Are you a foreign national working in a country other than your home country? Or, you are a Ghanaian national, but you earn income outside Ghana. Who will tax your income?
It depends on your tax residence. Your tax residence settles which countries can tax you.
BASIS OF TAXATION
If you are resident in Ghana for the tax year, the Ghana Revenue Authority (GRA) will tax your income earned in Ghana and abroad. A non-resident person pays tax only on income he earns in Ghana.
If a non-resident owns a business that is a Permanent Establishment (PE) in Ghana, GRA will tax both the local and foreign income of that business irrespective of the source of the income.
WHO IS A RESIDENT PERSON FOR TAX?
We will discuss four types of persons:
- A company
- A partnership
- A trust
Ghanaian and non-Ghanaian nationals are resident or non-resident in a tax yearin these circumstances:
- A Ghanaian national who lives and earns income in Ghana is a resident for tax. His tax residence is Ghana. The First Schedule of the Ghana Income Tax Act sets out the applicable rates of tax.
- A Ghanaian national who has a permanent home in Ghana is resident for tax, even if he is out of the country for a period less than 365 days in the year of assessment. His tax residence is Ghana.
- A Ghanaian citizen who maintains a permanent home outside Ghana but is present in Ghana for183 days or more, in any 12-month period, that starts or ends in the year of assessment is resident for tax.
- An employee of Ghana Government who goes abroad on duty in a year of assessment is resident for tax. How long he is out is irrelevant.
- A citizen of Ghana, who maintains a permanent home outside Ghana, and lives in that home for the entire year of assessment, is a nonresident for tax for in that year of assessment.
- A foreign national is resident for tax if he is in Ghana for 183 days or more in any 12-month period that falls in the tax year. He is resident from the start of the 183-day period. His income, foreign and local, is subject to Ghana tax.
- A foreign national present in Ghana for less than 183 days in any 12-month period is not a resident for tax. Only the income earned in Ghana is taxable at a rate of 25%.
A company is resident for tax if:
- They incorporate it under the Companies Act, 1963;
- Management and control take place in Ghana during the year of assessment.
- It has a permanent establishment in Ghana
A Partnership is resident for tax if any of the partners lives in Ghana during the year of assessment.
A trust is a fiduciary relationship in which the trustor gives the trustee the right to hold title to property or assets for the beneficiary.
A Trust is resident in Ghana for a year of assessment if;
- That Trust operates in the country
- A trustee of the Trust is resident during that year, or
- A person who, is not a trustee but can direct management decision of the Trust, is resident in Ghana.
RESIDENCY AND DOUBLE TAXATION AGREEMENTS (DTA)
Some foreign nationals in Ghana are from countries which have a Double Taxation Agreement (DTA) with Ghana. If the Ghana tax residency rules conflict with the DTA, the DTA rules prevail.
DTAs have rules for conflicts between the residency rules of other country and Ghana. The UK-Ghana DTA, for example, has indicators for resolving such conflicts. The factors are:
- Individual’s permanent home—if the UK foreign national has a permanent home in Ghana, he is resident in Ghana.
- Center of vital interests – the individual is resident in the country where his personal and economic interests lie.
- Habitual abode – if GRA cannot decide the person’s permanent home and vital economic interests, he is resident in the country in which he has a habitual abode.
To figure a person’s tax residence, Ghana Revenue Authority uses information from the Ghana Immigration Service, employment contracts and passports.
- If you are an expatriate, or earn income outside Ghana, your tax residence status determines where you pay tax and how much tax you pay.
- You must know the tax residence rules, so you can plan your tax affairs.