Simple Tax Guide for Americans in Ghana
US Expat Taxes - Ghana
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Ghana for over 8 years. Our clients hail from all parts of the country - Accra and Kumasi, Tamale and Obuasi, Takoradi and Achiaman.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Egypt and know how to integrate your U.S. taxes into the local income taxes you pay. Any Egyptian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Egypt for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Ghanaian Tax System for the American Expatriates.
Ghana personal tax rates are graduated with rates ranging from 0% to 25%. Annual income up to Cedis 2,400,000 is taxed at 0%. Any income in excess of Cedis 6,000,000 is taxed at 25%. Nonresident individuals pay taxes on their employment income at a rate of 15%.
Individuals are required to pay tax on gains or profit from employment, business or investment. For a resident person, he or she is to pay tax on income accruing in, derived from, brought into, or received in Ghana, and for a non-resident person on income accruing in, and derived from, Ghana whether the income is received in Ghana or not. An individual is considered resident if he or she has stayed in Ghana for an aggregate period of 183 days or more in any 12 month period.
All incomes are aggregated and taxed after the various adjustments relating to the type of income earned are made. The aggregated income excludes capital gains, gifts and rent income.
Filing status – Employers are required to furnish a return for each employee by 31 March following the end of a tax year. Individuals who earn taxable income from non-employment activities are also required to file an annual tax return.
Taxable income – An individual is liable to tax on the gains or profits from employment exercised in Ghana regardless of where payment is made. Gains or profits include any allowances or benefits paid in cash or in kind to, or on behalf of, that person from that employment, except for exempt income.
Capital gains – Gains arising from trading on the Ghana stock exchange are exempt from tax for 20 years of assessment commencing from the year the stock exchange started operations. A 5% capital gains tax is imposed on chargeable assets.
Tax Deductions and tax allowances – A resident individual may deduct various personal allowances and reliefs from gross income in arriving at his/her annual taxable income.
These relief's include a basic allowance of GHC 240; an additional GHC 35 for a married taxpayer supporting a spouse, an unmarried taxpayer supporting at least 2 children or an employed or self-employed taxpayer over the age of 60; tuition relief of GHC 30 for the education of a child (maximum 3 children); and additional relief of GHC 25 for taxpayers supporting an elderly relative (a maximum of 2 such relatives).
Social security contributions and life insurance premiums also are deductible within certain limits.
Ghana Corporate Taxes
Corporate income tax rate in Ghana is 25%.
Unless specifically exempted in the law, companies (both resident and non-resident) are required to pay tax on income relating to business and investment, derived from, accrued in, brought into and received in Ghana after the necessary adjustment are made to it in line with the tax laws. The rate of tax is generally 25%. There are different rates applicable to certain companies (refer to 'Incentives' below). The corporate entity is taxed separately from its share holders.
All companies have to file returns four months after their accounting year. It is also required that they make quarterly tax payment on the current year's income based on provisional assessment made by the IRS or the company itself (where the IRS has granted that permission).
Ghana is not a federation so the national taxes and levies apply in all ten regions of the country.
In 2001, a new tax law, The Internal Revenue Act 2000 (Act 592), was passed to administer Direct Taxes. The Internal Revenue Regulations, 2001 (L. I. 1675) was also introduced. There have been a number of amendments to the law and regulations.
The only notable national levy in the country is the National Health Insurance Levy. The National Health Insurance Levy of 2.5% is also imposed on certain goods and services and is administered on the lines of the value added tax.
Taxes consist of the income taxes administered by the Internal Revenue Service (IRS), customs and excise duties administered by the Customs, Excise and Preventive Service (CEPS), and the sales and service taxes administered by the Value-Added Tax Service (VATS).
CAPITAL GAINS TAX
Businesses are required to pay tax on gains made on realisation of chargeable assets.
Chargeable assets include land (which is not for agriculture in Ghana), building, shares, goodwill, business and business assets, among others.
