Tax Facts and Figures

2009 Tax Facts and Figures

A quick guide toTaxation in Ghana*

*connectedthinking

Introduction

The Income Tax regime has seen a number of changes since theInternal Revenue Act, 2000 (Act 592) was introduced. Like theprevious year, no changes were made to the corporate income taxand personal income tax rates. The Government has introduced theNational Fiscal Stabilisation Levy of 5% chargeable on businesseswithin some selected industries in Ghana. Also, Government ofGhana proposes to embark on broadening the tax base andenhancing efficiency of tax collection during the 2009 fiscal year.This proposed tax administration reforms will involve thereplacement of Revenue Agency Governing Board (“RAGB”) withthe Ghana National Revenue Authority (“GNRA”).

Although previous budgets had significant positive change to the taxregime in Ghana, the last two budgets (2008 and 2009) have hadvery little substance or changes to the tax regime.

In this publication all tables/illustrations and other currencyreferences are based on the Ghana Cedi (GH¢) which is theequivalence of USD 0.68 as at the end of August 2009.

This guide is prepared as a general overview. For more detailedplanning please ensure professional advice is obtained.

Office location in Ghana

No.12 Airport CityUna Home 3rd FloorPMB CT 42 CantonmentsAccra - Ghana

Telephone: +233 21 761500Facsimile: +233 21 761544Email: [email protected]: www.pwc.com/gh

mailto:[email protected]

http://www.pwc.com/gh

A brief profile of PricewaterhouseCoopers

Global Overview

PricewaterhouseCoopers (www.pwc.com) is the world's largestprofessional services organisation. We provide industry-focusedassurance, tax and advisory services to build public trust and enhancevalue for its clients and their stakeholders. More than 155,000 people in153 countries across our network share their thinking, experience andsolutions to develop fresh perspectives and practical advice.

Our Core Values

Our core values of excellence, teamwork and leadership define howour people work. We strive to deliver what we promise, work togetheras a team and lead by example.

PricewaterhouseCoopers in Africa

With 57 offices employing more than 6,000 professional staff located in29 countries, PricewaterhouseCoopers is able to offer the highest levelof quality services in every country of Africa. Permanent offices can befound in:

Angola Botswana CameroonChad Congo Côte D’IvoireDemocratic Republicof Congo (DRC) Egypt Equatorial GuineaGabon Ghana Guinea ConakryKenya Libya MadagascarMalawi Mauritius MoroccoMozambique Namibia NigeriaSenegal South Africa SwazilandTanzania Tunisia UgandaZambia Zimbabwe

http://www.pwc.com/

PricewaterhouseCoopers GhanaIn Ghana, PricewaterhouseCoopers has six Partners/Directors and over200 employees.

The Ghana firm, which is a full member of the network of firms ofPricewaterhouseCoopers, has unrestrained access to the global firm’s vastresource base of proprietary knowledge, methodologies and experience.

Our clients include private sector businesses – both multinational andnational; many government institutions – at national and local levels andfinancial institutions.

From Ghana, the firm services clients located in or with business anddevelopment interests in Sierra Leone, Liberia and The Gambia.

Partners/Directors

Felix E [email protected]

Mark J A [email protected]

Michael [email protected]

Darcy [email protected]

Wyczynsky [email protected]

Felix [email protected]








Contents Page

General provisions under the law 1

Income Liable to TaxResident PersonsIncome Sources

Taxation of individuals 3

Monthly Tax RatesIncome from EmploymentPersonal ReliefContributions to Retirement Benefit SchemesRetirement SavingsNon-cash BenefitsBenefits Received from use of Accommodationand Vehicle provided by EmployerNon-Taxable Benefits / IncomeResident IndividualsNon-resident IndividualsPay As You Earn (PAYE)Year of Assessment (Individuals)Method of Calculating Income Tax PayableQuestionSolutionExamples of Income Tax Payable at Various Levelsof Taxable Income

Contents Page

Corporate tax 12

Rates of TaxYear of Assessment (Companies)Basis PeriodDeductions AllowedDeductions Not AllowedCapital AllowancesCarry Over of Tax LossesNational Reconstruction LevyNational Fiscal Stabilisation LevySpecimen Tax Computation for a Listed CompanyComputationDividendsFree Zone Developers/EnterprisesLease TransactionsTelecommunicationsChange in ControlProfit or Dividend Stripping

Taxation of insurance companies 24

General BusinessLife Business

International transactions 25

Geographic Source of IncomeIncome Attributable to a Permanent EstablishmentBranch Profit TaxRelief from Double TaxationDouble Tax TreatiesTreaty Tax Rates

Contents Page

Anti-avoidance schemes 28

Income SplittingTransfer PricingThin Capitalisation

Withholding taxes 29

Income exempt 30

Administrative procedures 31

Furnishing Returns on IncomeCases where a Return is not RequiredProvisional AssessmentSelf-AssessmentPayment of TaxOffences and Penalties

Value Added Tax/National Health Insurance Levy 35

ScopeVAT Flat Rate SchemeExempt SuppliesReverse ChargeVAT and NHIL IncurredReturnsPenalties

Contents Page

Gift tax 45

Taxable GiftValuationImposition of TaxTaxable Gift-Exceptions

Capital gains tax 46

Chargeable AssetExclusion from Chargeable AssetCalculation of Capital GainExemption from Capital Gains TaxExampleSolution

Communication Service Tax 49

General provisions under the law

PricewaterhouseCoopers 2009 Tax Facts and Figures 1

Income liable to tax

Income tax is levied in each year of assessment on the total incomeof both resident and non-resident persons in Ghana.

With respect to resident persons, the income must be derived from,accrued in, brought into or received in Ghana.

For non-resident persons, the income must be derived from oraccrued in Ghana.

