Ghana Corporate Tax Guide

Ghana

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Fax: +233 (302) 778-894 P.O. Box KA 16009 KIA – Accra Ghana

Mail address:

Street address: 60 Rangoon Lane Cantonments City

Accra Ghana

Principal Tax Contact

Isaac Sarpong

+233 (302) 779-742

Mobile: +233 (57) 765-3377

Email: isaac.sarpong@gh.ey.com

International Tax and Transaction Services – International Corporate Tax Advisory

Isaac Sarpong

+233 (302) 779-742

Mobile: +233 (57) 765-3377

Email: isaac.sarpong@gh.ey.com

International Tax and Transaction Services – Transaction Tax Advisory

Isaac Sarpong +233 (302) 779-742

Mobile: +233 (57) 765-3377

Email: isaac.sarpong@gh.ey.com

International Tax and Transaction Services – Operating Model Effectiveness

Kofi Akuoko

+233 (302) 779-868

Mobile: +233 (24) 406-3327

Email: kofi.akuoko@gh.ey.com

International Tax and Transaction Services – Transfer Pricing

Kofi Akuoko

Business Tax Advisory

Isaac Sarpong

People Advisory Services

Peter Dodoo

Indirect Tax

Louis Anderson

+233 (302) 779-868

Mobile: +233 (24) 406-3327

Email: kofi.akuoko@gh.ey.com

+233 (302) 779-742

Mobile: +233 (57) 765-3377

Email: isaac.sarpong@gh.ey.com

+233 (302) 779-868

Mobile: +233 (57) 765-3378

Email: peter.dodoo@gh.ey.com

+233 (302) 779-868

Mobile: +233 (24) 427-9758

Email: louis.anderson@gh.ey.com

A. At a glance

Corporate Income Tax Rate (%) 25

Capital Gains Tax Rate (%) (a)

Branch Tax Rate (%) 25

Withholding Tax (%) (b)

Dividends 8 (c)

Interest 8 (c)

Royalties 15 (d)

Management and Technology Transfer Fees 20 (d)

Directors’ Fees 20

Technical Service Fees 20 (d)

Branch Remittance Tax 8

Net Operating Losses (Years)

Carryback Unlimited (e) Carryforward 3/5 (f)

(a) Capital gains are added to business or investment income and taxed at the rate applicable to the person.

(b) Applicable to payments to residents and nonresidents.

(c) This is a final tax for both residents and nonresidents without a permanent establishment in Ghana.

(d) This is a final tax for nonresidents without a permanent establishment in Ghana only.

(e) Losses incurred on completion of long-term contracts may be carried back to prior tax years.

(f) Enterprises that operate in government priority sectors (petroleum operations, minerals and mining operations, energy and power, manufacturing, farming, agro-processing, tourism, and information and communication technology businesses) are allowed to carry forward their losses for a period of five years. All other enterprises are allowed to carry forward their losses for a period of three years. In addition, losses incurred by venture capital financing compa nies on the disposal of shares invested in venture capital subsidiary companies under the Venture Capital Trust Fund Act, 2004 (Act 680) and losses incurred by qualifying venture capital financing companies on shares in any venture may be carried forward for five years after the disposal of the shares.

B. Taxes on corporate income and gains

Corporate income tax. Resident companies are subject to tax on their business or investment income for the year, regardless of whether the source of the income still exists. A company is resi dent in Ghana if it is incorporated under the laws of Ghana or if its management and control are exercised in Ghana at any time during the year. Permanent establishments of nonresident companies in Ghana are also subject to tax on their worldwide income.

Rates of corporate income tax. The standard corporate income tax rate is 25%. However, various other tax rates apply to income derived from specified business activities.

Income derived from non-traditional exports is taxed at a rate of 8%. Income derived by banks from loans granted to farming enter prises is subject to tax at a rate of 20%. The rate of tax applicable to income derived by financial institutions from loans to leasing companies is 20%.

Rural or community banks are subject to tax at a rate of 1% for a period of 10 years beginning with their first year of operations.

