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- 20 Marks
Question
Esther Naah, a Ghanaian by birth, has spent most of her life in the United Kingdom. She has made a lot of savings and would want to invest in Ghana. She has heard of the Ghana Free Zone Authority and been told that the rationale behind the free trade zone is the development of disadvantaged regions. You work in a Tax Consulting firm and your Managing Partner has called on you to brief Esther, on the following issues during her next appointment to the Tax Consulting firm.
Required: Draft a report that will incorporate the following:
a) Tax incentives and benefits for Free Zone Enterprises.
(10 marks)
b) What will be the tax implication if the Free Zone Enterprise sells into the local markets?
(4 marks)
c) What are the requirements a foreigner should meet in order to start a trade in Ghana?
(6 marks)
Answer
a) Tax Incentives and Benefits for Free Zones
| Type of Incentive | Description |
|---|---|
| Exemption of import duty | 100% exemption on import duties and levies. |
| Exemption of export duty | 100% exemption on export duties. |
| Corporate income tax exemption | 100% exemption on income tax profits for 10 years; thereafter, a maximum of 15% tax rate. |
| Tax on dividends | Total exemption from withholding tax on dividends from Free Zone investments. |
| Relief from double taxation | Relief for foreign investors and employees where Ghana has a double taxation agreement. |
| Import license | No import licensing requirements. |
| Customs procedures | Simplified customs formalities with fewer documentation requirements. |
| Shares for investment | 100% ownership of shares allowed for both foreign and national investors. |
| Restrictions on remittance | No conditions or restrictions on repatriation of profits, foreign loan servicing payments, or fees. |
| Sale in the local market | Up to 30% of annual production can be sold locally; at least 70% must be exported. |
| Nationalization and expropriation | Investments are guaranteed against nationalization and expropriation. |
(10 marks)
b) Tax Implication if Free Zone Enterprise Sells in Local Markets:
The free zone enterprises are required to export all their produce or products. However, the law allows the free zone enterprises to obtain permission to sell up to 30% in the local market, that is, in Ghana. When that happens, they are required to pay the following taxes:
- Pay duties on the products or produce as duty was not paid at the time of importation.
- Pay all VAT on those goods.
- Pay National Health Insurance levies.
- Pay all GETFund levies on the goods.
- Chargeable income of the goods sold locally shall be subject to corporate tax at the rate of 25%.
(4 marks)
c) Requirements a Foreigner Should Meet to Start a Trade in Ghana:
- The foreigner is required to bring into the country a minimum capital of 1 million United States Dollars in cash or goods and services relevant to the investment. Trading includes the purchasing and selling of imported goods and services.
- Additionally, they must employ at least 20 skilled Ghanaians.
- Trading does not include portfolio investments and exports.
- Uploader: Theophilus