Corporate tax in Ghana

Summary

Corporate Income Tax Rate (%) 25
Capital Gains Tax Rate (%) 25
Branch Tax Rate (%) 25
Withholding Tax (%) (a)
Dividends 8 (b)
Interest 8 (b)
Royalties 15 (c)
Management and Technology Transfer Fees 20 (c)
Directors’ Fees 20
Technical Service Fees 20 (c)
Branch Remittance Tax 10
Net Operating Losses (Years)
Carryback Unlimited (d)
Carryforward 3 / 5 (e)

a) Applicable to payments to residents and nonresidents.

b) This is a final tax for both residents and nonresidents without a permanent establishment in Ghana.

c) This is a final tax for nonresidents without a permanent establishment in Ghana only.

d) Losses incurred on completion of long-term contracts may be carried back to prior tax years.

e) Enterprises that operate in government priority sectors (petroleum contractors or operators under a petroleum agreement and mining companies) are allowed to carry forward their losses for a period of five years. All other enterprises are allowed to carry forward their losses for a period of three years. In addi­tion, losses incurred by venture capital financing companies on the disposal of shares invested in venture capital subsidiary companies under Act 680 and losses incurred by qualifying venture capital financing companies on shares in any venture may be carried forward for five years after the disposal of the shares.

Taxes on corporate income and gains

Corporate income tax. Resident companies are subject to tax on their business or investment income for the year, regardless of whether the source of the income still exists. A company is resi­dent in Ghana if it is incorporated under the laws of Ghana or if its management and control are exercised in Ghana at any time during the year. Nonresident companies are subject to tax only on their income accruing in or derived from Ghana.

Rates of corporate tax. The standard corporate income tax rate is 25%. However, various other tax rates apply to income derived from specified business activities.

Income derived from non-traditional exports is taxed at a rate of 8%. Income derived by banks from loans granted to farming enter­prises is subject to tax at a rate of 20%. The rate of tax applicable to income derived by financial institutions from loans to leasing companies is 20%.

Rural or community banks are subject to tax at a rate of 1% for a period of 10 years beginning with their first year of operations.

The corporate income tax rate applicable to companies princi­pally engaged in the hotel industry is 22%.

For petroleum extracting companies, the tax rate is 35%. The rate is consistent with the rate provided in the petroleum agreements that have been signed with the government of Ghana. After a company has recovered all outlays from an oil field plus a speci­fied rate of return after de duction of tax, royalties and an infla­tion adjustment, the government may negotiate for an additional share of the crude oil profits.

Mining companies are subject to corporate income tax at a rate of 35%. A holder of a mining lease, restricted mining lease or small-scale mining license must pay a royalty with respect to minerals obtained from its mining operations in Ghana. The royalty is cal­culated at a rate of 5% of the monthly revenue earned from miner­als obtained by the holder.

Tax incentives. Ghana offers tax exemptions and tax reductions to companies engaged in specified industrial activities.

Income derived by companies from the business of constructing affordable low-cost residential premises for lease or sale is subject to tax at a rate of 1% for a period of five tax years (years of as­sessment). The tax-incentive period begins with the tax year in which the company begins its operations. If the company’s ac­counting year differs from the calendar year, the beginning of the tax-incentive period is the tax year in which the accounting period of the first year of operations begins.

Rural banks are subject to tax at a rate of 1% for their first 10 years of operation.

The income of a venture capital financing company is subject to tax at a rate of 1% for five years if the company satisfies the eli­gibility requirements for funding under the Venture Capital Trust Fund Act. The tax-incentive period begins with the tax year in which the company satisfies the eligibility requirements.

Cocoa farmers are exempt from tax on income derived from cocoa. Cattle ranchers are subject to tax at a rate of 1% for the first 10 tax years. Income derived from tree crops, such as coffee, oil palm, shea nut, rubber and coconut, is subject to tax at a rate of 1% for 10 years following the first harvest. For a company’s first five years of operations, income derived from livestock (other than cattle), fishing and cash crops, such as maize, rice, pineapple, cassava and yam, is subject to tax at a rate of 1%.