Resident persons

An individual is resident for tax purposes if that individual is:

a citizen of Ghana, other than a citizen who has apermanent home outside Ghana for the whole of the year

present in Ghana for a period or periods equal in total to 183days or more in any twelve-month period that commences orends during the year

an employee or official of the Government of Ghana postedabroad during the year

a Ghanaian who is temporarily absent from Ghana for aperiod not exceeding 365 continuous days where thatGhanaian has a permanent home in Ghana.

A company is resident for tax purposes if that company:

is incorporated under the laws of Ghana, or

has its management and control exercised in Ghana at anytime during the year.

General provisions under the law


A body of persons is a resident body of persons if that body ofpersons is:

established in Ghana

has a resident person as a manager at any time during theyear of assessment or

controlled directly or indirectly by a resident person orpersons at any time during the year.

A partnership is resident for tax purposes if at any time during theyear, any partner in the partnership is resident in Ghana.

Income sources

The chargeable income of a person for any year of assessment isthe total of that person’s income for the year from each business,employment, and investment less the total amount of deductionsallowed to that person.

Taxation of individuals


Monthly tax rates

Tax rates, in the table below, are shown for purposes of effectingmonthly deductions.

Year Chargeable Tax Cumulative Cumulative2009 Income Rate Payable Income Tax

GH¢ % GH¢ GH¢ GH¢First 20 Nil Nil 20 NilNext 20 5 1 40 1Next 100 10 10 140 11Next 660 17.5 116 800 127Exceeding 800 25



Income from employment

A person’s income from an employment is that person’s gains orprofits from that employment including any allowances or benefitspaid in cash or given in kind to, or on behalf of that person from thatemployment except where exempt.

Personal relief

The assessable income of a person for any year of assessment shallaccordingly be reduced as follows;

Conditions2009

GH¢(i) An individual with a dependant

spouse or at least twodependant children

35

(ii) Disabled person(s) 25% of Y*(iii) Aged 60 or more (income from

employment or business)Lesser of 35 ortotal income is

exempt

(iv) Dependant child or wardeducation (up to three children) 30 per dependant**

(v) Aged dependants (over 60years) up to a maximum of twodependants (per dependent)

25**

(vi) Professional, technical orvocational training cost notexceeding

100

* Y is assessable income from any business or employment(excluding income from investment.)**Where more than one person qualifies in respect of the samedependant, only one person can claim the relief.



Contributions to retirement benefit schemes

Individual contribution to the Social Security Scheme of 5% of salaryis tax exempt. However, the National Pensions Act, 2008 that wasgiven Presidential assent on 12 December 2008 increased theindividual contribution rate from 5% to 5.5% of the worker’s monthlysalary.

The employer’s contribution of 12.5% on behalf of the employee istax exempt. The employer’s contribution rate has also beenincreased from 12.5% to 13.5% of the monthly salary.

The changes discussed above in the National Pensions Act, 2008will be applied beginning 1 January 2010.

Life Insurance Premiums

The assessable income of an individual shall be reduced by any lifeinsurance premium paid by that individual in Ghanaian currency to aGhanaian insurance company within the year which does notexceed the lesser of 10% of the sum assured or 10% of thecombined total of business, employment and investment income.

Retirement Savings

The assessable income of a business may be reduced by acontribution made to a retirement fund by or on behalf of anemployee, only if the contribution is included in the income of theemployee and taxed accordingly.

A business is however not entitled to a deduction for a paymentmade to an individual on retirement on account of old age, sickness,or other infirmity.

A pension or lump sum paid by an entity to an individual onretirement on account of old age, sickness, or other infirmity isexempt from tax.



Non-cash benefitsNon-cash benefits received from employment, except wherespecifically exempt, are taxable.

Benefits received from use of accommodation and vehicleprovided by employer

Where the employer provides the following facilities to an employeethe benefit of the use of these facilities is taxed as follows:

Facility provided 2009

Provision ofAccommodation

Value to be added for tax purposes

Accommodation withfurnishing

10% of the person’s total cashemoluments

Accommodation only 7.5% of the person’s total cashemoluments

Furnishings only 2.5% of the person’s total cashemoluments

Sharedaccommodation

2.5% of the person’s total cashemoluments

Provision of Meansof Transport

Value to be added for tax purposes

Fuelled vehicle withdriver

12.5% of the person’s total cashemoluments up to a maximum ofGH¢350 per month

Vehicle with fuel 10% of the person’s total cashemoluments up to a maximum ofGH¢300 per month

Vehicle only 5% of the person’s total cashemoluments up to a maximum ofGH¢150 per month

Fuel only 5% of the person’s total cashemoluments up to a maximum ofGH¢150 per month



Non-taxable benefits/income

The following benefits are not taxable:

a) reimbursements of medical and dental cost or healthinsurance expenses where the benefit is available to allemployees

b) passage costs of an employee who is

1. recruited or engaged outside of Ghana;2. a non resident; and3. who is solely serving the employer in Ghana.

c) accommodation provided by employer to employee on atimber, mining, building, construction or farming business atany place or site where field operation of the business iscarried on

d) reimbursement of cost incurred on behalf of employer

e) severance pay

f) night duty allowance (limited to 50% of monthly basic salary)

g) pension or lump sum payment upon retirement on account ofold age, sickness or other infirmity

h) pension or lump sum payment made by a retirement fund toa member or a nominated beneficiary of a member of thefund

i) the dividend or interest paid or credited to a person who hasinvested in a venture capital financing company that satisfiesthe eligibility requirements for funding under the VentureCapital Trust Fund Act,2004 (Act 680 ).



j) Interest paid by resident financial institution or on bondsissued by Government of Ghana or dividend paid or creditedto a person who invests in a venture capital financingcompany

k) interest, dividend or

a) any other income of an approved unit trust scheme ormutual fund

b) any other income payable under an approved unittrust scheme or mutual fund to a holder or member ofthat scheme.

l) gains arising from trading on the Ghana Stock Exchange(GSE) is exempt from tax for the period of twenty years ofassessment commencing from the basis period in which theoperations commenced. Should there be no furtheramendment come next year, this exemption would expire inNovember 2010.

