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- 8 Marks
Question
The management of Chika Plc, a United Kingdom (UK) based Company, is considering the possibility of launching its presence into Ghana and it is not too sure of the tax implications of the following in light of the tax laws of Ghana:
i) It is considering making its presence through incorporation in Ghana or creating an external company that is a Permanent Establishment (Branch) instead.
ii) It intends to acquire all its non-current assets through finance lease as against buying the assets outright when it makes its presence in Ghana.
iii) It intends to bring some staff from the UK to work in Ghana who will be paid half salary in Ghana and the other half paid directly to their accounts in the UK.
Required:
Advise on the tax implications of each one of them to enable management of Chika Plc to take a decision. (8 marks)
Answer
i) Incorporation vs Permanent Establishment (PE)
- Subsidiary: Liable to Ghanaian corporate tax on worldwide income, dividends are taxed at a final withholding rate of 8%, but no branch profit tax.
- PE (Branch): Liable to Ghanaian corporate tax on Ghanaian-source income only, and subject to an 8% branch profit tax.
ii) Finance Lease vs Buying Assets
- If Chika Plc uses a finance lease, the principal portion of the lease payments will qualify for capital allowance, and the finance charges are tax-deductible as expenses.
- If Chika Plc buys the assets outright, it will be entitled to full capital allowance on the cost of the assets in the year of acquisition.
iii) Staff Payment
- The full salary earned by the UK staff working in Ghana will be taxed in Ghana, regardless of whether part of it is paid in the UK. They will be considered residents for tax purposes if they stay in Ghana for 183 days or more.
- Tags: Corporate Tax, Employment, Finance lease, Permanent Establishment, Subsidiary
- Level: Level 2
- Topic: Corporate Tax Liabilities
- Series: JULY 2023
- Uploader: Joseph