Topic: International taxation

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  • 10 Marks

AT – Nov 2018 – L3 – Q3a – Permanent establishment, International taxation

Tax policy implications on the establishment of a permanent entity, finance lease acquisitions, and dividend policies by a foreign company.

The management of Smith Plc, a UK-based company, is considering the possibility of launching its presence in Ghana and it is not sure of the tax implication of the following under 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 United Kingdom to work in Ghana who will be paid half salary in Ghana and the other half paid directly to their accounts in the United Kingdom as against paying their full salary in Ghana.
iv) Management intends to acquire shares in many companies in Ghana as part of efforts to create value for shareholders through dividend receipts as against granting loans to interested companies in Ghana if it is unable to make its presence in Ghana.

Required:
Evaluate the above policy interventions and advise on the tax implication of each to enable the management of Smith Plc to make a decision.

i) Incorporation:

  • A company incorporated in Ghana is required to pay a stamp duty of 0.5% on the value of shares introduced as stated capital and corporate taxes on profits. Additionally, dividends declared will be subject to an 8% withholding tax. PAYE deductions will be required for employees, with withholding taxes of 3%, 7.5%, or 5% applicable for various services, depending on whether the supplier is resident or non-resident (20% for non-residents).
    Permanent Establishment (Branch):
  • A branch will pay corporate taxes on profits and an additional 8% branch profit tax. It will also follow PAYE and withholding tax rules as in the incorporation case, except that a branch is not liable to stamp duty.
  • Conclusion: The tax implications for both options are similar except for the branch profit tax, which applies regardless of whether profits are repatriated, unlike dividends.

ii) Non-current assets acquired through finance lease:

  • Capital allowance is granted on the capital portion of the lease rentals, while the interest portion is deductible if it meets tax deductibility criteria. For outright purchases, capital allowances apply on the acquisition amount.

iii) Payment of expatriates’ salaries:

  • Income from Ghana is taxed based on the residence status of the employee. Paying part of the salary in Ghana and part abroad has no tax advantage since Ghana taxes the global income of residents.

iv) Acquisition of shares vs. granting loans:

  • Dividends from shares acquired in Ghana are subject to an 8% withholding tax. Interest from loans granted will be subject to withholding tax of 8% for non-residents.
  • 2 Marks

TX – May 2019 – L3 – Q2b – Anti-avoidance measures

Identify conditions for tax exemption for individuals employed in public service by foreign governments in Ghana.

Section 7(m) of the Income Tax Act, 2015 (Act 896) as amended indicates that “the income of an individual from employment in the public service of the government of a foreign country in Ghana is exempt from tax.”

Required:

Identify FOUR (4) conditions for granting such an exemption.
(2 marks)

The income of an individual from employment in the public service of the government of a foreign country is tax-exempt under the following conditions:

  • The individual is either a non-resident or resident in the country solely by reason of performing that employment.
  • The individual does not exercise any other employment or carry on business in the country.
  • The income is payable from the public funds of the foreign country.
  • The income is subject to tax in the foreign country.
  • 20 Marks

AT – April 2022 – L3 – Q3 – International taxation | Tax planning

Analyze tax implications for Jones Addoteye and Maame Abrefa's company Addofa Ltd, including working time sharing, export activities, and tax planning opportunities.

Jones Addoteye is a Ghanaian Citizen by birth but has also acquired a British Citizenship. He has lived in Britain for several years and relocated to Ghana in January 2015. He decided to invest his life-long savings in Ghana by incorporating a company limited by shares with his wife, Maame Abrefa who also happens to be a Ghanaian/British. Jones and his wife are the only shareholders of the company called Addofa Ltd which was registered with the Registrar Generals Department in January 2016.

Jones and his wife Maame Abrefa continue to maintain links with Britain even though they have relocated to Ghana. This is because they still have some economic interest in Britain. In view of this, they decided to share their working time in both Ghana and Britain following an advice from a Junior Tax Consultant of one of the Ghanaian Tax Firms. The junior tax consultant informed them they will be tax efficient if they share their working time.