Income of a company from an agro-processing business conduct­ed wholly in Ghana is subject to tax at a rate of 1% for a period of five tax years. The period begins with the tax year in which the company begins commercial production. If the company’s ac­counting year differs from the calendar year, the beginning of the period is the tax year in which the accounting period of the first year of production begins.

Income of a company that commercially produces cocoa byprod­ucts wholly in Ghana from substandard cocoa beans, cocoa husks and other cocoa waste as the principal raw materials is subject to tax at a rate of 1% for a period of five tax years. The tax-incentive period begins with the tax year in which the company begins com­mercial production. If the company’s accounting year differs from the calendar year, the beginning of the period is the tax year in which the accounting period of the first year of production begins.

The income of a company whose principal activity is the process­ing of waste, including recycling of plastic and polythene mate­rial for agricultural or commercial purposes, is subject to tax at a rate of 1% for a period of seven tax years. This period begins with the tax year in which the company begins its operations. If the company’s accounting year differs from the calendar year, the beginning of the tax-exemption period is the tax year in which the accounting period of the first year of operations begins.

Nonresident companies engaged in air and sea transportation are exempt from tax if the Commissioner-General of the Ghana Rev­enue Authority (GRA) is satisfied that the same types of compa­nies resident in Ghana are granted an equivalent exemption by the nonresident company’s country of residence.

Manufacturing enterprises, other than those operating in free zones or engaged in the export of non-traditional goods, located in regional capitals are entitled to a 25% income tax rebate, while manufacturing enterprises located outside regional capitals are entitled to a 50% tax rebate.

Capital gains. A company that derives a gain from the realization of a capital asset is required to include the gain in its business income unless the asset is held or used for investment purposes. In such case, the gain is included in determining the company’s investment income.

To calculate a gain from the realization of a capital asset, the cost basis of the asset is deducted from the proceeds received on the disposal of the asset. The cost basis of a chargeable asset is the sum of the following:

  • Cost of the asset including incidental costs
  • Expenditure incurred to alter or improve the asset
  • Expenditure relating or incidental to the disposal of the asset

Administration. The Ghana Revenue Authority (GRA) is respon­sible for the administration and collection of all taxes.

The tax year is the calendar year. If a company’s accounting year differs from the calendar year, its basis period for a tax year is the accounting year ending within the tax year.

Companies must file their tax returns within four months after the end of their accounting year.

Assessed tax must be paid on the date specified in the notice of assessment from the Commissioner-General of the GRA. In gen­eral, companies whose accounting year differs from the tax year must make quarterly payments at the end of the third, sixth, ninth and twelfth months of their accounting year.

Companies that fail to pay income tax by the due date are liable to pay interest at 125% of the statutory rate on the amount of tax that remains unpaid, in addition to the tax payable. The interest is compounded monthly.

To make tax collection more efficient, taxpayers are segmented into the following three categories:

  • Large taxpayers
  • Medium taxpayers
  • Small taxpayers

The 2016 Budget Statement and Economic Policy of the Govern­ment of Ghana proposes a review of the current thresholds for the classification of taxpayers.

Dividends. An 8% withholding tax is imposed on dividends paid to residents and nonresidents without a permanent establishment in Ghana. This is a final tax.

Foreign tax relief. Foreign tax paid on foreign income is allowed as a credit against tax payable with respect to the foreign income received in Ghana. The amount of tax chargeable with respect to the income is reduced by the amount of the credit.

Determination of trading income

General. Chargeable income is based on the income reported in entities’ financial statements, subject to certain adjustments.

