WHO SHOULD PAY TAX IN GHANA

In determining who is liable to pay tax in Ghana and on which income, the two most important words are “resident” and “non-resident.” Assessable income is determined based on the residence status of a person (“person” here includes entities).

Especially, in the case of foreigners working in Ghana, the misnomer “expatriate tax” seems to suggest to people that the mere fact that an individual is not a citizen of Ghana makes such a person liable to a non-resident tax rate.

Knowing one’s status either as a resident or non-resident in the context of the tax law will enable one properly determine which source of income can be assessed for tax in Ghana and which tax rate (thus resident or non-resident tax rate) is applicable to their chargeable income.

Resident

Resident Individual: An individual is resident in the country for a year of assessment if that individual is;

· a citizen. However, a citizen of Ghana who has a permanent home outside the country and lives there for the whole year is not a resident individual for tax purposes.

· present in the country during an assessment year for an aggregate period of 183 days or more in any 12 month period that commences or ends during that year.

In this instance, if a non-citizen travels in and out of the country, and the total number of times the person has been present in the country on separate occasions within a 12 month period counts up to 183 days or more, that person is deemed resident for tax purposes.

· a citizen who is temporarily absent from Ghana for a period of not more than 365 continuous days, where that citizen has a permanent home in Ghana. In other words, for a citizen with a permanent home in Ghana to be deemed non-resident for tax purposes that citizen must have been out of the country for a continuous period of more than 365 days.

· an employee or an official of the Government of Ghana posted abroad during the year

Resident Trust: A trust is resident in the country for a year of assessment if:

· that trust is established in the country

· a trustee of that trust is resident in the country at any time during that year

· a person resident in the country directs or may direct senior managerial decisions of the trust at any time during the year. It does not matter, whether the directive is given alone or jointly with other persons or through one or more interposed entities.

Resident Company: A company is resident in the country for a year of assessment if:

· that company is incorporated under the Companies Act; or

· the management and control of the affairs of that company are exercised in the country at any time during that year.

Resident Partnership: A partnership is resident in the country for a year of assessment if any of the partners resides in the country at any time during that year.

In my opinion, although the law does not make reference to registration of the partnership in Ghana, considering the fact that partnerships are registered under the Incorporated Private Partnerships Act, 1962 (Act 152), if a partnership business is actively running in the country, the mere fact that none of the partners are in the country at any time during the year would not in itself render the partnership non-resident.

Suffice it to say that, any person who does not fall under the conditions stated above for residence status is a non-resident.

Assessable Income

The assessable income of a person for each year of assessment is the income of that person from any employment, business or investment. It is from this total income that allowable deductions are made to arrive at a person’s chargeable income on which the tax is finally imposed.

Assessable Income of a Resident Person

The assessable income of a resident person for each year of assessment is the income of that person from any employment, business or investment for the year whether or not the source of the income is Ghana.

In effect, resident persons are subject to tax on their worldwide income. The source of such income must not necessarily be Ghana. However, there is an exception when it comes to employment income of a resident individual from a foreign source.

Exception- Employment Income from a Foreign Source

The income of a resident individual from employment exercised in a foreign country with a non-resident employer; or with a resident employer, where the individual is present in the foreign country for 183 continuous days or more during the assessment year is exempt from tax.

Assessable Income of a Non-resident Person

The assessable income of a non-resident person for each year of assessment is the income of that person from employment, business or investment to the extent to which that income has a source in Ghana.

Where the non-resident person has a permanent establishment in Ghana, the assessable income of the permanent establishment is the income for the year that is connected with that establishment irrespective of the source of the income (just like in the case of a resident person).

NB: The income of a non-resident person from an employment, business or investment has a source in Ghana if the income accrues in or is derived from Ghana.

Foreign Tax Credits

A resident person, apart from a partnership, may claim a foreign tax credit for a year of assessment for any income tax paid by that person to a foreign country with respect to the assessable foreign income of that person.

The foreign tax credit must be calculated separately for each year of assessment and separately for assessable foreign income from each employment, business or investment.

With respect to each calculation, the foreign tax credit which is allowed cannot exceed the average rate of Ghanaian income tax of the person for the year.

Contact

Email: ismail@al-ibrah.com