The corporate income tax rate applicable to companies princi pally engaged in the hotel industry is 22%.

For petroleum extracting companies, the tax rate is 35%. The rate is consistent with the rate provided in the publicly disclosed

petroleum agreements that have been signed with the government of Ghana. After a company has recovered all outlays from an oil field plus a specified rate of return after deduction of tax, royal ties and an inflation adjustment, the government may negotiate for an additional share of the crude oil profits.

Mining companies are subject to corporate income tax at a rate of 35%. A holder of a mining lease, restricted mining lease or smallscale mining license must pay a royalty with respect to minerals obtained from its mining operations in Ghana. The royalty must be paid at the prescribed rate and in the prescribed manner.

Tax incentives. Ghana offers tax exemptions and tax reductions to companies engaged in specified industrial activities.

Income derived by companies from the business of constructing affordable low-cost residential premises for lease or sale is subject to tax at a rate of 1% for a period of five tax years (years of assessment). The tax-incentive period begins with the tax year in which the company begins its operations. If the company’s accounting year differs from the calendar year, the beginning of the tax-incentive period is the tax year in which the accounting period of the first year of operations begins.

Rural banks are subject to tax at a rate of 1% for their first 10 years of operation.

The income of a venture capital financing company is subject to tax at a rate of 1% for five years if the company satisfies the eli gibility requirements for funding under the Venture Capital Trust Fund Act. The tax-incentive period begins with the tax year in which the company satisfies the eligibility requirements.

Cocoa farmers are exempt from tax on income derived from cocoa. Cattle ranchers are subject to tax at a rate of 1% for the first 10 tax years. Income derived from tree crops, such as coffee, oil palm, shea nut, rubber and coconut, is subject to tax at a rate of 1% for 10 years following the first harvest. For a company’s first five years of operations, income derived from livestock (other than cattle), fishing and cash crops, such as maize, rice, pineapple, cassava and yam, is subject to tax at a rate of 1%.

Income of a company from an agro-processing business con ducted wholly in Ghana is subject to tax at a rate of 1% for a period of five tax years. The period begins with the tax year in which the company begins commercial production. If the com pany’s accounting year differs from the calendar year, the begin ning of the period is the tax year in which the accounting period of the first year of production begins.

Income of a company that commercially produces cocoa byprod ucts wholly in Ghana from substandard cocoa beans, cocoa husks and other cocoa waste as the principal raw materials is subject to tax at a rate of 1% for a period of five tax years. The tax-incentive period begins with the tax year in which the company begins com mercial production. If the company’s accounting year differs from the calendar year, the beginning of the period is the tax year in which the accounting period of the first year of production begins.

The income of a company whose principal activity is the processing of waste, including recycling of plastic and polythene

material for agricultural or commercial purposes, is subject to tax at a rate of 1% for a period of seven tax years. This period begins with the tax year in which the company begins its operations. If the company’s accounting year differs from the calendar year, the beginning of the tax-exemption period is the tax year in which the accounting period of the first year of operations begins.

Nonresident companies engaged in air and sea transportation are exempt from tax if the Commissioner-General of the Ghana Revenue Authority (GRA) is satisfied that the same types of companies resident in Ghana are granted an equivalent exemp tion by the nonresident company’s country of residence.

Manufacturing enterprises, other than those operating in free zones or engaged in the export of non-traditional goods, located in regional capitals other than Accra are entitled to a 25% income tax rebate, while manufacturing enterprises located outside regional capitals other than Tema are entitled to a 50% income tax rebate.

Capital gains. A company that derives a gain from the realization of a capital asset is required to include the gain in its business income unless the asset is held or used for investment purposes. In such case, the gain is included in determining the company’s investment income.

To calculate a gain from the realization of a capital asset, the cost basis of the asset is deducted from the proceeds received on the disposal of the asset. The cost basis of a chargeable asset is the sum of the following:

• Cost of the asset including incidental costs

• Expenditure incurred to alter or improve the asset

• Expenditure relating or incidental to the disposal of the asset

Administration. The Ghana Revenue Authority (GRA) is respon sible for the administration and collection of all taxes.