Resident individuals

A resident individual is liable to tax on all income from hisemployment in Ghana regardless of where it is paid. A residentperson or an expatriate who is paid both in Ghana Cedis and foreigncurrency is liable to tax in Ghana on both streams of income, inaddition to any benefits derived from the exercise of the employmentin Ghana.

Non-resident individuals

A non-resident individual is liable to tax at the rate of 15% on anyincome derived in Ghana or which accrues to him from anemployment exercised in Ghana. This rate applies to income earnedby a non-resident individual who has stayed in Ghana for a period or



periods, which in total is less than 183 days in a twelve-monthperiod.

Non-resident persons are not entitled to any deduction for personalreliefs, life insurance premiums or social security pension schemeunless Ghanaians are being granted such benefits under a doubletaxation agreement in the non-resident person’s country of taxresidence.

Pay As You Earn (PAYE)

PAYE is a method of paying tax to the Internal Revenue Service (theRevenue) on incomes earned by employees. The tax is deducted atsource on salaries and wages earned by the employee. It alsoapplies to taxable benefits.

The employer deducts the tax and pays it to the Revenue by the 15th

day of the month following the month in which the deduction was orshould have been made.

Year of assessment (individuals)

The tax year of assessment for individuals and partnerships isJanuary 1 to December 31. The year of assessment and basisperiod for an individual is the same as the calendar year.

Method of calculating income tax payable

The example below demonstrates how an individual is assessed totax.

Question

Calculate the income tax payable by a resident married individualwhose annual income is GH¢5,000. The employee has a furnishedaccommodation and a fuelled car provided by his employer for



private use. He has two children attending approved educationalinstitutions in Ghana.

Solution

Item 2009GH¢

Salary 5,000Add:Rent element (10% of GH¢5,000) 500Car element(lesser of 10% of GH¢5,000 or GH¢3,600) 500Total Emoluments 6,000Less:Social Security Fund Contribution (SSF) (250)Marriage Allowance* (35)Child Education (2 x 30)* (60)Total Deductions (345)Taxable Income 5,655Tax Payable 828* In the case of a married couple only one person claims the Child

Education relief.



Examples of income tax payable at variouslevels of taxable income

The table below shows the income tax payable by an individual forthe 2009 year of assessment. The only relief granted is the personalrelief available to all individuals who earn taxable income within ayear of assessment.

Monthly Taxable Income Tax Payable 2009GH¢ GH¢

30 160 3

100 7450 65760 120900 152

Personal non-taxable income for a resident person, the threshold is:

2009Item GH¢ Per Annum

Taxable individual 240Individual whose incomedoes not exceed theminimum wage (minimumwage is GH¢ 2.25,average days in a month is22 and 12 months in ayear)

594

Corporate tax


Rates of tax

The income tax rate applicable to companies is as follows:

Entity 2009%

Companies listed on GSE on or after 1 January2004 for the first 3 years only.

22

Companies (not listed or listed on GSE before 1January 2004)

25

Rural Banks – first 10 years 0

Rural Banks after first 10 years 8

Free Zone Enterprise / Developers – first 10 years inoperation

0

Free Zone Enterprise/Developers – after first 10years

Notexceeding 8

Manufacturing companies located:

i. In Accra/Tema 25

ii. In all other regional capitals 18.75

iii. Elsewhere 12.5

Hotels (a company principally engaged in the hotelindustry)

22

Financial Institutions – income derived from loansgranted to farming enterprises

20

Financial Institutions – income derived from loans 20

Corporate tax


Entity 2009%

granted to leasing companies

Companies engaged in non-traditional exports 8

i. Manufacturing entities in all other regional capitalsengaged in non-traditional exports

6

ii. Manufacturing entities elsewhere engaged in non-traditional exports

4

Real estate companies

Income derived from construction for sale or letting ofresidential premises:

i. first 5 years 0

ii. after first 5 years 25

Agro-processing companies

i first 5 years (for new businesses from 1January 2004)

0

ii. after first 5 years and located in Accra/Tema 20

iii after 5 years and located in other RegionalCapitals, excluding Tamale, Wa andBolgatanga

10

iv. after 5 years and located outside RegionalCapitals

0

v located in Northern, Upper East and UpperWest

0

Companies engaged in:

Corporate tax


Entity 2009%

Farming tree crops – first 10 years commencing in thefirst year of harvest

0

Livestock farming (other than cattle) fish or cash crops –first 5 years starting in the year of commencement ofbusiness

0

Cattle farming – first 10 years 0

Venture capital financing company – first 10 years ofoperation

0

Waste processing and re-cycling companies – first 7years of commercial production

0

Companies that process cocoa by-products – first 5 years 0

Year of assessment (companies)

The year of assessment covers the period January 1 to December 31.

Basis period

Basis period of a company or body of persons is the accounting yearof the company or body of persons.

A company can choose its accounting year. Once a particularaccounting year is chosen it must be consistently followed unless aprior approval in writing is obtained from the Commissioner of theInternal Revenue Service for a change.

Deductions allowed

All outgoings and expenses are generally allowed for tax purposes.These expenses however, must be wholly, exclusively and

Corporate tax


necessarily incurred in the production of the income that is thesubject of tax. The following expenses are generally allowed:

Capital allowance computed in accordance with the thirdschedule of the Internal Revenue Act, 2000 (Act 592) asamended.