Chargeable assets do not include trading stock, securities of a company listed on the Ghana Stock Exchange during the first 15 years of the establishment of the Stock Exchange, Classes 1, 2, 3 and 4 assets (e.g. vehicles, plant and machinery, air and sea transport, computers, etc).
The following exemptions apply:
(1) gains derived from mergers, amalgamation, re-organisation of the company where there is continuity of underlying ownership in the asset of at least 25%
(2) capital gains of up to Gh¢ 50.00)
(3) where the person uses up the amount received to acquire a replacement asset
(4) transfer of ownership of an asset to a former spouse in divorce settlement or genuine separation
(5) transfer of asset to spouse or certain relatives.
The capital gain is calculated as the excess of consideration received from the realisation over the cost base of the asset at the time of realisation. The tax is imposed at the rate of 10%.
BRANCH PROFITS TAX
A branch of any foreign company doing business in Ghana is taxed like any corporate entity in Ghana. With the aim of preventing tax avoidance schemes (e.g. transfer pricing, thin capitalisation and income-splitting), the Commissioner of the IRS is entitled to adjust chargeable income of the branch on the basis of the turnover of the whole group. Where it repatriates its branch profit after tax, it will be required to pay 10% tax on the amount repatriated. This is in addition to any corporate tax paid.
FRINGE BENEFITS TAX
For some services provided to its employees (e.g. food offered in a canteen, office outings, transportation of employees, accident insurances and payments to retirement funds), the company has the option to pay the income tax on account for the employee. The tax is paid at a flat tax rate which varies depending on the service provided from 15% to 25% of the given value.
These are collected by the District, Municipal and Metropolitan Assemblies (authorities) from persons doing business within their localities. They are also responsible for the collection of property rates.
Subject to certain exemptions, gift tax is payable by every person on the total value of taxable gifts received by the person by way of gifts within a year of assessment. The rate is 10%.
Stamp duty is paid (at various rates) by a person who undertakes certain transactions including the following transactions:
(a) conveyance or transfer on the sale of any property
(b) appointment of a new trustee
(c) natural resource lease or license (e.g. mining and timber)
(d) Agreement or memorandum of agreement
(e) award of cost in a matter of dispute
(f) bill of exchange (e.g. issue of cheques)
(g) bill of lading
(h) insurance policy.
Holders of mining leases are required to pay royalties at specified rates to the Government.
DETERMINATION OF TAXABLE INCOME
Chargeable income of a person is defined in the Internal Revenue Act 2000 (Act 592) as:
"the total of a person's assessable income, from each business, employment, and investment, less the total amount of deductions allowed to that person for the year under sections 13 to 22 (relating to general and specific deductions), s 39 (relating to reliefs), s 57 (relating to life insurance), and s 60 (relating to contributions to retirement funds)."
Capital allowances are granted in respect of fixed assets (depreciable assets), both tangible and intangible, acquired by persons in businesses for each year of assessment. To qualify for these allowances, however, the following conditions must be met:
(a) the assets should be capital in nature
(b) the asset should be owned by the business
(c) the asset should be in the business up to the end of the year
(d) the asset should be used in carrying on business during the period
(e) the Commissioner of IRS should be informed of any new asset acquired, one month after the usage in the business.
The Internal Revenue Act 2000 has categorised depreciable assets into six classes. Classes (Pools) 1–4 assets are put in different pools and depreciated at various rates ranging from 20% to 80% on reducing- balance method. Class 5 (buildings) attract a rate of 10% on cost and Class 6 (intellectual or industrial property) is depreciated over its estimated useful life.
1 Computers and data handling equipment 40%
2 Automobiles, plant and machinery used in manufacturing 30%
Assets in respect of long term crop plantingcosts. 30%
3* Assets relating to minerals and petroleum industry 80% of cost in year of purchase and 50% each year thereafter
4 Rail, water and air transport, plant and machinery, fixtures, furniture 20%
and equipment, and any other asset not included in any other class.
5 Buildings, structures and works of permanent nature other than those 10% (straight line) in Class 3
6 Intangible assets other than those in Class 3 Estimated use life
* the second year of any new asset, 5% of cost of asset is added to the written down value.