The tax year is the calendar year. If a company’s accounting year differs from the calendar year, its basis period for a tax year is the accounting year ending within the tax year.

Companies must file their tax returns within four months after the end of their accounting year.

Assessed tax must be paid on the date specified in the notice of assessment from the Commissioner-General of the GRA. In gen eral, companies whose accounting year differs from the tax year must make quarterly payments at the end of the third, sixth, ninth and twelfth months of their accounting year.

Companies that fail to pay income tax by the due date are liable to pay interest at 125% of the statutory rate on the amount of tax that remains unpaid, in addition to the tax payable. The interest is compounded monthly.

To make tax collection more efficient, taxpayers are segmented into various Tax Service Centers, which are deployed across the country to deliver seamless tax services, with a focus on small and medium taxpayers.

There is also a Large Taxpayer Office (LTO), which is a depart ment under the Domestic Tax Revenue Division of the GRA. The

LTO operates as a specialized office which focuses exclusively on tax administration of large taxpayers identified by the GRA. Large taxpayers are classified as companies and/or individuals involved in economic activities which yield or, per their sizes, are estimated to yield annual turnovers of GHS5 million and above. The category also comprises specialist industries regardless of their turnover. These include upstream and midstream petroleum companies, banking institutions, insurance companies, mining companies except quarries, and members of groups of companies of which at least one member qualifies as a large taxpayer.

Dividends. An 8% withholding tax is imposed on dividends paid to resident shareholders and nonresident shareholders unless exempt. This is a final tax.

Foreign tax relief. Foreign tax paid on foreign income is allowed as a credit against tax payable with respect to the foreign income received in Ghana. The amount of tax chargeable with respect to the income is reduced by the amount of the credit.

C. Determination of trading income

General. Chargeable income is based on the income reported in entities’ financial statements, subject to certain adjustments.

To be deductible, expenses must be wholly, exclusively and necessarily incurred in the production of income by the company during the financial year. Expenses that may be deducted include the following:

• Interest (subject to thin-capitalization rules; see Section E)

• Rent

• Repair of plant, premises, machinery and fixtures (see Repairs)

• Bad debts (see Provisions)

• Research and development expenditure

• Financial costs (see Financial costs)

Repairs. Expenditure on repairs and improvements to a deprecia ble asset are deductible expenses, regardless of whether they are of a capital nature. However, the amount deductible is limited to 5% of the written-down value of the pool to which the depreciable asset belongs. The excess expenditure is added to the writtendown value of such pool.

Financial costs. Financial costs other than interest incurred by an entity are deducted in calculating the income of the entity from an investment or business. However, the deduction is limited to the sum of the following:

• Financial gains to be included in calculating the income of the entity from the business or investment

• Fifty percent of the chargeable income of the entity for the year from the business or investment, calculated without including financial gains derived by the entity or deducting financial costs incurred by the entity

Any outstanding financial costs can be carried forward for up to five tax years.

The timing of the inclusions and exclusions of financial gains and costs is determined in accordance with generally accepted ac counting principles (GAAP).

Inventories. In determining the chargeable income of a person from a business, the cost of inventory used in generating the income is deducted. The deductible amount is determined by add ing to the value of the opening stock the expenses incurred by the person that is included in the cost of trading stock and deducting the value of the closing stock from the amount.

Provisions. Bad debts incurred in businesses other than banks are deductible if the company proves to the satisfaction of the Commissioner-General of the GRA that the debts have become bad, and that it has taken all reasonable steps to ensure payment, but to no avail.

Bad debts incurred in banking business are deductible if both of the following conditions are satisfied:

• The bank proves to the satisfaction of the CommissionerGeneral of the GRA that the debt is bad and the debt claim constitutes the advance of a principal sum in a case in which the cost of the debt claim is reduced by an equal amount.

• The bad debt write-off has been sanctioned by the Board of Directors of the bank and the prior written approval of the Bank of Ghana has been obtained.

