The Ghana Revenue Authority (GRA) is the government body mandated to collect and assess taxes. It enforces the provisions of the tax acts and serves as the first arbiter between parties in the event of a dispute. The Ministry of Finance and Economic Planning is responsible for overseeing the GRA.
The principal direct tax is income tax. Generally, a person’s nature, residency status and sources of income determine the amount that should be subjected to taxation and the rate of tax that is applicable.
Taxable persons are categorised as either individuals or entities. Entities mainly comprise companies (including branches), trusts and partnerships.
An individual is tax resident in Ghana during a year if the individual is:
• Ghanaian, excluding Ghanaians who have permanent homes abroad and live there for the entire year;
• Foreign nationals who are present in Ghana for an aggregate of 183 days or more in any 12-month period – that is, at least half of the year;
• A partnership if any of its partners resided in Ghana at any time during that year;
• A company if it is incorporated under the Companies Act or if management and control of the company are exercised in Ghana at any time during the year; or
• A Ghanaian permanent establishment. Persons who do not meet the above definitions are non-resident for tax purposes.
Sources of Income
The taxable income of a person for a year of assessment comprises the total of that person’s income from business, employment and investment, less the total amount of deductions.
For resident persons, this income is defined as worldwide income – that is income from sources within and outside Ghana. For non-resident taxpayers, the income must be sourced from Ghana – that is, generated in Ghana or having sufficient connection to the country. Some of the payments that are considered sourced from, and therefore as taxable in, Ghana are:
• Dividends payments made by a tax-resident company;
• Interest payments made by a tax-resident person (including Ghanaian permanent establishments) or made in relation to a debt obligation secured by a real estate property located in Ghana;
• Payments made in respect of natural resources located in Ghana;
• Rent and royalty paid for the use of, right to use or forbearance from using an asset in Ghana; and
• Payments made for conducting or forbearance from conducting an activity in Ghana.
Taxation of Individuals
Individuals who are residents of Ghana are currently taxed according to a graduated scale (see annual rate table), while non-resident individuals are taxed at a flat rate of 25%. The tax payable in respect of employment income is required to be withheld at its source and remitted to the GRA by the 15th of the month following the month for which the employment income tax was withheld.
Individuals are required to account for their incomes and expenses on a cash basis. Thus, when computing their taxable incomes for each calendar year, individuals must both include incomes received and exclude expenses paid for.
Individuals may claim tax deduction for statutory contributions towards retirement and for mortgage interests and other personal reliefs ranging from GHS100 ($19.37) to GHS600 ($116), or 25% of their non-investment taxable income subject to qualifying criteria and approval. The tax year for individuals is the calendar year. Every individual is required to file personal income tax returns by the end of April each year and settle any outstanding taxes, especially on their total income.
Taxation of Entities
A typical Ghanaian company is taxed first on its taxable profit; additionally, shareholders are taxed on the residual profits that are distributed to them by the company. This is also true of branches in Ghana if the profit is not repatriated to the head office. The profits of a trust are taxed, while the amounts distributed to beneficiaries are not. In a partnership, only the partners are taxed, while the partnership as an entity is not.
Unlike individuals, companies and other corporate bodies are required to account for income and expenses on an accrual basis for each accounting year, rather than calendar year. Most companies in Ghana are taxed at a rate of 25%; those in the extractive sector are generally taxed at a rate of 35%. However, there are varying concessionary tax rates available to companies, which are based on the nature of each entity’s business, industry and location.
Companies pay taxes through self-assessments and withholding at the source, with the companies themselves acting as withholding agents for the government (see table for the various withholding tax rates). In the third month of each resident company’s accounting year, the firm is required to file a self-assessment form declaring an estimate of taxes payable for the accounting year. The estimated tax must then be paid to the GRA in quarterly instalments, and the total amount paid must eventually constitute at least 90% of the actual tax payable for the accounting year. Resident companies are also required to file corporate income tax returns no more than four months after the end of their accounting year. Following this, resident companies must pay any outstanding corporate income taxes after claiming credit for estimated taxes paid and taxes withheld during the year.