To be deductible, expenses must be wholly, exclusively and nec­essarily incurred in the production of income by the company during the financial year. Expenses that may be deducted include the following:

  • Interest (subject to thin-capitalization rules; see Section E)
  • Rent
  • Repair of plant, premises, machinery and fixtures (see Repairs)
  • Bad debts (see Provisions)
  • Research and development expenditure
  • Financial costs (see Financial costs)

Repairs. Expenditure on repairs and improvements to a deprecia­ble asset are deductible expenses, regardless of whether they are of a capital nature. However, the amount deductible is limited to 5% of the written-down value of the pool to which the depreciable asset belongs. The excess expenditure is added to the written-down value of such pool.

Financial costs. Financial costs other than interest incurred by an entity are deducted in calculating the income of the entity from an investment or business. However, the deduction is limited to the sum of the following:

  • Financial gains to be included in calculating the income of the entity from the business or investment
  • Fifty percent of the income of the entity for the year from the business or investment, calculated without including financial gains derived by the entity or deducting financial costs incurred by the entity

A nondeductible loss in the current period can be carried forward to up to five tax years.

The timing of the inclusions and exclusions of financial gains and losses is determined in accordance with generally accepted accounting principles (GAAP).

Inventories. In determining the chargeable income of a person from a business, the cost of inventory used in generating the in­come is deducted. The deductible amount is determined by add­ing to the value of the opening stock the expenses incurred by the person that is included in the cost of trading stock and deducting the value of the closing stock from the amount.

Provisions. Bad debts incurred in business are deductible if the company proves to the satisfaction of the Commissioner-General of the GRA that the debts have become bad, and that it has taken all reasonable steps to ensure payment, but to no avail. Under the Tax Act, provisions for bad and doubtful debts are not allowed for tax purposes.

All amounts recovered with respect to bad debts that were de­ducted must be included in income for the accounting year of the recovery.

Capital allowances (tax depreciation). Capital allowances are grant­ed on depreciable assets. Depreciable assets are classified into five main classes. Assets in Classes 1 2, and 3 are placed in sepa­rate pools, and capital allowances granted with respect to the pool. Capital allowances for Classes 4 and 5 assets are granted on in­dividual assets of the same class. To claim capital allowances, a company must satisfy the following conditions:

  • It used the asset in the production of the income.
  • It incurred cost in purchasing the asset.

Capital allowances granted for a particular tax year that are not

fully used in that tax year cannot be carried forward to the follow­ing tax year.

The following table presents the various classes of assets and

details for calculating their capital allowances (capital allowances granted with respect to assets used in mining and petroleum

operations are not included in the table).

 

Class Assets Rate (%) Formula for calculating capital allowances
1 Computers and data handling equipment, together with peripheral devices 40 (A x B x C) ÷ 365 (a)
2 Automobiles; buses and minibuses; goods
vehicles; construction
and earth-moving
equipment, heavy
general purpose or
specialized trucks;
trailers and trailer‑
mounted containers;
plant and machinery
used in manufacturing;
and costs of a capital
nature with respect
to long-term crop
planting costs
30 (A x B x C) ÷ 365 (a)
3 Railroad cars; loco-motives and equip‑
ment; vessels, barges,
tugs, and similar
water transportation
equipment; aircraft;
specialized public
utility plant, equipment,
and machinery; office
furniture, fixtures
and equipment; and
any depreciable
asset not included
in another class
20 (A x B x C) ÷ 365 (a)
4 Buildings, structures and similar works of a permanent nature 10 (A x B x C) ÷ 365 (b)(c)
5 Intangible assets — (d) [(A÷D) x C] ÷ 365 (c)(e)

a) A is the written-down value of the pool at the end of a basis period, B is the depreciation rate applicable to the pool, and C is the number of days in the period.

b) A is the cost base of the asset, B is the depreciation rate, and C is the number of days in the basis period.

c) The total amount of capital allowances granted for a Class 4 or 5 asset may not exceed the cost basis of the asset.

d) The rate is determined by formula.

e) A is the cost base of the asset, C is the number of days in the basis period, and D is the useful life of the asset in whole years calculated at the time the asset is acquired.