Part of their object for setting up Addofa Ltd was to produce poultry for sale to the Ghanaian market in the first few years and later export the poultry products to other countries. It is also part of Addofa Ltd’s growth strategies that after five (5) years, it will process and package the poultry in an edible manner for export to other African markets. This poultry processing business will be carried out in a new company which they intend to set up. Both companies will be located at Cape Coast, the Central Regional Capital. Business for Addofa Ltd is expected to grow significantly in 2021.

Addofa Ltd also invested 37% equity in another Ghanaian company from which they received dividend of GH¢50,000 in 2018.

Mr. Jones Addoteye intimated to you that even though he had some initial advice, he was still not sure if his wife and himself were making optimal tax decisions for themselves and for the company. He has therefore approached you as an experienced Tax Consultant for advice. They wish to take advantage of the beneficial provisions of the Income Tax Laws to arrange their personal and company affairs to be tax efficient.

Required:

a) Evaluate the tax implications on Jones Addotey and Maame Abrefa sharing their working time between Ghana and Britain. (8 marks)

b) Explain the tax implications available to Addofa Ltd if it goes into export or sell in the local market. (4 marks)

c) Explain the tax planning opportunities available to the new company to be set up. (4 marks)

d) Discuss the tax compliance obligations for Addofa Ltd at the time of commencement of operations in Ghana. (4 marks)

a) Tax implications of Jones Addotey and Maame Abrefa sharing their working time between Ghana and Britain:

  1. Residency status:
    • If they spend less than 183 days in Ghana in a 12-month period, they may be considered non-resident for tax purposes in Ghana.
    • This could affect their tax obligations and rates in both countries.
  2. Double taxation:
    • Income earned in both countries may be subject to tax in both jurisdictions.
    • They should review the double taxation agreement between Ghana and the UK to determine how to avoid or minimize double taxation.
  3. Tax credits:
    • They may be eligible for foreign tax credits in one country for taxes paid in the other, depending on the specific tax laws and agreements between Ghana and the UK.
  4. Reporting requirements:
    • They may need to file tax returns in both countries, declaring their worldwide income.
    • This could increase their compliance burden and costs.
  5. Social security contributions:
    • They may be required to make social security contributions in both countries, depending on the duration of their stay and specific agreements between Ghana and the UK.
  6. Tax rates:
    • The applicable tax rates may differ between Ghana and the UK, potentially affecting their overall tax liability.
  7. Currency fluctuations:
    • Income earned in different currencies may be subject to exchange rate fluctuations, which could impact their tax liability.
  8. Permanent establishment:
    • If they conduct business activities in both countries, there’s a risk of creating a permanent establishment, which could have significant tax implications for their company.

b) Tax implications for Addofa Ltd if it goes into export or sells in the local market:

  1. Local market sales:
    • Subject to standard corporate income tax rates in Ghana.
    • May be liable for VAT on local sales.
  2. Export sales:
    • Potential for tax incentives or exemptions on export income.
    • Possible reduced corporate tax rates for export-oriented businesses.
    • VAT zero-rating on exports, allowing for input VAT recovery.
  3. Free Zone benefits:
    • If Addofa Ltd qualifies for Free Zone status, it may enjoy tax holidays and other incentives for export-oriented businesses.
  4. Transfer pricing considerations:
    • Need to ensure arm’s length pricing for transactions between related entities in different countries.

c) Tax planning opportunities available to the new company to be set up:

  1. Location incentives:
    • Explore tax incentives available for businesses located in specific regions or zones in Ghana.
  2. Industry-specific incentives:
    • Investigate tax benefits for agro-processing or value-added agricultural products.
  3. Export-oriented incentives:
    • Consider structuring the new company to maximize export-related tax benefits.
  4. Research and Development (R&D) incentives:
    • Explore tax deductions or credits for R&D activities in poultry processing.

