Daniel Nuer, Head of the Tax Policy Unit at the Ministry of Finance in Ghana, has disclosed that the Ministry is working to introduce approximately 36 additional Double Taxation Agreements to the existing 14 enforced in Ghana.

Nuer stated that six agreements are awaiting Parliamentary ratification, five are currently under negotiation (Hungary, Israel, UAE, Korea, and Egypt), and five have been concluded but not yet signed. Additionally, discussions have commenced on three others, while three more are in the process of renegotiation.

He noted, "We are renegotiating them because although they were negotiated a while back - some more than 20 years ago, they were not ratified. Things have changed since then, such as models that are now outdated, so we need to renegotiate them and bring them up to date."

This was shared during a UK-Ghana Chamber of Commerce (UKGCC) and PwC Ghana webinar on Tax Residency Rules in Ghana: Preparing Multinationals for Compliance.

Once these treaties are in effect, they will offer relief from double taxation, reduce tax rates based on negotiated agreements, provide exemptions to companies like foreign airlines and shipping companies, and grant access to the Mutual Agreement Procedure (MAP) for dispute resolution, among other benefits.

In order to benefit from these treaty agreements, individuals must be residents of Ghana, residents of the treaty partner, or both; be beneficial owners of the income, and satisfy any Limitation of Benefits (LOB) or Entitlement to Benefits provisions contained in the treaty, where applicable.

Defining Ghana’s corporate tax residency rules

Tax residency is a crucial aspect of taxation for both individuals and entities, determining which country has the right to tax individuals' worldwide income.

In Ghana, the Income Tax Act 2015 (Act 896) imposes taxes on the total income of 'Resident Person(s), including companies, from all sources (domestic and foreign).

Michael Adu-Owusu, the Head of CRS Compliance & Enforcement at Exchange of Information (EOI) at the Ghana Revenue Authority, explained that a 'company' is one that is incorporated under the laws of Ghana (Companies Act 2019 (Act 992), with the management and control of its affairs being exercised in Ghana at any time during the year.

Through this structure, the income tax act establishes what is referred to as a Permanent Establishment (PE). A PE is an entity separate from its owner and subject to tax under Section 1 in the same manner as a resident company, if the PE is a Ghanaian permanent establishment.

A Ghanaian PE is a place in Ghana where a non-resident person carries on business, or engages in a construction, assembly, or installation project for ninety days or more.

Activities of a PE include when an owner of a company employs an individual resident in Ghana or makes a sale of trading stock of the same or a similar kind as those sold through a PE. Adu-Owusu stated, "So, to the extent that this rule applies, the entity will be considered a PE and the tax rule will apply accordingly."

A company may also be deemed taxable based on its Place of Effective Management (PoEM). PoEM is the place where key management decisions necessary for the conduct of the entity's business as a whole are substantially made.

Factors to consider in determining PoEM include the place where the CEO and other senior executives usually conduct their activities.

Tax residency status and compliance challenges

A company operating in Ghana may fall between a PE and a PoEM, leading to challenges in complying with tax laws.

For example, Godwin Kofi Matachor, a Senior Manager in International Tax and Transaction Services with EY Ghana, highlighted that it is often difficult to properly classify foreign companies that only establish liaison offices in Ghana, without engaging in manufacturing or providing services. This ambiguity makes it challenging to determine their tax obligations as either a PE or PoEM.

In response, Nuer advised taxpayers to consult the Commissioner General of the GRA to determine their status. He emphasized, "It is always important to talk to the GRA. Once your concerns reach the GRA, several tests will be applied, and if it is determined, for instance, that you are a PE, the company will need to file a return and make payments."

He further stressed, "Your residency determines how you are taxed. It doesn’t change your tax liability. That is why, if we're unsure, we use the mutual assistance program to determine where you should pay the tax."

In the absence of a Double Taxation treaty, a foreign tax credit system (FTC) is utilized. Nuer stated that FTCs reduce tensions that may arise from misconceptions in double taxation cases.

Resolving international tax issues

Nuer revealed that the UN Model Convention is currently undergoing revision to establish a framework convention on international tax cooperation and protocols on its operation.

The revision aims to synthesize and harmonize double taxation agreements across various jurisdictions to eliminate differing interpretations of what constitutes a resident company from one jurisdiction to another.

Nuer expressed optimism that "In the next few years after these revisions are completed, we will have a clearer understanding of what to expect."

While he does not anticipate significant rule changes, Nuer expects the revised convention to harmonize existing double taxation issues, enabling multinationals to easily comply with Ghana's tax residency rules.

He added, "We will have one set of rules. Ghana will not have different rules from the UK or the USA. There will generally be balance in the rules so multinationals can comfortably engage with the GRA."

The way forward

Nuer advised taxpayers seeking further education on DTAs and their commentaries to refer to the UN Model Convention.

He stated, "We have deviated from what the Organisation for Economic Co-operation and Development (OECD) uses. Although the GRA uses a hybrid commentary, ours is closer to that provided by the UN Model."

To ensure compliance with Ghana's corporate tax laws, Nuer recommended that non-resident taxpayers contact the GRA's Client Service Unit. He added, "If you've been registered for VAT, then you automatically have a TIN and can use the GRA web portal."

Adu-Owusu emphasized that the "GRA's Client Service is available to assist with IT-related issues, legislation, misunderstandings, or any other concerns, ensuring that you can conveniently comply with the laws and pay your taxes."

The webinar, moderated by PwC Ghana's Christiana Osei-Mensah, covered various topics such as final withholding taxes in non-resident cases, DTA tax rates, accessing DTA treaty benefits, and how changes in residency status affect tax obligations and compliance.

Yvonne Nikoi, Head of the Accounting and Taxation Department of Minkah-Premo, Osei-Bonsu, Bruce-Cathline and Partners (MPOBB), also shared insights during the event.