Specific bad debts

Tax losses brought forward from previous years (limited tofive years and apply to only businesses operating in one ofthe industries listed under the carry forward of lossessection of this document

Tax losses of oil and gas contractors (with PetroleumAgreements) may be carried forward indefinitely

Tax losses incurred by a qualifying small or mediumenterprise (SME) from disposal of shares in any ventureinvestment shall be carried forward for a period of five yearsafter the date of disposal

Realised foreign currency exchange losses other than oneof capital nature which may be capitalised and capitalallowance granted thereon

Contribution to a retirement fund on behalf of an employeewhere such contribution is disclosed in the taxable incomeof the employee and the contribution would not again bededucted as an expense in the year the fund is retired

Research and development expenditure incurred in theproduction of income except costs incurred in acquiringassets

Corporate tax


As an incentive to hire recent graduates from anyrecognised tertiary institution in Ghana, a deduction fromtax on its income is allowed between 10%-50% of therecent graduates salary is granted depending on thepercentage of recent graduates employed to the totalemployees of the company

In ascertaining the income of any person who invests in aventure capital financing company, there shall be deductedthe full amount of the investment in a year of assessment

Deductions not allowed

Expenditure of a capital nature is not allowed. Expenditure notwholly, exclusively and necessarily incurred in the production ofincome is also not allowed. The following expenditure is generallynot allowed:

Personal or domestic expenditure

Interest expense and foreign exchange losses in excess ofthe exempt debt to exempt equity ratio of 2:1 in a thinlycapitalised company

Depreciation

Any income tax or profit tax or similar tax

Cost recoverable under an insurance contract

Non-arm’s length cost transfer between related parties

Corporate tax


Capital allowances

Capital allowances are granted to persons who own depreciableassets and use such assets in the production of the income.

The Commissioner should be notified within one month afterpurchasing and putting a new asset to use.

Capital allowance granted to a person is not transferable eitherseparately or together with any depreciable asset.

Corporate tax


Depreciable assets have been grouped in classes as below and thefollowing rates apply.

Class Assets included Rate1 Computers and data handling equipment 40%2 i) Automobiles, trailers, construction

equipment, plant and machinery used inmanufacturingii) Plantation expenditure

30%

3 i) Mineral and petroleum exploration rights,locomotives, water transportationequipment in respect of mineral andpetroleum in year of operations.

ii) Buildings, structures and works ofpermanent nature used in respect ofmineral and petroleum explorationiii) Plant and machinery used in mining orpetroleum operations

80% of costin year ofpurchase,

50% ofwritten down

value(WDV)*annually

thereafter.

4 Locomotives, water transportationequipment, aircraftOffice furniture and fixturesEquipment not included in other class

20%

5 Buildings, structures and works of apermanent natureOther than those mentioned in class 3above

10%

6 Intangible assets e.g. Goodwill Useful life

Note that exchange losses arising out of the acquisition of adepreciable asset is capitalised separately but is depreciated at 10%as distinct from the asset that gave rise to the loss.

* WDV is sum total of 5% of cost of previous year’s additions to class 3assets + additions for year + WDV b/f from previous year to currentyear less disposal proceeds in the year.

Corporate tax


Carry over of tax losses

Tax losses incurred by a qualifying small or medium enterprise(SME) from disposal of shares in any venture investment shall becarried forward for a period of five years after the date of disposal

Tax losses can be carried forward for five years after which if notutilised the privilege is lost. This provision now applies only tofarming, mining, agro processing, tourism, Information andCommunication Technology (ICT) or manufacturing business.Manufacturing business is defined as manufacturing for export. Anyother business therefore forfeits the right to deduct any unutilisedloss carry forward to 2002 and thereafter.

Under the Petroleum Income Tax Law, 1987 (PNDC Law 188) oiland gas contractors may carry forward tax losses indefinitely.

National Fiscal Stabilisation Levy

The Government of Ghana through the approval of Parliamentintroduced the National Fiscal Stabilisation Levy (“NFSL”) in July2009. The rate of NFSL is 5%. Also, the NFSL is chargeable on theprofit before tax of businesses. The NSL is applicable only to banks(excluding rural and community banks), non-financial institutions,insurance companies, communications companies, miningcompanies and breweries.

The NFSL is to be administered by the Internal Revenue Service ofGhana and the businesses liable to pay NFSL are required to pay onquarterly basis commencing from the end of September 2009.The NFSL is expected to be phased out by December 2010.

Corporate tax


Specimen tax computation for a listed company

Following is an example of an investment company. The dividendincome included in the profit before tax has incurred a final dividendtax. The tax calculation has been made on the assumption that thefinancial figures will be applicable for the year ending December 312009.

Item 2009GH¢

Trading ProfitOther Income (Rent Received investment income)

Profit before Tax

Included in profit before tax is:

Gross Dividend income

18,000500

18,500

600Trading Profit is arrived at after

DepreciationDonation to unapproved charity

3,000100

5% withholding tax paid deducted at sourceCapital allowance granted for year

1603,600

Corporate tax


ComputationItem 2009

GH¢¢

Trading Profit 18,500Deduct: Dividend income (600)

Rent Income (500)17,400

Add back Depreciation 3,000Donation 100Adjusted Profits 20,500Less : Capital allowance 3,600Chargeable Income 16,900Tax on chargeable income at 25% 4,225Less tax already paid 5% withholding tax 160Tax due 4,065Add Tax on Rent Income:Rent Income 500Chargeable to tax 500Tax due on rent income 8% of 500 40Total Tax due 4,105

Dividends

Dividends received from an investment in Ghana by a resident and anon-resident person is subject to a final withholding tax at 8%. Thewithholding tax on dividend does not apply to a dividend paid by aresident company to another resident company which controlsdirectly or indirectly at least 25% of the voting power of the companyother than redeemable shares or dividend paid under dividendstripping arrangement.

A dividend consisting of capitalisation of profits is deemed asdividend paid in proportion to each of the shares held by theshareholders. Also, where the Commissioner is satisfied that acompany controlled by not more than five persons and their

Corporate tax


associates does not distribute a reasonable part of its income asdividends to its shareholders, the Commissioner may treat part ofthe income as dividend paid out and require withholding tax to bepaid thereon.

Free Zone developers/enterprises

Companies registered to operate, as Free ZoneDevelopers/Enterprises do not pay corporate tax for the first 10years of operation. Thereafter, the corporate tax rate is not toexceed 8%.