The effective date of deduction of an approved bad debt write-off is the date of approval by the Bank of Ghana on or before the due date for submission of the annual return for the relevant tax year.

Under the Tax Act, provisions for bad and doubtful debts are not allowed for tax purposes.

All amounts recovered with respect to bad debts that were de ducted must be included in income for the accounting year of the recovery.

Research and development expenditure. Expenses with respect to research and development are deductible if the expenses are wholly, exclusively and necessarily incurred in generating the income of the business, regardless of whether the expense is of a capital nature.

Capital allowances (tax depreciation). Capital allowances are granted on depreciable assets. Depreciable assets are classified into five main classes. Assets in Classes 1, 2, and 3 are placed in separate pools, and capital allowances granted with respect to the pool. Capital allowances for Classes 4 and 5 assets are granted on individual assets of the same class. To claim capital allowances, a company must satisfy the following conditions:

• It used the asset in the production of the income.

• It incurred cost in purchasing the asset.

Capital allowances granted for a particular tax year are deemed to be deductions in arriving at the chargeable income or loss of the company.

The following table presents the various classes of assets and details for calculating their capital allowances (capital allowances granted with respect to assets used in mining and petroleum operations are not included in the table).

Rate Formula for calculating Class Assets % capital allowances

1 Computers and data 40 (A x B x C) ÷ 365 (a) handling equipment, together with peripheral devices

2 Automobiles; buses 30 (A x B x C) ÷ 365 (a) and minibuses; goods vehicles; construction and earth-moving equipment, heavy general purpose or specialized trucks; trailers and trailermounted containers; plant and machinery used in manufacturing; and costs of a capital nature with respect to long-term crop planting costs

3 Railroad cars, loco- 20 (A x B x C) ÷ 365 (a) motives and equipment; vessels, barges, tugs, and similar water transportation equipment; aircraft; specialized public utility plant, equipment, and machinery; office furniture, fixtures and equipment; and any depreciable asset not included in another class

4 Buildings, structures 10 (A x B x C) ÷ 365 (b)(c) and similar works of a permanent nature

5 Intangible assets – (d) [(A÷D) x C] ÷ 365 (c)(e)

(a) A is the written-down value of the pool at the end of a basis period, B is the depreciation rate applicable to the pool, and C is the number of days in the period.

(b) A is the cost base of the asset, B is the depreciation rate, and C is the number of days in the basis period.

(c) The total amount of capital allowances granted for a Class 4 or 5 asset may not exceed the cost basis of the asset. (d) The rate is determined by formula. (e) A is the cost base of the asset, C is the number of days in the basis period, and D is the useful life of the asset in whole years calculated at the time the asset is acquired.

Mining and petroleum. A different method applies for granting capital allowances for mining and petroleum companies or con tractors. For mining and petroleum operations, assets are pooled on a year-by-year basis, and assets acquired each year represent a separate pool. Capital allowances are calculated on straight-line basis at a rate of 20% on each separate pool.

Relief for losses. Enterprises engaged in government priority sec tors are permitted to carry forward losses for a period of five years. However, enterprises operating in any other sector of the economy are allowed to carry forward losses for a period of three years.

Losses incurred on completion of long-term contracts may be car ried back to prior tax years.

Groups of companies. Each company within a group must file a separate tax return. Offsetting of losses against profits among members of the group is not allowed.

D. Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)

Value-added tax (VAT); imposed on all supplies of goods and services made in, or goods imported into, Ghana, except for exempt items; services imported for the person’s own consumption are subject to a reverse VAT charge 12.5 National Health Insurance Levy (NHIL); imposed on all supplies of goods and services made in or imported into Ghana, except for supplies that are specifically exempt; services imported for the person’s own consumption are subject to a reverse NHIL charge 2.5

VAT Flat Rate Scheme; retailers of goods who make taxable supplies of not less than GHS200,000 and not more than GHS500,000 at the end of any period of 12 months must charge VAT on their supplies at a flat rate; input VAT incurred by persons under the scheme cannot be claimed 3 Ghana Education Trust Fund levy (GETFund levy); imposed on all supplies of goods and services made in or imported into Ghana, except for supplies that are specifically exempt; services imported for the person’s own consumption are subject to a reverse GETFund levy charge 2.5 COVID-19 Health Recovery Levy; imposed on all supplies of goods and services made in or imported into Ghana, except for supplies that are specifically exempt; services imported for the person’s own consumption are subject to a reverse COVID-19 levy charge 1

E. Miscellaneous matters

Foreign-exchange controls. The currency in Ghana is the Ghana cedi (GHS).