When an asset belonging to Classes 1 to 4 is disposed off, the realised value is taken out of the pool it came out from before the rate of capital allowance is applied on the residue. Where the sale of an asset leads to the wiping off of the written-down value of the pool but there is still an excess of the disposal proceeds, the excess is included in the income of the year and taxed.
Where all assets in a pool are disposed of but there were not enough proceeds to take care of the written down value, capital allowance is granted on the outstanding written down value to reduce the pool to zero at the end of the year.
In case of Classes 5 and 6 assets, a different method is adopted. This method ensures that businesses recover cost in the case of a loss on disposal and are also not overly taxed in the case of gains.
CAPITAL ALLOWANCE ON LEASED ASSETS
The lessee of an asset, whether under finance or operating lease, is not entitled to capital allowance on the asset. The rental payments made to the lessor are treated as allowable expense for tax purposes.
In the case of the lessor, capital allowance is claimed under an operating lease. The full amount of rent received is included in the lessor's income for the year. Where the arrangement is a finance lease, the lessor does not qualify for capital allowance. The amount of rent payment included in taxable income for the year is reduced by capital amounts determined by the Commissioner.
Depreciation of any fixed asset is not an allowable deduction in arriving at the assessable income. This is compensated for by the granting of capital allowance.
For the purpose of tax, stock and work in progress is valued at the lower of cost or market value. However, any method of stock valuation accepted by accounting principle that is consistently applied is accepted.
CAPITAL GAINS AND LOSSES
Gains or Losses on disposal of assets, as reported in financial statements, are not taxable or allowable respectively. Gains are deducted from profits and losses added to profits. This is in line with the IRS law that does not recognise depreciation policies set out by businesses.
The pool system adopted by the IRS for capital allowance purposes makes it almost impossible to ascertain whether a loss or gain was made on the disposal of a particular asset. However, there are adequate provisions for recovery of full cost of fixed assets disposed of (refer to disposal of fixed assets under 'Capital allowance'). Classes 1 to 4 assets do not attract capital gains tax on disposal.
A tax is paid by a resident or non-resident person or partnership who or which is paid a dividend by a resident company, other than dividend exempt, at 8%.
A capitalisation of profit is treated as dividend paid to each of the company's shareholders in proportion to their respective interest in the company and is taxed at 8%.
Where a company (controlled by not more than five persons) records profit over a reasonable period but does not declare dividends, the Commissioner has the authority to treat part of the company income as distributed and demand tax on dividends.
Dividend paid by a resident company to another resident company where the recipient company controls directly or indirectly 25% of the voting power of the company paying the company. This exemption does not apply if the dividend paid is intended as a profit or dividend stripping arrangement.
Interest incurred in respect of a borrowing employed by a business entity in the production of an income is a deduction allowed for the purpose of ascertaining the assessable income of the person.
Tax losses are arrived at after adjusting losses reported in financial statements in line with tax principles. Manufacturing industries which export their products and farming and mining concerns are allowed to deduct the losses over a five-year period subsequent to the year in which the loss was incurred. Until 2002, all business that recorded tax losses enjoyed this facility.
FOREIGN CURRENCY EXCHANGE LOSSES
Any foreign currency exchange loss, other than a loss of capital nature, in respect of any debt claim, debt obligation, or foreign currency holding, incurred for the purpose of producing an income is an allowable deduction but subject to the fulfilment of certain conditions.
FOREIGN SOURCED INCOME
Foreign sourced income brought into or received in Ghana by resident persons is included in that person's income for the year and taxed. However, the person is allowed the deduction of foreign tax credits or entitled to some reliefs where there is a double taxation agreement.
There are a number of incentives provided for in the IRS law and other laws and enactments geared towards the development of certain sectors of industry and of certain parts of the country. These incentives include reduced rate of taxes, exemption from the payment of duties and other taxes for specified periods, higher rate of capital allowance, among others. These cannot be exhaustibly dealt with but below are a few of such concessions granted.