Subject to the existence of a double tax agreement between theGovernment of Ghana and the Government of the foreign employeeengaged by a free zone enterprise or developer, the foreignemployee shall be liable to tax in accordance with the laws of Ghana

Lease transactions

The law currently recognizes both operating and finance leases.Under an operating lease arrangement, the lessor qualifies forcapital allowances while paying tax on lease payments it receivesfrom the lessee. In the case of a finance lease, the lessor is liable totax on the lease rentals (excluding capital repayments) and does notqualify for capital allowances.

Under both arrangements, however, the lessee qualifies for a fulldeduction of payments made under the lease agreement.

Note that under a finance lease agreement, neither the lessee northe lessor qualifies for capital allowances. However, under certainconditions of a finance lease, the agreement may be treated as saleof fixed asset and capital allowances granted thereon to a lessee.

Corporate tax


Telecommunications

A non-resident person who has his apparatus established in Ghanaand who carries on a business of transmitting messages by cable,radio, optical fibre, or satellite communication from an apparatusestablished in Ghana, is liable to a final rate of tax of 15% on hisGhana gross receipts.

Change in control

Where there is a change of 50% or more in the underlyingownership of an entity as compared with its ownership in theprevious year, the company would not be allowed to take advantageof bad debts and losses incurred prior to the change in control.

Profit or dividend stripping

No deduction is allowed for a loss incurred on the disposal of sharesor an interest in shares of a company or interest in a body ofpersons where the disposal forms part of a profit or dividendstripping arrangement.

Taxation of insurance companies


General business

The general business of an insurance company is taxed as follows:

Ascertain net premium income (i.e. gross premium lesspremiums returns)

Investment income (excluding dividend income) Commissions received and reinsurance income Previous year statutory reserve

Deduct

Net claims admitted Operating expenses Current year statutory reserve

Premiums paid to a registered insurance company under aninsurance contract are exempted from withholding tax.

Premiums paid to a non-resident short-term insurer attract 5%withholding tax on the gross premium.

Life business

A person carrying on life insurance business is taxed on investmentincome derived from its investment activities. Deductions includemanagement expenses and commissions paid out to agents.

International transactions


Geographic source of income

Income from any employment exercised in Ghana is treated asderived from or accrued in Ghana and therefore taxable in Ghanawhether paid in Ghana or elsewhere.

The income of a non-resident person is treated as accruing in orderived in Ghana if the income is attributable to a permanentestablishment of the non-resident person in Ghana.

A dividend is treated as accruing in or derived from Ghana where aresident company pays it.

Interest is treated as accruing in or derived from Ghana where:

The debt obligation giving rise to the interest is secured byreal estate located in Ghana

The interest is paid by a resident person or The interest is borne by a permanent establishment of a

non-resident company.

Any charge, annuity management and technical service fee,proceeds of a life insurance policy, or pension or other payment froma retirement fund is treated as accruing in or derived from Ghanawhere it is paid by a resident person or is borne by a permanentestablishment of a non-resident person in Ghana.

A royalty is treated as accruing in or derived from Ghana where theroyalty arises from the use of or right to use a copy-right or any rightin Ghana including the use of or right to use any industrial,commercial, or scientific equipment in Ghana.

Premiums and reinsurance premiums in respect of insurancebusiness undertaken in Ghana are treated as accruing in or derivedfrom Ghana.



Income attributable to a permanent establishment

In ascertaining the income of a permanent establishment of a non-resident person, charges or fees billed by the non-resident to thepermanent establishment is excluded. Actual reimbursement of costbetween them is however allowed.

Branch profit tax

Repatriated branch profit attracts tax at 10%. This is in addition tothe corporate tax that the branch entity pays.

Relief from double taxation

In ascertaining the income of a person accruing in or derived fromoutside Ghana, part of or all of the foreign tax paid is given as acredit towards the tax liability on that taxable foreign income.Professional advice is required in order to understand the processinvolved in the calculation and claim for the credit.

Double tax treaties (DTT)

Ghana has, for the relief from double taxation on income arising inGhana, double tax treaties with France, Germany, the UnitedKingdom, South Africa, Italy, Belgium and the Netherlands.

The DTTs with The Netherlands and Belgium came into force on 01January 2009.

Double tax treaties with Sweden and Switzerland (signed but notratified by Parliament) have been initiated by the Government ofGhana and it is also pursuing double tax treaties with Syria, UAE,USA and the Czech Republic.



Tax rates

Tax rates applicable under the terms of these treaties are as follows:

Type ofincome France

%

UnitedKingdom

%Germany

%

SouthAfrica

%Belgium

%Italy

%

TheNether-lands

Dividends(Whererecipientholds atleast 10%shares)

7.5 7.5 5 5 5 5 5

Dividends(In anyothercase)

15 15 15 15 15 15 10

Royalties 10 12.5 8 10 10 10 8

Technical/Manage-mentservicefees

10 10 8 10 10 10 8

Interest 10 12.5 10 10 (5%for non-residentbanks)

10 10 8

In a circumstance where the applicable rate under a double taxationtreaty is higher than that allowable under the laws of Ghana, thelower of the two rates would apply.

Anti-avoidance rules


Income splitting

Income splitting is not allowed and includes transfers of income andor property to associates with a view to reducing the tax liability orthe transferee receives or enjoys the income from those properties.

Transfer pricing

The Commissioner is allowed to adjust non-arms-length transfersbetween associates.

A permanent establishment of a non-resident company may beassessed tax based on:

The total consolidated income of the non-resident or The proportion its income bears to the non-resident’s income

or Any other appropriate formula where the Commissioner is

satisfied that some transactions have not been conducted atarms length between the non-resident and the permanentestablishment.

Thin capitalisation

The recommended interest bearing of the exempt debt to exemptequity contribution ratio by a non-resident in its permanentestablishment or a subsidiary is 2:1. A company is deemed as thinlycapitalised if the ratio of its interest bearing exempt debt to itsexempt equity contribution held by its parent or associate of theparent is greater than the ratio of 2:1.

Any interest charges or exchange losses arising on the debt inexcess of the ratio are disallowed in assessing tax to the permanentestablishment or subsidiary.

