Question Tag: Foreign Investment

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  • 20 Marks

AFM – Nov 2018 – L3 – Q1b – Economic environment for multinational organisations

Advising One-Village on the risks associated with a proposed irrigation project in a Sub-Saharan African country based on the World Bank Doing Business Report.

The directors of One-Village are considering another irrigation project in a country in Sub-Saharan Africa. The World Bank’s Doing Business Report for 2017 ranked the destination country 140th out of 190 countries on the ease of doing business. Below is the ease of doing business statistics for the destination country and One-Village’s home country as reported in the Doing Business 2017 report.


Required:
Advise the directors on four risks or issues One-Village should consider when deciding on whether to implement the proposed irrigation project in the destination country, and suggest how the risks or issues may be mitigated or resolved.
(8 marks for risks and mitigation)

Identified Risks and Issues:

  1. Dealing with Construction Permits:
    • The destination country ranks 174th for dealing with construction permits with a score of 49.63, compared to One-Village’s home country at rank 117 with a score of 65.34. This indicates potential delays or additional bureaucratic hurdles in obtaining permits for the irrigation project.
    • Mitigation: One-Village should engage local legal and regulatory experts early in the process to navigate the bureaucratic requirements efficiently and ensure all paperwork and procedures are completed in a timely manner.
  2. Getting Electricity:
    • The destination country ranks 180th with a low score of 29.43 for getting electricity, compared to One-Village’s home country’s rank of 120 (60.30 score). This suggests significant challenges in accessing reliable electricity, which could hinder the operation of irrigation equipment.
    • Mitigation: One-Village could consider alternative energy sources, such as solar or wind power, to reduce reliance on the national grid. Additionally, partnerships with local authorities or infrastructure providers could be explored to secure priority access to electricity.
  3. Paying Taxes:
    • The destination country ranks very low (182nd) with a score of 28.09 in terms of paying taxes, compared to One-Village’s home country rank of 122 (62.91 score). This implies potential issues with tax compliance, high tax rates, or complex tax procedures in the destination country.
    • Mitigation: One-Village should hire tax consultants familiar with the local tax regime to ensure compliance and explore tax incentives or exemptions for agricultural projects, which may be available in the destination country.
  4. Trading Across Borders:
    • With a rank of 181 and a low score of 19.93 in trading across borders, compared to One-Village’s home country rank of 154 (52.32 score), this indicates potential difficulties in importing necessary materials or exporting agricultural products due to inefficient border controls, customs delays, or restrictive trade policies.
    • Mitigation: One-Village should engage in advance planning for supply chain management, including identifying reliable local suppliers or negotiating favorable terms with customs brokers. Understanding and planning for potential delays in shipping and customs clearance is essential.

Overall Discussion:

The rankings and scores highlight potential risks related to bureaucracy, infrastructure, tax compliance, and cross-border trade in the destination country. One-Village should carefully assess the project feasibility in light of these risks and develop comprehensive risk management strategies, including forming local partnerships, conducting due diligence on regulatory requirements, and exploring alternative solutions to infrastructure challenges. Engaging local experts and leveraging government incentives could also help mitigate the identified risks.

  • 9 Marks

AT – May 2021 – L3 – Q3a – International Taxation

Explain how foreigners should participate in business activities in Ghana under the GIPC Act, 2013 (Act 865).

Ghana Investment Promotion Centre (GIPC) is a governmental agency established to promote, co-ordinate, and facilitate investment in Ghana. In its efforts at promoting both local and foreign investments in Ghana, it has mounted a series of lectures to drum home this fact and has done so well over the years in this regard.

Required:
In line with the GIPC Act, 2013 (Act 865), how should foreigners participate in business activities in Ghana?