1. CARRY OVER LOSSES
This applies to business engaged in farming, manufacturing or mining (refer to 'Losses' above).
This concession is also to be granted to venture capital investment on losses incurred on the disposal of shares, agro-processing, tourism and ICT industries from year 2006.
2. LOCATIONAL INCENTIVES FOR MANUFACTURING BUSINESS
Location within Accra and Tema 25%
Location in regional capitals of Ghana 18.75%
Location in free zone enclave 0%
Location elsewhere in Ghana 12.5%
3. LOCATIONAL INCENTIVES FOR AGRO-PROCESSING BUSINESS
Tax rates for manufacturing concerns vary depending upon the location of the
business and are as follows:
Location within Accra and Tema 20%
Location in regional capitals of Ghana:
- except the three northern regions 10%
- the three northern regions 0%
Outside Regional Capitals 0%
4. SECTORIAL INCENTIVES (REDUCED TAX RATES)
Tax rates vary depending upon the area (sector or industry) from which the income is coming from as shown below:
Hotel industry 22%
Export of non-traditional production 8%
Loans granted to a farming enterprise 20%
Loans granted to a leasing company 20%
Companies listed on the Ghana Stock Exchange 25%
Companies listed on the Ghana Stock Exchange after 1 January 2004 22% (for first 3 years)
5. INDUSTRIAL CONCESSIONS (EXEMPTION PERIOD)
The income of a person from the following industry or sector of the economy is exempted from tax for the years stated against them:
Farming tree crops 10 years
Livestock 5 years
Farming cattle 10 years
Processing business 3 years
Rural banking 10 years
Construction for sale letting of residential premises 5 years
Cocoa farming Indefinitely
Processing of cocoa by-products 5 years
Processing of waste materials 7 years
Agro-processing 5 years
Venture capital investments 5 years (effective 2006).
Real Estate Companies (1st five years) 0
FOREIGN TAX RELIEF
Foreign tax credits are available to relieve double taxation on overseas income. Credits are calculated separately for each source of business, employment and investment income and may not exceed the average rate of Ghanaian income tax of that person for the year of assessment applied to that person's taxable foreign income for the year.
Corporate groups, irrespective of their affiliations, prepare accounts separately and are taxed separately. Capital allowance is not transferable.
RELATED PARTY TRANSACTIONS
Although nothing in the law disallows related party transactions, the Commissioner has authority to disregard or reverse any transaction that is geared towards tax avoidance.
Tax is withheld at various rates for the following transactions:
Income Residents: Rate
Payment of employees graduated
Directors' fees 10%
Payment of interest (excluding individuals) 8%
Fees to part-time lecturers, teachers, examiners, etc 10%
Payment of dividend to shareholders 8%
Commission to insurance and sales agents 10%
Commission to lottery agents and receivers 5%
Payment for goods and services supplied 5%
Management and technical service fees 15%
Royalties, natural resource payments and rents 10%
Endorsement fees 15%
Repatriated branch after tax profits 8%
Short-term insurance premium 5%
Ghana VAT (Value Added Tax)
VAT rate in Ghana is 12.5% on the value of goods and services. This excludes the National Health Insurance Levy of 2.5%. These are indirect taxes paid by consumers on some goods and services to the state through registered individuals or businesses.
Retailers are required to charge a flat rate of 3% (no input or output VAT is computed).
There are exemptions specified in the VAT law. Exempt supplies include agricultural products and inputs, printed matter, approved medical and pharmaceutical supplies, transport, financial services, land, building and construction. Imports are taxable. Exports are zero rated.
Taxable transactions – VAT is imposed on the supply of goods or services in Ghana and on the import of goods or services. The tax base is generally the amount paid, plus any duties and taxes (excluding VAT). For imports, the tax base is the customs value, plus any import duties and taxes, except VAT.
VAT Registration – A business making taxable supplies of goods in excess of GHC 10,000 over a 12-month period is required to register for VAT purposes. There is no registration threshold for the supply of taxable services.
Filing and VAT payment – A VAT return must be submitted by the last working day of the month immediately following the accounting period to which the return relates.