FORMS OF BUSINESS ORGANISATION: The main forms of business organisation in Ghana are as follows: 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 either private or public. A private company must limit the total number of its members and debenture holders to 50. Furthermore, 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 therefore 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, where its shares may be publicly traded.
PARTNERSHIPS: A partnership is the association of two or more individuals carrying out business activities with the aim of making 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 company in which the liability of its members limited the amount that the members undertake to contribute to the assets of the company should it be wound up. A company limited by guarantee may not be registered with shares and 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.
TAXATION LEGAL FRAMEWORK: Taxation in Ghana is unitary and administered by the Ghana Revenue Authority (GRA). Taxation is governed by these laws:
• Internal Revenue Act, 2000 (Act 592) as amended;
• Internal Revenue Regulations, 2001 Legislative Instrument (LI) 1675, as amended;
• Petroleum Income Tax Law, 1987, PNDCL 188;
• Value-Added Tax (VAT) Act, 1998 (Act 546), as amended;
• VAT Regulations, 1998, as amended;
• 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);
• The Free Zone Act, 1995 (Act 504); and
• Stamp Duty Act, 2005 (Act 689).
CURRENCY & EXCHANGE CONTROLS: The monetary unit is the Ghana cedi (GHS). It is important to note that the currency was redenominated with effect from July 1, 2007 such that 10,000 cedis in the old currency (GHC10,000) was converted to GHS1 in the new currency.
There are no restrictions on the repatriation of profits, dividends, interest, management and technical service fees, royalties and capital once there is evidence that appropriate taxes have been paid on the amount. Foreign currency earnings may be retained in bank accounts in Ghana and abroad. Foreign currency can be sold to authorised dealers (forex bureaux). Foreign employees may repatriate part of their net earnings through any approved commercial bank. The Domestic Tax Revenue Division of the GRA and the Registrar of Companies both accept financial statements in the major currencies if prior approval has been granted.
CLASSES OF TAXPAYERS: Taxpayers are classified as companies, individuals and body of persons, or estates. In terms of direct taxes, companies are taxed separately from their shareholders.
Ghana has not enacted 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 in Ghana runs from January to December. According to the tax law, individuals are assessed for tax with reference to the calendar year. In the case of companies, however, the tax year (basis period) is the accounting year of the company.
TAXATION OF CORPORATE BODIES: A resident company in Ghana, for tax purposes, is a company that 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. ResCapital allowance for depreciable assets ident 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 rates and incentives vary according to the industry and/or location of the business. The standard corporate tax rate is currently 25%, except for mining companies, which pay tax at 35% and hotels at 20%. Various tax and non-tax incentives are offered to investors regardless of their country of origin. Tax incentives range from reduced corporate tax rates on certain transactions to tax exemptions.
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 are deductible for tax purposes only when they are wholly, exclusively and necessarily incurred in the generation of the business income to which they are being charged.
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.
Act 592 specifies the rate and method applicable to different classes of assets. The rules are as follows: depreciable assets under classes 1, 2 and 4 are placed into separate pools for each class of asset, and capital allowance 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.
FILLING OF RETURNS & PAYMENT OF TAXES: A company must submit its statement of income, together with its tax return and other relevant information as may be determined by the commissioner of the GRA within four months after the end of its 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).
Late filing incurs a penalty of GHS4 ($1.88) for each day the return remains outstanding.
The late payment of taxes due is subject to a 10% penalty for the first three months of non-payment, and a 20% cumulative penalty thereafter. These rates are increased by an additional 10% when the tax due is tax withheld from another taxpayer.
TAXATION OF NON-RESIDENT ENTITIES: Permanent establishments of non-resident persons in Ghana 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 generally 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 of that person.
TAX TREATMENT OF INDIVIDUALS: Resident individuals are generally taxable on their Ghanaiansourced 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 a 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 ($814) of income (see table). The rate of tax for non-resident individuals is set at a flat rate of 15% of the gross income.
TAXABLE INCOME: An individual’s taxable income for a year of assessment is his or her gross income, less reliefs. Certain income is exempt, including inheritances under a will, pensions, social security pay 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 income tax rates Income attributable to employment in Ghana is taxable in Ghana, wherever and however it is paid.
PERSONAL RELIEFS TO RESIDENT INDIVIDUALS: undefined A resident individual may deduct various reliefs from gross income in arriving at his or her annual chargeable income. The reliefs include, GHS200 ($94.50) for a married taxpayer supporting a spouse or an unmarried taxpayer supporting at least two children; GHS200 ($94.50) for an individual who is 60 years or older earning income from an employment or business; child education relief of GHS200 ($94.50) per child (up to a maximum of three children); and an additional relief of GHS100 ($47.03) for taxpayers supporting an elderly relative (up to a maximum of two such relatives). An individual undergoing training is granted relief of GHS400 ($188.11), 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: In the case of employment income, the employer is responsible for withholding the employee’s tax and paying it over 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. Like companies, these individuals have the right to object to the assessments, but they must provide support for their objections. Advance tax payments are made quarterly.