Withholding taxes


The following are currently the applicable rates of withholding taxes.

Income Rate%

Remarks

Resident personsInterest (excluding individuals & residentfinancial institutions)

8 Not final tax

Dividend 8 Final TaxRent (for individuals and as investmentincome)

8 Final Tax

Fees to lecturers, invigilators, examiners,part-time teachers and endorsement fees

10 Final Tax

Commissions to insurance agents, salespersons, and fees to directors, boardmembers etc

10 Not final tax

Commissions to lotto agents 5 Not final taxSupply of goods and services exceedingGH¢50

5 Not final tax

Non-Resident personsDividend 8 Final TaxRoyalties, natural resources paymentsand rents

10 Final Tax

Management, consulting and technicalservice fees and endorsement fees

15 Final Tax

Repatriated Branch after tax profits 10 Final TaxInterest income 8 Final TaxShort term insurance premium 5 Final Tax

Income tax exempt


The following incomes are exempt:

a) Proceeds from a life insurance policy where the policypremiums were paid in Ghana.

b) The income of a non-resident person from any business ofoperating ships or aircraft if the Commissioner is satisfiedthat an equivalent exemption is granted by that person’scountry of residence to persons resident in Ghana.

c) The interest, dividend or

i) any other income of an approved unit trust scheme ormutual fund

ii) any other income payable under an approved unit trustscheme or mutual fund to a holder or member of thatscheme

iii) Interest and dividend paid or credited to a person whohas invested in a capital venture financing company.

d) Capital sums paid to a person as compensation or gratuityfor injuries or death of a person.

e) The income of an individual to the extent provided for in anagreement with the Government of Ghana and a foreigngovernment or public international organisation for theprovision of technical service to Ghana under specifiedconditions.

f) Severance pay

g) Night duty allowance (limited to 50% of monthly basic salary)

h) Interest income paid to individuals by a resident financialinstitution or received on bonds issued by the Government ofGhana.

Administrative procedures


Furnishing of returns of income

A return on income should be filed with the Internal Revenue Servicewithin 4 months after the end of the person’s accounting year. Thereturn should include a separate statement of income andexpenditure and a statement of assets and liabilities for eachbusiness undertaking carried on within that business by that person.

An employer should by the end of March 31st every year submit areturn on all employees who were in his employment in the previousyear.

Cases where a return is not required

In the following cases, unless the Commissioner requests in writing,a return shall not be filed by:

A non-resident person who has no income accruing in orderived from Ghana during the year

A non-resident person who suffers a final withholding tax onincome derived in Ghana

A resident who has no chargeable income or a taxableperson whose chargeable income is only up to GH¢240 ordoes not exceed the annual minimum wage of GH¢594

A resident employee whose only income is employmentincome and on whose behalf an employer has furnished areturn



Provisional Assessment

The Commissioner may after the commencement of each year raisean assessment on a taxpayer.

Self-Assessment

The Commissioner may require specified persons to submit selfassessed provisional tax liability for the year. Such self -assessedtax estimate may later on be revised but the taxpayer will have tojustify why there is the need to revise the estimate.

Payment of tax

Provisional assessments are due on the last day of every quarter ofthe year for persons whose accounting year begins on January 1. Inany other case, assessments are due at the end of each three-month period beginning at the commencement of the person’saccounting year.

Withholding tax is due on the 15th day after the month in which thededuction was made.

Tax dates fixed by the Commissioner should be paid on the dateestablished.

In any other case tax is due 30 days after the service of the notice ofassessment.

Offences and penalties

The following penalties and in some cases criminal liability apply forthe under listed offences.



Offence Penalty

Failure to keep books of account

Failure to furnish a return

Failure to pay tax on due date

Understating estimated taxpayable by instalment, wherethe estimated chargeableincome is less than 90% of theactual chargeable income (self-assessment)

Making false or misleadingstatements

Aiding and abetting

Failure to comply with the Act.

5% of the amount of tax payable

Individuals pay GH¢1 andcompanies pay GH¢2 per day foreach day of default.

Where default is not more than 3months, 10% of tax payable andwhere default exceeds 3 months20%. If it is withholding tax thepenalty for offences less than 3months and more than 3 months is20% and 30% respectively.

30% of the difference between thetax calculated on the estimatedchargeable income and 90% of theactual chargeable income

Double or three times of theamount of the underpayment of thetax which may result if not detected

Three times of the amount of theunderpayment of the tax which mayresult if the offence went unnoticed

Where resulting underpayment ismore than GH¢500, penalty isbetween 50 and 300 penalty unitsand in any other case between 10and 100 penalty units.



Failure to withhold tax Personal liability to pay to theCommissioner the tax due but notwithheld.

Penalties have been prescribed for offences committed byauthorised and unauthorised persons, and entities. TheCommissioner may at any time prior to the commencement of courtproceedings compound the offence.

Under the Fines (Penalty Units) Act, 2000 (Act 572) as amended byL.I. 1813, a penalty unit is equal to GH¢12.

Value Added Tax/National Health Insurance Levy


Scope

Other than exempt good and services, Value Added Tax (VAT) andthe National Health Insurance Levy (“NHIL”) are charged on thefollowing:

(a) Every supply of goods and services made in Ghana(b) Every importation of goods(c) Supply of any imported service.

The tax shall be charged on supply of goods and services where thesupply is a taxable supply and made by a taxable person in thecourse of his business. The tax shall be paid:

(a) In the case of taxable supply by the taxable person makingthe supply

(b) In the case of imported goods, by the importer(c) In the case of imported service, by the receiver of the

service.

Except for export that is zero-rated, the rates of the taxes are 12.5%for VAT and 2.5% NHIL and are calculated on the value of thetaxable supply of the goods, services or import. The value is definedto be inclusive of cost, insurance, freight and import duty.

A standard VAT rate of 3% has been introduced for retailers in theinformal sector of the economy which has no recourse to input VATclaims.