Tax incentives offered in Ghana usually take the form of tax holidays, tax exemptions and concessionary tax rates. Fixed-term tax holidays are as follows:
• A five-year tax exemption on the business income of real estate companies, livestock farmers, agro-processing companies and young entrepreneurs operating in certain industries; and
• A 10-year tax exemption for free zone developers and enterprises, rural banks, venture capital financiers, tree crop farmers and cattle farmers. Tax exemptions are also available for the following sources of income:
• Proceeds paid to life insurance policyholders by a resident insurer;
• Incomes of approved real estate investment trusts, unit trusts and mutual funds;
• Dividends paid by one resident company to another in which the company receiving the dividend controls at least 25% of the voting power in the company paying the dividend. This exemption does not apply to certain special industries;
• Profit-after-tax of a private university, on condition that 100% of the profits be directed back into the business; and
• Interest paid to individuals by resident financial institutions, or interest on bonds issued by the government. Lastly, concessionary tax rates on certain kinds of income are available to individuals and companies active in specified industries:
• Income of manufacturing companies located outside Accra or Tema are taxed at 18.75% if they are located in another regional capital, and 12.5% if they are located outside the regional capitals;
• Income of free zone developers and enterprises derived from exports are taxed at 15%;
• Overtime payments to qualifying junior employees are taxed at either 5% or 10%;
• Bonus payments below 15% of the recipient’s annual basic salary are taxed at 5%; and
• Income of young entrepreneurs operating in certain businesses are taxed at 15% for the five years following the five-year tax holiday.
In ascertaining taxable income, taxpayers are permitted to deduct expenses incurred in generating their incomes, subject to certain specified conditions. Expenses that are eligible include:
• Capital allowance granted in lieu of accounting depreciation;
• Tax losses carried forward for three or five years, depending on the industry or sector in which a company operates;
• Finance costs, up to a specified limit. A thin capitalisation debt-to-equity ratio of 3:1 applies on qualifying related party finance costs. Non-related party finance costs are also subject to a specific limit;
• Repairs and improvement expenses, up to a specified limit;
• Contributions to approved pension schemes, up to a specified limit; and
• Qualifying bad debts. Domestic and excluded expenditures such as penalties, fines and bribes are not tax-deductible.
Resident taxpayers, excluding partnerships, can claim a tax credit in Ghana for income tax they pay in a foreign country on foreign-sourced income, to the extent that the foreign-sourced income is included in the taxable income of that taxpayer.
Ghana has operational double tax treaties with France, Germany, the UK, South Africa, Italy, Belgium, the Netherlands, Switzerland, Denmark, Mauritius, Morocco and Singapore. The government has signed double tax treaties with the Czech Republic and Ireland that are not yet in force, and there are a few other treaties that are at different levels of finalisation. These treaties are intended to relieve residents of the contracting states of an obligation to pay taxes on incomes accrued in both states.
The National Fiscal Stabilisation Levy is a direct tax levied at 5% of the accounting profits of companies in specific industries, including selected financial services; telecommunications; breweries; mining support services, inspection and valuation; and shipping, maritime and airport terminals. The tax was designed to be temporary when it was introduced in 2013, but it has been repeatedly extended and is now scheduled to expire in December 2024.
Value-added tax (VAT) is charged and remitted to the GRA by VAT-registered suppliers on all goods and services made in or imported to Ghana, provided that these goods and services are not exempt. Generally, VAT-registered suppliers are defined as those with annual taxable supplies that exceed or are expected to exceed a turnover threshold of GHS200,000 ($38,700). VAT rates are 0% for exported and other designated supplies, 3% on taxable supplies made by wholesalers and retailers, and 12.5% for all other taxable supplies.
The VAT base for local supplies is equal to the sum of the invoice value, in addition to the values of the National Health Insurance Levy (NHIL) and the Ghana Education Trust Fund Levy (GETFL). In the case of imported supplies, the VAT base is equal to the sum of duty-inclusive costs, insurance costs and freight value. VAT-registered suppliers are required to submit monthly VAT returns and remit VAT payable to the GRA by the last working day of the month following the month to which the return relates. In determining the VAT payable for each month, VAT-registered suppliers are permitted to deduct VAT incurred in their registered business activities, provided certain conditions are met. Some specifically exempted supplies are:
• Agricultural inputs;
• Crude oil and hydrocarbons products;
• Medical services and medical supplies;
• Machinery and parts of machinery;
• Accommodation in a dwelling or land for agricultural use and civil engineering public works;
• Financial services; and
• Domestic transportation.
Designated VAT-registered entities are required to withhold VAT on payment for standard-rated VAT supplies and remit the withheld VAT to the GRA by the 15th of the month following the month for which the VAT was withheld. The withheld VAT is calculated as 7% of the taxable value of the supply. VAT-registered entities were largely concentrated in the financial sector, the upstream petroleum sector, the mining sector and various government agencies. Designated VAT-registered entities are required to issue withholding VAT credit certificates that may be used by the affected suppliers to reduce VAT payable.
