The new Income Tax Act 2015 (Act 896) included some major changes in withholding taxes which dominated the media headlines and initially caused me to miss some other important changes. However my post on some other changes was short and not very helpful. So by the request of some friends I am going to into details in this post.
Resident for Tax Purposes
The first concept that needs explanation is the concept of a resident person, partnership, company or trust. A person is resident for tax purposes if the person is
- A Ghanaian who lives in Ghana
- Any person (Ghanaian or not) who is in Ghana for a period of 183 cumulative days (whether consecutive or not) within a 12 month period
- A government employee posted abroad
- A Ghanaian with a permanent home in Ghana who is temporarily absent from the country for a period of not more than 365 days
A partnership is resident if any partner is resident. A company is resident if it is registered in Ghana or management is exercised in Ghana. A trust is resident if it is established in Ghana, a trustee is resident or a senior manager is resident.
Any other person, partnership, company or trust is non-resident for tax purposes.
Source of Income
Under the old tax act, income for a resident person is taxable if it is accrued in, brought into, derived from or received in Ghana. A non-resident person is only expected to pay tax on income derived from or brought into Ghana.
Under the new act, a resident person is liable to pay tax on all income no matter the source. And you have to pay for what you have already received if the source has ceased. For a non-resident person, you still have to pay if the income accrues in or is derived from Ghana. But if you have a permanent establishment (see examples in the comments), you have to pay tax no matter which country the establishment earns its income in.
Separating Incomes
Income (Revenue – Allowed expenses) earned in Ghana and abroad should be calculated separately. However if your primary source of income is from outside Ghana, then that will be considered as your worldwide income and your income from Ghana will be deducted from it.
Foreign Tax Credit
Persons, except partnerships, receive a tax credit for taxes paid to other countries. This means that if you pay taxes on income from another country, you may deduct it from the taxes you’re supposed to pay in Ghana on the condition that your deduction would not be more than what you would’ve been required to pay on similar income in Ghana.
Provisions
This post relied on my interpretation of the following provisions of Act 896
Section 1
Section 3
Section 101-106
Section 107
Section 112
Download Act 896 here. Download the old act (Act 592) here.
Conclusion
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This needs to be more clear – “A Ghanaian who has a permanent home outside Ghana and lives there the whole year”
I understand it (from Act 896) as – Any Ghanaian apart from one who has a permanent home outside Ghana and lives there the whole year
Right?
This needs to be more clear – “A Ghanaian who has a permanent home outside Ghana and lives there the whole year”
I understand it (from Act 896) as – Any Ghanaian apart from one who has a permanent home outside Ghana and lives there the whole year
Right?
Thanks Kuukuwa, my mistake. I had wanted to take the first part and simplify it into two, but I should have excluded the part of a person with a permanent home outside Ghana. Now corrected
Thanks Kuukuwa, my mistake. I had wanted to take the first part and simplify it into two, but I should have excluded the part of a person with a permanent home outside Ghana. Now corrected
This is a simple breakdown, however I have issue with your explanation of a permanent establishment. I don’t think Section 110 envisages a registered company.
Okay. That’s the best example I could think of. Could you please explain it a bit?
Permanent establishment envisages a situation where a non-resident carries on business in the country either directly or indirectly.
Directly could be owning a place of business or having a place to conduct business. You need to be mindful that this will usually be in a sense where that non-resident person has not registered this place as a place for carrying on that business. It could also be the usage or installation of equipment or substantial machinery or other related issues such as conducting supervisory activities.
Indirectly could be as a result of having an agent whose sole duty is to carry on your business, even though this agent may be registered. Where the agent carries out the business of the non-resident as part of their duties, then a permanent establishment is not created. In making this determination, there are a lot of factors which are considered.
The Income Tax Act broadens the definition of a permanent establishment by including “the provision of servicesin the country”, this all encompassing definition broadens the scope of a permanent estblishment, different from the Internal Revenue Act.
This is a simple breakdown, however I have issue with your explanation of a permanent establishment. I don’t think Section 110 envisages a registered company.
Okay. That’s the best example I could think of. Could you please explain it a bit?
Permanent establishment envisages a situation where a non-resident carries on business in the country either directly or indirectly.
Directly could be owning a place of business or having a place to conduct business. You need to be mindful that this will usually be in a sense where that non-resident person has not registered this place as a place for carrying on that business. It could also be the usage or installation of equipment or substantial machinery or other related issues such as conducting supervisory activities.
Indirectly could be as a result of having an agent whose sole duty is to carry on your business, even though this agent may be registered. Where the agent carries out the business of the non-resident as part of their duties, then a permanent establishment is not created. In making this determination, there are a lot of factors which are considered.
The Income Tax Act broadens the definition of a permanent establishment by including “the provision of servicesin the country”, this all encompassing definition broadens the scope of a permanent estblishment, different from the Internal Revenue Act.
Thanks for the explanation Naa. I’ve updated the post to let people check your comment for explanation. Thanks
So from what’s been put in the article above, let’s say you earn money exclusively from USA but you’re a resident Ghanaian citizen and the money is paid to your account via overseas transfer. Both governments eat your tax?
Yes they do.