The Foreign Exchange Act, 2006 (Act 723) governs foreignexchange controls in Ghana. However, the Bank of Ghana exercises much discretion in administering the act.

Anti-avoidance legislation. A company must obtain a tax-clearance certificate to engage in certain transactions, including the purchase of goods in commercial quantities from producers, distribu tors, manufacturers or importers. The Commissioner-General of the GRA has the power to disregard or re-characterize fictitious arrangements and schemes entered into or carried out for the purposes of avoiding tax. The income tax law contains the follow ing three specific anti-avoidance measures:

• Income splitting (see Section C)

• Transfer pricing (see Transfer pricing)

• Thin capitalization (exempt-debt to exempt-equity ratio; see Debt-to-equity ratio)

Transfer pricing. Ghana has passed new Transfer Pricing Regulations, 2020 (L.I. 2412), which repeals the old regulations (L.I. 2188). The regulations follow the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. The regulations allow the use of the transferpricing methods outlined in the OECD guidelines and the use of an alternative method if the methods stated are not appropriate for determining the arm’s-length price for the transaction. On the filing of a return, the Commissioner-General can use an alternative transfer-pricing method if the Commissioner-General takes the view that the method used does not result in the arm’s-length price for a transaction.

The regulations also require entities that enter into related-party transactions to prepare contemporaneous documentation to support their returns. Entities must also submit transfer-pricing returns as part of their annual income tax returns within four months after the end of the accounting year. A copy of the documentation must be filed with the tax authorities within four months after the end of the accounting year.

The regulations further require the filing of a Country-byCountry (CbC) report not later than 12 months after the last day of the reporting tax year of the group. This requirement applies to multinational enterprises with annual consolidated group revenues of GHS2.9 billion (approximately USD49,403,748) or above in the tax year immediately preceding the reporting tax year. Safe harbor rules have also been introduced for some rou tine transactions not exceeding USD200,000.

Debt-to-equity ratio. If an “exempt-controlled resident entity,” other than a financial institution, has an “exempt debt” to “exempt equity” ratio in excess of 3:1, no deduction is allowed for interest paid or a foreign-exchange loss incurred on the portion of the debt that exceeds the 3:1 ratio. Broadly, an “exempt-controlled resident entity” is a resident entity of which at least 50% of its underlying ownership or control is held by an “exempt person,” which is a nonresident person or a resident person meeting cer tain criteria. The law also provides detailed definitions of “exempt debt” and “exempt equity.”

F. Treaty withholding tax rates

The following are the maximum withholding rates under Ghana’s double tax treaties for dividends, interest, royalties, and manage ment and technology transfer fees.

Royalties and management and technology

Dividends Interest transfer fees % % %

Belgium 5 10 15

Czech Republic 5 5 8

France 8 10 15

Denmark 5 8 8

Germany 8 10 15

Italy 5 10 10

Mauritius 7 7 8/10 (a)

Morocco 5/10 (b) 10 10 Netherlands 8 10 15 Singapore 7 7 7/10 (c)

South Africa 8 10 15 Switzerland 5 10 8

United Kingdom 8 10 15

Non-treaty jurisdictions 8 8 15/20 (d)

(a) The 8% rate applies to royalties. The 10% rate applies to technical services. (b) The 5% rate applies if the beneficial owner is a company. The 10% rate applies if the beneficial owner is a partnership and in all other cases. (c) The 7% rate applies to royalties. The 10% rate applies to technical services. (d) The 15% rate applies to royalties. The 20% rate applies to management and technical service fees.