NHIL & GETFL
In August 2018 the NHIL and the GETFL – both levied at 2.5% of the invoice value of supplies – were decoupled from VAT and are no longer deductible when calculating the monthly VAT payable by VAT-registered suppliers. Unlike VAT, the NHIL and the GETFL apply to imported services regardless of whether the service itself is eventually used in the taxable activity. VAT-registered suppliers are required to file separate NHIL and GETFL returns by the same due date as VAT.
Special Petroleum Tax
Licensed oil marketing firms are required to charge a Special Petroleum Tax (SPT) at specific rates per litre or kilogram on petrol, diesel, liquefied petroleum gas, natural petroleum gas and kerosene. The SPT is administered by the GRA and is due by the last working day of the month following the month to which the return relate.
Imports typically attract duties of up to 35% of the cost of the insurance and freight of imported items, depending on the nature of the item. Certain goods also attract an additional 2% special import levy, though this levy is expected to expire in December 2024. An additional African Union (AU) levy of 0.2% applies to eligible goods imported from non-AU countries to AU member states for consumption within the member state. The aim of the levy is to provide a reliable source of funding for the AU and some of its agencies.
Similarly, an ECOWAS levy of 0.5% is imposed on imports of goods from non-ECOWAS member states to finance activities of ECOWAS Commission and Community institutions. An export and import levy of 0.75% applies on all imports of goods. The proceeds thereof are allocated to the Ghana Export-Import Bank and the Ghana Export Promotion Agency. There are statutory administrative charges ranging between 0.4% and 3.45% that apply to the value of goods imported to Ghana. These charges apply regardless of import duty exemptions.
Other taxes include:
• 10% environmental excise tax on plastic products;
• Airport tax of GHS5 ($1) on local travel and $ 60-200 on foreign travel;
• Stamp duties on issuance of new shares and on written contracts at various rates;
• Excise duties of between 0% to 175% on certain products like beer and tobacco. Excise tax stamps are to be affixed on excisable products manufactured or imported into Ghana;
• 9% communication service tax on electronic communication services; and
• 5% mineral royalties on mining companies subject to any fiscal stability agreement.
The government has intensified its efforts to enforce laws regarding transfer pricing that exist to determine the market price of transactions of supplies, labour and the like between entities owned by a single company. Transactions between persons in controlled relationships must occur at arm’s length. A transaction is conducted at arm’s length if the terms of the transaction do not differ from the terms of a comparable transaction between independent persons. Acceptable transfer pricing methods in Ghana are similar to those advised by the OECD. Such transactions must be declared to the GRA in yearly transfer pricing returns that are due on the same date as corporate income tax returns. These returns must include supporting documentation showing that such transactions indeed occurred at arm’s length.
General Anti-Avoidance Rule
The GRA has been empowered under the General Anti-Avoidance Rule to re-characterise or disregard an arrangement or any part of an arrangement that is entered into or carried out as part of a scheme that seeks to either avoid or reduce a party’s tax liability. This rule is relatively broad, and the GRA has not yet provided any further guidance as to how it could be effectively implemented going forward.
The GRA administers taxation through three main divisions: the Domestic Tax Revenue Division (DTRD), the Customs Division and the Support Services Division. The DTRD organises taxpayers into three classes – called “offices” – based on turnover.
Every GRA entity that administers taxes usually bears one of these three names to indicate the type of office. Taxpayers can register with the appropriate office.
The main tax legislations that the GRA is responsible for administering are the:
• Income Tax Act of 2015 (Act 896);
• VAT Act of 2013 (Act 870);
• Communication Service Tax Act of 2008 (Act 754);
• Ghana Education Trust Fund Act of 2000 (Act 581);
• National Health Insurance Act of 2012 (Act 852);
• Airport Tax Act of 1963 (Act 209);
• Customs Act of 2015 (Act 891);
• Excise Duty Act of 2014 (Act 878);
• Stamp Duty Act of 2005 (Act 689);
• National Fiscal Stabilisation Levy Act of 2013 (Act 862);
• Special Import Levy Act of 2013 (Act 861);
• Special Petroleum Tax Act of 2014 (Act 879);
• Revenue Administration Act of 2016 (Act 915); and
• The Transfer Pricing Regulation of2012 (LI 2188). The Revenue Administration Act prescribes a common approach to administering the various tax legislations in Ghana. Prior to the enactment of the Revenue Administration Act, each tax legislation prescribed its own administrative rules, and these frequently differed from those of other tax laws and regulations.
Taxes fall into two main categories: direct taxes that are levied on income or profits, and indirect taxes that are levied on undertaken transactions.