates. In determining the VAT payable for each month, VAT-registered suppliers are permitted to deduct VAT incurred in their registered business activities, provided certain conditions are met. Some specifically exempted supplies include:

• Agricultural inputs;

• Financial services;

• Domestic transportation;

• Crude oil and hydrocarbon products;

• Medical services and medical supplies;

• Machinery and parts of machinery; and

• Accommodation in a dwelling or land for agricultural use, as well as for civil engineering public works.

Designated VAT-registered entities are required to withhold VAT for standard-rated VAT supplies and remit the withheld VAT to the GRA by the 15th of the month following the month for which the VAT was withheld. The withholding VAT is calculated as 7% of the taxable value of the supply. VAT-registered entities are broadly selected from the financial, upstream petroleum and mining sectors, as well as various government agencies. Designated VAT-registered entities are required to issue withholding VAT credit certificates, which may be used by the affected suppliers to reduce VAT payable.

Targeted Levies

In August 2018 the NHIL and the GETFL – both levied at 2.5% of the invoice value of supplies – were decoupled from VAT, and are no longer deductible in calculating VAT payments. Unlike VAT, the NHIL and the GETFL apply to imported services, regardless of whether the service is eventually used in the taxable activity. VAT-registered suppliers are required to file separate NHIL and GETFL returns by the same due date as VAT.

The Covid-19 Health Recovery Levy (CHRL) was introduced in 2021 and is applied before the charging of VAT, similar to the NHIL and the GETFL. Unlike the previous two levies, however, the CHRL – issued at 1% on the supply and import and goods and services – also applies before the charging of the 3% flat-rate their VAT return.

Licensed oil marketing firms are required to charge a special petroleum tax (SPT) at specific rates per litre or kg of petrol, diesel, liquefied petroleum gas, natural petroleum gas and kerosene. The collected SPT must be remitted by the same due date as VAT.

Import Duties

Imports typically attract duties of up to 35% of the cost of insuring and freight of imported items, depending on the nature of the item. Certain goods also attract an additional 2% special import levy, though this levy is expected to expire in December 2024. An additional African Union (AU) levy of 0.2% applies to eligible goods imported from non-AU member states to AU member states for consumption in the member state. The aim of the levy is to provide a reliable and predictable source of funding for the AU and some of its specialised agencies. Similarly, an ECOWAS levy of 0.5% is imposed on imports of goods from non-ECOWAS member states to finance activities of ECOWAS Commission and other community institutions.

An export and import (EXIM) levy of 0.75% applies to all imports of goods to Ghana. The proceeds thereof are allocated to the Ghana EXIM Bank and the Ghana Export Promotion Agency. There are statutory administrative charges that range between 0.4% and 3.45%, and are applied on the value of the goods that are imported to Ghana. These charges apply regardless of any import duty exemptions.

Miscellaneous Taxes

Other taxes imposed in Ghana include:

• Environmental excise tax of 10% on plastic products;

• Airport tax of GHS5 ($0.85) on local travel and $ 60-200 on foreign travel;

• Stamp duty on the issuance of new shares and written contracts at various rates;

• Excise duty of up to 175% on certain products, such as beer and tobacco. Excise tax stamps are to be affixed on such products that are manufactured in or imported to Ghana;

• Communication service tax of 5% on electronic communication services; and

• Mineral royalty of 5% from mining companies, subject to any fiscal stability agreement.

Transfer Pricing

Ghana’s Transfer Pricing Regulations require that transactions between related parties – for example, parent-subsidiaries, associates and relatives – be conducted at arm’s length. The regulations also cover transactions between an employer and employee. At the end of every year, taxpayers who have conducted business with related parties are required to complete and submit:

• Annual transfer pricing returns within four months of the end of the basis period;

• A country-by-country report within 12 months of the last day of the reporting fiscal year of the multinational enterprise group; and

• Supporting documentation or information on transactions with related parties in the form of master and local files within four months of the end of the basis period.

Tax Administration

The GRA administers taxation through three main divisions: the Domestic Tax Revenue Division (DTRD), the Customs Division and the Support Services Division. The DTRD organises taxpayers into three segments – called offices –based on turnover.

There are several main tax laws, including the VAT Act 2014, the Communication Service Tax Act 2008, the Transfer Pricing Regulations 2012, the National Fiscal Stabilisation Levy Act 2013, the Income Tax Act 2015 and the Customs Act 2015. The Revenue Administration Act 2016, for its part, prescribes a common approach to administering various tax regulations. Prior to the enactment of the legislation, each tax law included its own administrative rules, which frequently differed from those laid out in other tax-related regulations.