Under section 28 of the GIPC Act, 2013 (Act 865), the participation of foreigners in business activities in Ghana is regulated as follows:

  1. Joint Enterprise with a Citizen:
    A foreigner may participate in a joint enterprise with a partner who is a citizen of Ghana if the foreigner invests foreign capital of at least US$200,000, either in cash, capital goods relevant to the business, or a combination of both by way of equity participation. The Ghanaian partner must hold at least 10% of the equity in the joint enterprise.
  2. Wholly-Owned Enterprise:
    A foreigner may wholly own a business in Ghana if they invest foreign capital of at least US$500,000 in cash, capital goods relevant to the business, or a combination of both by way of equity capital.
  3. Participation in Trading:
    A foreigner may engage in a trading enterprise if they invest at least US$1,000,000 in cash or goods and services relevant to the business. In addition, the trading enterprise must employ at least 20 skilled Ghanaians.

These are the guidelines under which foreigners are permitted to participate in business activities in Ghana, ensuring both local involvement and significant foreign investment.

  • 10 Marks

AT – MAR 2024 – L3 – Q5b – Tax Administration in Ghana

Discusses the restrictions on foreign business activities and the tax benefits of sole proprietorship versus limited liability companies.

You are an external consultant to the Ministry of Trade and Industry. The Minister has received a delegation of both foreigners and Ghanaians to deliberate on investment opportunities available in Ghana.

Required:
i) Business activities that cannot be engaged in by foreigners. (5 marks)
ii) The tax benefits of establishing a sole proprietorship business as against a limited liability company. (5 marks)

i) Business Activities that Cannot Be Engaged in by Foreigners
A person who is not a citizen or an enterprise that is not wholly owned by Ghanaian citizens shall not invest or participate in the following activities:

  • The sale of goods or provision of services in a market, petty trading, hawking, or selling of goods in a stall.
  • The operation of taxi or car hire service in an enterprise that has a fleet of fewer than 25 vehicles.
  • The operation of a beauty salon or barber shop.
  • The printing of recharge scratch cards for telecommunications services.
  • The production of exercise books and other basic stationery.
  • The retail of finished pharmaceutical products.
  • The production, supply, and retail of sachet water.
  • All aspects of pool betting business and lotteries except football pools.

(5 marks)

ii) Tax Benefits of Establishing a Sole Proprietorship Business as Against a Limited Liability Company

  • Personal Reliefs: Sole proprietors enjoy personal reliefs, which help reduce their tax liabilities, whereas limited liability companies do not enjoy such benefits.
  • Pension Contributions: Sole proprietors can contribute to pension schemes (up to 35% of declared income), which helps reduce their tax burden, while limited liability companies do not enjoy this benefit.
  • Interest Income: Interest received by sole proprietors from resident financial institutions is exempt from tax, but companies pay an 8% tax on such interest.
  • Tax on Other Interest Income: Sole proprietors pay 1% tax on interest received from non-resident financial institutions, whereas companies pay an 8% tax.
  • No Stamp Duty: Establishing a sole proprietorship does not require the payment of stamp duty, unlike limited liability companies that need to pay stamp duty during their registration process.

(5 marks)

  • 8 Marks

AT – Nov 2023 – L3 – Q1a – Tax administration in Ghana

Discuss three ways a foreigner may participate in business activities in Ghana under the GIPC Act.

Ghana has a lot of opportunities for both local and foreign investors. The Ghana Investment Promotion Centre has demonstrated in many ways the policy consideration behind the promotion of investment to both Ghanaians and foreigners.

Foreigners must meet certain basic conditions before they are permitted to undertake business activities in Ghana.

Required:
Discuss THREE (3) ways a foreigner may participate in business activities in Ghana.

  • A foreigner who may want to partner with an indigene is required to bring into the country an amount in US Dollars not less than 200,000 in cash or capital goods relevant to the operation or a combination of both. With a minimum of 10% as equity to the Ghanaian partner.
  • If the foreigner wants to go solo in the operation, the foreigner must bring a capital of 500,000 USD in cash or capital goods relevant to the business operation or a combination of both.
  • A foreigner that wants to go into trading shall bring into the country an amount of 1,000,000 USD in cash or goods and services. With a minimum of 20 skilled Ghanaians. The following do not constitute trading: Manufacturing, exports, and portfolio investment.

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