A taxable person is a person registered by the Commissioner andissued a certificate of registration that shall be exhibited at theprincipal place of business of the taxable person. The effective dateof registration as a taxable person shall be such date as shall bespecified in the certificate of registration issued by theCommissioner.



Turnover threshold for supplies relating to taxable goods over atwelve-month period is GH¢10,000. There is no turnover thresholdfor supplies relating to services. There is the possibility for groupregistration. Upon application the Commissioner shall cancel theregistration of a taxable person where he is satisfied that theregistered person no longer exists.

VAT flat rate scheme

The VAT Service introduced a flat VAT rate scheme for the retailersof goods within the informal retail distribution trade sector. Under thisscheme, retailers of goods are expected to pay 3 percent (3%) oftheir annual turnover as VAT without recourse to input VAT claims.

Exempt supplies

Supplies that are specifically exempt are listed below as:

Item Description

1. Live Animals Cattle, sheep, goat, swine, a ndpoultry but excluding horses, asses,mules, hinnies and similar exoticanimals

2. Animals, livestock, poultryand fish imported forbreeding purposes

Live asses, mules, and hinnies; livebovine animals; live swine; livesheep and goats; live marinemammals, live fish and aquaticinvertebrates

3. Animal product in its rawstateProduced in Ghana

Edible meat and offal of the animalslisted in item I, provided anyprocessing is restricted to salting,smoking or similar process, butexcluding pate, fatty livers of geeseand ducks and similar products



4. Agricultural and aquatic foodproduct in its raw state.Produced in Ghana

Fish, crustaceans, molluscs, (butexcluding ornamental fish);Vegetables and fruits, nuts, coffee,cocoa, shea butter, maize sorghummillet, tubers, guinea corn and rice.

5. Seeds, bulbs rootings, andother forms or propagation

Of edible fruits, nuts, cereals, tubersand vegetables

6. Agricultural inputs Chemicals including all forms offertilisers, acaricides, fungicides,nematicides, growth regulationspesticides, veterinary drugs andvaccines, feed and feed ingredient.

Item Description

7. Fishing equipment Boats, nets, floats, twines, hooks andother fishing gear. Inputs (imported)for fishing nets and twines

8. Water Supply of water excluding bottled anddistilled waters.

9. Electricity Domestic use of electricity up to aminimum consumption levelprescribed in regulations by theMinister; Compact Fluorescent Lamps(CFL)

10. Printed matter – (Books andNewspapers)

Fully printed or produced by anyduplicating process, including atlases,books, charts, maps, music, butexcluding newspapers (imported),plans and drawings, scientific andtechnical works, periodicals,



magazines, trade catalogues, pricelists, greeting cards, almanacs,calendars and stationery

11. Education The supply of educational services atany level by an educationalestablishment approved by theMinister of Education. Fullyassembled computers imported orprocured locally by educationalestablishments that are approved bythe Minister of Education. Laboratoryequipment for educational purposesand library equipment



Item Description

12. Medical supplies and servicePharmaceuticals:

a) Medical Servicesb) Pharmaceuticals

(i) Essential drugs as listed UnderChapter 30 of the HarmonisedSystems Commodities ClassificationCode, 1999, produced or supplied byretail in Ghana;

(ii) Active ingredients specified inSchedule 1A ( within the VAT Law) foressential drugs;(iii) Imported special drugsdetermined by the Minister for Healthand approved by Parliament asspecified in Schedule 1B (within theVAT Law)

13. Transportation Includes transportation by bus andsimilar vehicles, train, boat and air.

14. Machinery Machinery, apparatus, appliances andparts thereof, designed for use in –a) Veterinary, fishing and

horticulture;b) Industry;c) Mining as specified in the mining

list and dredging; andd) Railway and tramway.

15. Crude oil and hydrocarbonProducts

Petrol, diesel, liquefied petroleumgas, kerosene and residual fuel oil



Item Description

16. Land, buildings andConstruction

(a) Land and buildings; the grantingassignment or surrender of aninterest in land or building; theright to occupy land or buildingsexcluding hotelaccommodation, warehousing,storage and similar occupancyincidental to the provision of therelevant services

(b) Civil engineering work

17. Financial services Provision of insurance; issue,transfer, receipt or, or dealing withmoney (including foreign exchange)or any note or order of payment ofmoney; provision of credit;operation of any bank (or similarinstitutions) account; but excludingprofessional advise such asaccountancy, investment and legal.



Item Description

18. Goods for the disabled Articles designed exclusively foruse by the disabled.

19. Transfer of going concern The supply of goods as part of thetransfer of a business as a goingconcern by one taxable person toanother taxable person

20. Postal services Supply of postage stamps.21. Salt Denatured salt, compressed salt

used in animal feeding and salt forhuman consumption includingtable salt

22. Mosquito Net Mosquito nets of man-made textilematerial whether or notimpregnated with chemicals

23.Musical instruments Musical instruments as listed underchapter 92 of the HarmonisedCommodities classification Code

24.Telephone Sets Telephone sets including mobile orcellular phones and satellitephones specified under thecustoms, Excise and PreventiveService (Duties and Other Taxes)Act.

Reverse charge

Importation of taxable services is subject to VAT and NHIL at thestandard rates of 12.5% and 2.5% respectively. The recipient of theservice is required to account for VAT and NHIL by means of a



“reverse charge”. A registered recipient would be entitled to reclaimthe amount of VAT and NHIL paid, subject to certain restrictions.

VAT and NHIL incurred

A registered business, which makes only taxable supplies, canrecover all the VAT and NHIL incurred on goods or servicespurchased for the business except certain disallowed items (e.g.cars and entertainment).

If a registered person makes both taxable and exempt supplies aproportion of VAT and NHIL incurred may be recoverable.Businesses, which make only exempt supplies, are not eligible toregister and all VAT and NHIL incurred, represent a cost.

There is a time limit of 36 months from the date of the invoice forclaiming relief for VAT and NHIL incurred on goods and servicesreceived.

