Question Tag: Branch Profit

i) Permanent Establishment (PE)

• Registration: A PE does not have equity, and therefore no stamp duty payment is required upon registration.
• Tax on Profits: Branch profit tax at 8% is imposed on the profits of a PE, which is an automatic payment required under the tax laws.
• Dividend: Since a PE does not declare dividends, there is no dividend tax to pay.
• Interest Deduction: Interest on a loan borrowed from the parent company is not an allowable deduction in the PE’s books.

ii) Subsidiary

• Registration: A subsidiary must register as an entity incorporated in Ghana with a stated capital, and pay stamp duty at the rate of 0.5% on the capital.
• Tax on Profits: There is no branch profit tax for a subsidiary. Instead, it declares dividends, and dividends paid to shareholders are taxed at 8%.
• Dividend: Dividend declarations are subject to the approval of the Annual General Meeting (AGM) and can be managed based on company strategy.
• Interest Deduction: Interest on loans borrowed from the parent company is allowable for tax purposes, although it may be subject to thin capitalization rules.

Conclusion:
Establishing a subsidiary is generally a better option for Muda Atesigbe as it offers more flexibility in managing dividend payments, tax-deductible interest, and the potential avoidance of automatic branch profit tax. Although the subsidiary will incur stamp duty, the overall tax structure may offer more advantages compared to a PE.