WITHHOLDING TAXES: Tax is withheld and paid to the GRA at various rates ranging from 8% to 15%, depending on the type of transaction.
DOUBLE TAXATION TREATIES: Ghana has operational 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 (see table).
Where there is a treaty with the government of Ghana, the terms of the treaty prevail over all provisions of the 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 accruing to or derived by a taxpayer from the realisation (disposal) of chargeable assets. Both corporate entities and individuals are subject to the tax, although there are exemptions for transfers within families.
Taxable assets are defined as business assets (including goodwill), 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 is computed by deducting from the amount realised the taxpayer’s cost in acquiring the asset and the various expenses, including 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 of GHS50 ($23.51) or less are not taxable.
There are exemptions for capital gains arising on 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 five years from the commencement date.
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.
RETURNS & PAYMENT OF TAX: Within 30 days following the realisation of a chargeable asset, a taxpayer must furnish the commissioner with a return in writing containing the description of the asset, its location, consideration received, the full name and address of the new owner, details of the cost base of the asset, the amount of any capital gain and tax payable, along with any other relevant information.
Double taxation treaties GIFT TAX: Gift tax is levied on specified assets received as gifts. The tax is borne by the recipient. Assets subject to this tax include land, buildings, securities, cash, goods and chattels. Exempt gifts include those not exceeding GHS50 ($23.51) in value, inheritances, gifts received by a person from a spouse, child, parent, aunt, nephew or niece, gifts given to religious bodies and gifts for charitable or education purposes.
The gift tax is levied based on the value of the gift. If the value is less than GHS50 ($23.51), tax is still payable if the aggregate value of gifts received by the recipient in one year of assessment exceeds this amount. The rate of the tax is 15%.
VAT & NHIL: 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 (CIF) value. The standard VAT rate is 12.5% and the NHIL rate is 2.5%.
A person whose business turnover is below GHS90,000 ($42,323) but exceeds GHS10,000 ($4702) over a 12 month period or proportionately thereof is registrable as a taxable person. VAT-registered suppliers must submit returns and pay any tax due to the tax authorities on or before the last working day of the following month.
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 and services imported by the taxable person and used wholly, exclusively and necessarily in the course of his/her business, subject to the conditions that the supply is a taxable supply and 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 shall be credited to the taxable person. However, in the case of exports, the commissioner may refund the excess credit to the person when exports exceed 70% of the total supplies within the accounting period.
Further, the excess credit should have remained outstanding for a continuous period of three months or more to be eligible for deduction.
EXEMPTED GOODS & SERVICES: Certain supplies, such as the export of taxable goods and services as well as locally produced agricultural machinery and implements, are zero-rated. The following supplies are also exempt from VAT: insurance; banking; the transfer of a business as a going concern to another taxable person; 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; land and buildings; and many basic necessities, such as domestic electricity and water supply, salt and mosquito nets, essential drugs 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 taxes on petroleum products. Mineral royalties are between 3% and 6% of revenues earned. There is a 6% communication services tax on 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 total 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: LI 2188, which covers transfer pricing, was introduced in September 2012 to address the limitations of the provisions outlined in Sections 70 and 112 of Act 592, including the definition of “arm’s length”, the guidance on the determination of an arm’s length price and setting out transfer pricing documentation requirements.
The regulations require taxpayers to demonstrate that all related-party transactions are carried out at arm’s length. Thus, transactions among related parties are consistent with those which would have been earned by independent or unrelated entities under similar circumstances.
THIN CAPITALISATION: Where an exempt-controlled resident entity which is not a financial institution has an exempt debt-to-exempt-equity ratio in excess of 2 to 1 at any time during a basis period, a deduction is disallowed for any interest paid or foreign currency exchange loss incurred by that entity during that period on that part of the debt which exceeds 2 to 1, being a portion of the interest or loss that is otherwise deductible. “Exempt-controlled resident entity” refers to a resident entity in which 50% or more of the underlying ownership or control of the entity is held by an exempt person.
GENERAL ANTI-AVOIDANCE RULE: For the purposes of determining the tax liability of a person under Act 592, as amended, the commissioner may re-characterise or disregard an arrangement or part of an arrangement that is entered into or carried out as part of a tax avoidance scheme: a) which is fictitious or does not have a substantial economic effect; or b)the form of which does not reflect its substance.
TAX INCENTIVES: There are a number of 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.
These cannot be exhaustively dealt with, but below are some of such concessions and the industries to which they relate.
CARRY-OVER LOSSES: For the purposes of ascertaining the income for a basis period from a person operating in the agro-processing, farming, tourism, information and communications technology, manufacturing or mining sectors, there shall be deducted, for a period of five years, a loss of the previous five basis periods incurred by that person in carrying on that business activity.
Losses incurred by a qualifying venture capital financing company 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.
OTHER INCENTIVES: Act 592 also provides a variety of tax breaks and concessions for businesses in certain industries and particular regions. Agro-processing concerns based in the three northern regions, for example, pay 0% tax. Manufacturing operations are taxed at rates between 0% in free zones and 25% in Accra and Tema. The regulations also entitle new rural banking concerns to a tax holiday of 10 years.
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