d) Tax compliance obligations for Addofa Ltd at the time of commencement of operations in Ghana:

  1. Company registration:
    • Register with the Ghana Revenue Authority (GRA) for tax purposes.
  2. Tax Identification Number (TIN):
    • Obtain a TIN for the company and its directors.
  3. VAT registration:
    • Register for VAT if turnover exceeds the registration threshold.
  4. PAYE registration:
    • Register for Pay As You Earn (PAYE) for employee tax deductions.
  5. Filing tax returns:
    • File corporate income tax returns annually.
    • Submit monthly or quarterly VAT returns if registered for VAT.
  6. Record keeping:
    • Maintain proper books of accounts and financial records for at least six years.
  7. Tax payments:
    • Make provisional tax payments quarterly based on estimated annual income.
    • Pay final corporate tax by the due date after filing the annual return.
  8. Withholding taxes:
    • Withhold taxes on certain payments (e.g., dividends, interest) and remit to GRA.
  • 5 Marks

TF – May 2018 – L3 – Q3c – Business income – Corporate income tax

Discuss five benefits of the Double Taxation Agreement between Ghana and Mauritius.

The Government of Ghana recently signed a Double Taxation Avoidance agreement (DTA) with the government of Mauritius at Port Louis, Mauritius.

Speaking at a joint press conference after the signing ceremony, Ghana’s Vice President, Alhaji Dr. Bawumia, said:
“We have seen the manifestation of the first fruits of this Joint Permanent Commission with the signing of the historic double taxation agreement between Ghana and Mauritius, …, and we believe this is just the beginning of our cooperation.”

Required:
Discuss FIVE benefits likely to result from the Double Taxation Agreement.
(5 marks)

The benefits of the Double Taxation Agreement (DTA) are as follows:

  • Encourages Trade and Investment: A DTA creates an environment of fiscal certainty, which encourages trade and investments between the contracting states.
  • Prevents Double Taxation: It ensures that businesses and individuals are not taxed twice on the same income, reducing the overall tax burden.
  • Administrative Cooperation: It provides mechanisms for cooperation between the tax authorities of both countries, improving tax enforcement and compliance.
  • Prevents Tax Evasion: The agreement facilitates the exchange of information between the two countries, helping to prevent tax evasion and avoidance.
  • Non-Discriminatory Treatment: It helps prevent discriminatory taxation of foreign nationals and enterprises, fostering equal treatment under tax laws.

(5 marks)

  • 4 Marks

TF – May 2018 – L3 – Q4a – Permanent establishment

Discuss how a non-resident person is taxed in Ghana with and without a permanent establishment.

Tax administration allows for cross-border transactions. To this end, entities conduct businesses across countries as a way of increasing their competitiveness and international appeal and consequently their profits.

Required:
Discuss how a non-resident person would be taxed in Ghana if they:
i) Have a permanent establishment.
ii) Do not have a permanent establishment.
(4 marks)

i) With a Permanent Establishment:
A non-resident person with a permanent establishment in Ghana is taxed on the profits derived from their business activities in Ghana. The permanent establishment is required to file tax returns and comply with tax laws, just as if it were a distinct and separate person engaged in similar activities under similar conditions, dealing independently with the rest of the non-resident’s business.
(2 marks)

ii) Without a Permanent Establishment:
A non-resident person without a permanent establishment in Ghana is taxed on specific income, such as dividends, interest, royalties, or fees, through withholding taxes. These taxes are typically withheld at source, and the withholding tax is considered final. In cases where the income forms part of the business income of the non-resident person, it may be exempt from withholding tax under a double taxation treaty.
(2 marks)

  • 5 Marks

TF – May 2018 – L3 – Q5c – Tax administration in Ghana

Explanation of duty drawback and its types as a tax incentive for exporters.

What constitutes “Duty Drawback” and what are the types of “Duty Drawbacks” in customs administration?