Returns

Registered businesses make monthly returns showing VAT andNHIL charged on sales, VAT and NHIL incurred on purchase ofgoods and services and net VAT and NHIL payable or reclaimable.VAT and NHIL on imported goods are paid at time of entry. VATand NHIL returns are due for submission and VAT and NHIL onsupply of goods and services is payable, by the last working day ofthe month following the month in which the VAT and NHIL becamedue and payable.

Businesses entitled to regular repayments, such as exporters, arerequired to submit returns monthly and duly completed VAT andNHIL refunds claim forms (VAT 35). VAT and NHIL refund claimsare required to be audited before any remissions are made.



Penalties

There is a comprehensive and rather punitive system of fixedpenalties and interest payable for mis-declaration of VAT, latesubmission of returns, late payment and other infringements of theprovision of the VAT Act. The penalty on late filing is GH¢100 andfor each day of default in respect of non-submission or latesubmission of returns (including NHIL returns) it is GH¢1. VATinterest and penalties are not allowable deductions for income taxpurposes.

Where a person formally admits to the Commissioner of an offence,the Commissioner may at any time before proceedings arecommenced in court, compound the offence and order for thepayment of an amount not exceeding three times the amount of taxor revenue involved.



Monetary penalties are as illustrated on the table below and aresupplemented with possible jail terms in many cases:

Offence Penalty

Failure to register, notify commissioner ofchange in business or apply forcancellation of registration where required

GH¢500 – GH¢ 1,000

Failure to issue tax invoices to cover goodsand services supplied

GH¢1,000

False or misleading statement GH¢500 – GH¢1,000Falsification and alteration of documents GH¢200 – GH¢ 1,000Evasion of tax payment Three times amount of

tax involvedGeneral penalty for unspecified offences Three times amount of

tax involvedFailure to maintain proper records GH¢500 – GH¢1,000Obstruction of officer of the Service GH ¢50 – GH¢ 500Unauthorised collection of tax Ten times amount of

tax involvedOffences relating to officers Three times amount of

tax involved

Gift tax


Taxable gift

Any of the following assets situated in Ghana, if given out as a giftattracts gift tax:

a) Buildings of a permanent or temporary natureb) Landc) Shares, bonds, and other securitiesd) Money, including foreign currencye) Business and business assetsf) Part of, or any right or interest in, to, or over any of the above

assets.

Valuation

The value of a taxable gift is the market value of the gift at the timeof the receipt.

Imposition of tax

Gift is taxed at a rate of 5% of a value in excess of GH ¢50. It ispayable by a person on the total value of taxable gifts received bythat person by way of gift within a year of assessment.

Taxable gift - exceptions

The total value of taxable gift does not include the value of ataxable gift received:

a) by that person under a will or upon intestacyb) by that person from that person’s spouse, child, parent, aunt,

uncle, nephew, or niecec) by a religious body which uses the gift for the benefit of the

public or a section of the public ord) for charitable or educational purposes.

Capital gains tax


Capital gains tax is payable by a person at the rate of 5% of capitalgains accruing to or derived by that person from the realisation of achargeable asset owned by that person.

Chargeable asset

Chargeable asset means any of the following assets:

(i) Buildings of a permanent or temporary nature situated inGhana

(ii) Business and business assets, including goodwill, of apermanent establishment situated in Ghana

(iii) Land situated in Ghana(iv) Shares of a resident company(v) Part of, or any right or interest in, to or over any of the assets

referred to above

Exclusions from chargeable asset

1. Securities of a company listed on the Ghana Stock Exchangeduring the twenty years after the establishment of the GhanaStock Exchange

2. Agricultural land situated in Ghana3. Trading stock or a Class 1, 2, 3, or 4 depreciable assets, (as

referred to under capital allowances on page 17).

Calculation of capital gain

The amount of a capital gain is the excess of the considerationreceived by that person from the realisation over the cost base at thetime of realisation.

Capital gains tax


Exemption from capital gains tax

The following capital gains are exempt:

1. Capital gains of a person up to a total of GH¢50 per year ofassessment

2. Capital gains accruing to or derived by a company arising outof a merger, amalgamation, or re-organisation of thecompany where there is continuity underlying ownership inthe asset of at least twenty five per cent

3. Capital gains resulting from a transfer of ownership of theasset by a person to that person’s spouse, child, parent,brother, sister, aunt, uncle, nephew or niece

4. Capital gains resulting from a transfer of ownership of theasset between former spouses as part of a divorcesettlement or a genuine separation agreement

5. Capital gains where the amount received on realisation is,within one year of realisation, used to acquire a replacementasset

6. Where part only of the amount received on realisation iswithin one year used to acquire a replacement asset, anypart of the capital gain represented by the amount used toacquire the replacement asset less the cost base of the assetrealized at the time of realisation.

7. Capital gains accruing to or derived by an investor from aneligible venture capital financing company.

Capital gains tax


Example

Kofi Mensah put up a building at a cost of GH¢20,000. He madeextensions costing GH¢10,000 to the building. He sold the buildingfor GH¢40,000. Incidental expenses including legal fees, valuationfees and commissions on the sale amounted to GH¢250.

Solution

Item 2009GH¢

Cost 20,000Additions 10,000Specified expenditure 250Cost Base 30,250Capital Gain:Realised Sum 40,000Less: the cost base 30,250Capital Gain 9,750Capital Gain Tax @5% in excess of ¢50 485

Communication Services Tax


The Communication Services Tax (“CST”) was introduced in Ghanaeffective June 2008 by the Government of Ghana onCommunication Service usage. The CST is payable by users ofcommunication services in Ghana..

The CST payable is 6% of the charges made by the serviceproviders for the use of the communication service. Thecommunication services providers in Ghana are required by theCommunication Service Tax Act, 2008 (Act 754) to collect the taxand account to the VAT Service of Ghana on monthly basis.

The due date for filing this monthly return is the last working day ofthe month after the CST is charged.

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Tax Facts and Figures

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