Mining and petroleum. A different method applies for granting capital allowances for mining and petroleum companies or con­tractors. For mining and petroleum operations, assets are pooled on a year-by-year basis, and assets acquired each year represent a separate pool. Capital allowances are calculated on straight-line basis at a rate of 20% on each separate pool.

Relief for losses. Enterprises engaged in government priority sec­tors are permitted to carry forward losses for a period of five years. However, enterprises operating in any other sector of the economy are allowed to carry forward losses for a period of three years.

Losses incurred on completion of long-term contracts may be car­ried back to prior tax years.

Groups of companies. Each company within a group must file a separate tax return. Offsetting of losses against profits among members of the group is not allowed.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax (VAT); imposed on all
supplies of goods and services made in,
or goods imported into, Ghana, except
for exempt items; services imported for
the person’s own consumption are subject
to a reverse VAT charge
15
National Health Insurance Levy (NHIL);
imposed on all supplies of goods and
services made in or imported into Ghana,
except for supplies that are specifically
exempt; services imported for the person’s
own consumption are subject to a reverse
a NHIL charge
2.5

Miscellaneous matters

Foreign-exchange controls. The currency in Ghana is the Ghana cedi (GHS).

The Foreign Exchange Act, 2006 (Act 723) governs foreign-exchange controls in Ghana. However, the Bank of Ghana exer­cises much discretion in administering the act.

Anti-avoidance legislation. A company must obtain a tax-clearance certificate to engage in certain transactions, including the pur­chase of goods in commercial quantities from producers, distribu­tors, manufacturers or importers. The Commissioner-General of the GRA has the power to disregard or re-characterize fictitious arrangements and schemes entered into or carried out for the purposes of avoiding tax. The income tax law contains the follow­ing three specific anti-avoidance measures:

  • Income splitting (see Section C)
  • Transfer pricing (see Transfer pricing)
  • Thin capitalization (exempt-debt to exempt-equity ratio; see Debt-to-equity ratio)

Transfer pricing. Ghana introduced transfer pricing regulations in September 2012. The regulations follow the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. The regulations allow the use of the transfer-pricing methods outlined in the OECD guidelines and the use of an alternative method if the methods stated are not appropriate for determining the arm’s-length nature of the transaction. On the fil­ing of a return, the Commissioner-General can use an alternative transfer-pricing method if the Commissioner-General takes the view that the method used does not properly represent the arm’s-length nature of a transaction.

The regulations also require entities that enter into related-party transactions to prepare documentation to support their returns. Entities must also submit transfer-pricing returns as part of their annual income tax returns within four months after the end of the accounting year.

Debt-to-equity ratio. If an “exempt-controlled resident entity,” other than a financial institution, has an “exempt debt” to “exempt equity” ratio in excess of 3:1, no deduction is allowed for interest paid or a foreign-exchange loss incurred on the portion of the debt that exceeds the 3:1 ratio. Broadly, an “exempt-controlled resident entity” is a resident entity of which at least 50% of its underlying ownership or control is held by an “exempt person,” which is a nonresident person or a resident person meeting cer­tain criteria. The law also provides detailed definitions of “exempt debt” and “exempt equity.”

Treaty withholding tax rates

The following are the maximum withholding rates under Ghana’s double tax treaties for dividends, interest, royalties, and manage­ment and technology transfer fees.

  Dividends

%

Interest

%

Royalties and
management
and technology
transfer fees

%

Belgium 5 10 15
France 8 10 15
Germany 8 10 15
Italy 5 10 10
Netherlands 8 10 15
South Africa 8 10 15
United Kingdom 8 10 15
Non-treaty countries 8 8 15/20*

* The 15% rate applies to royalties. The 20% rate applies to management and tech­nical service fees.