A Duty Drawback is a regime that allows a refund of duties to an importer on account of re-exporting the same goods or after processing those goods into finished products for re-export. This system encourages exportation.

Types of Duty Drawbacks:

  • Material Duty Drawback
  • Same State Duty Drawback

Material Duty Drawback:
It is a refund of duty on materials imported into the country, processed into finished goods for re-export. The duty paid is refunded to the importer as an incentive.
(1.5 marks)
Same State Duty Drawback:
This is a refund of duty on goods imported into the country and re-exported in the same state they were imported. The packaging, contents, and condition remain unchanged.
(1.5 marks)

  • 5 Marks

TF – May 2018 – L3 – Q5d – International taxation

Explanation of arm's length price and its effect on tax revenue.

The Transfer Pricing Unit of the Ghana Revenue Authority frowns upon any transaction between controlled persons that is not conducted at arm’s length.

Required:
What is arm’s length price and its effect on tax revenue?

Arm’s length price is the market price of goods and services agreed upon by willing and knowledgeable buyers and sellers in the open market.

Effect on Tax Revenue:
The arm’s length price ensures that tax administrators can use it in transactions between related parties. It promotes accurate reporting of income, enabling the Ghana Revenue Authority (GRA) to assess the correct tax liabilities for businesses, preventing revenue loss through transfer pricing manipulation.
(Total: 5 marks)

  • 8 Marks

AT – April 2022 – L3 – Q1c – International taxation

Calculate chargeable income, tax payable, and foreign tax credit for Lawaaba Guo.

Lawaaba Guo is a Ghanaian born in Nigeria and has lived all his life there. He got an opportunity to relocate to Ghana and took up an appointment as a lecturer in one of the prestigious universities within the first three months of his arrival in Ghana in 2018.

He took up employment with ABB Ltd as a procurement officer. The following relates to his employment details for 2020 year of assessment:

  • Salary: GH¢200,000
  • Commission from employers: GH¢10,000
  • Interest on savings from a Bank in Ghana (Gross): GH¢1,000

His investment income and other returns received from Nigeria are as follows:

  • Dividend of US$ 12,000 net of tax. Tax of US$ 1,000 was paid.
  • Rental Income of USD 6,000 gross with tax at the rate of 10%.
  • On-line consultancy fee USD 20,000 net of tax. Tax of USD1,500 was paid.

Additional information:

  • He is married.
  • Children (2): both schooling in Nigeria.
  • Contributes to Social Security at 5.5%.
  • Exchange Rate USD1 = GH¢5.2.

Required:
Determine the following:
i) Chargeable Income
ii) Tax Payable
iii) Amount of foreign credit relief granted

Computation of tax payable
Y/A 2020
Basis Period: 1/1/20 – 31/12/20

  • 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.

  • 4 Marks

AT – May 2021 – L3 – Q2d – International Taxation

Compute the tax payable for Ganigani Ltd considering foreign income and relinquished tax credit.

Ganigani Ltd is a company based in Ghana and has a business dealing mainly in Nigeria. In the 2020 year of assessment, the following data is relevant to parts of its operation:

  • Global income: GH¢25,000,000
  • Tax paid in Nigeria: ₦1,000,000
  • Exchange rate: GH¢1 = ₦67.59

Ganigani Ltd elects to relinquish a foreign tax credit for the year in line with section 112 of the Income Tax Act, 2015 (Act 896) as amended.

Required:
Compute the tax payable.

Computation of tax payable for the 2020 year of assessment:

Description GH¢
Global income 25,000,000.00
Less: Tax paid in Nigeria (₦1,000,000 / 67.59) (14,795.09)
Taxable income 24,985,204.91
Tax payable @ 25% 6,246,301.23

Explanation:
The taxable income is derived from the global income minus the tax paid in Nigeria, converted to Ghana cedis using the exchange rate provided. The tax is then computed at the rate of 25%.

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