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.
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.
This post relied on my interpretation of the following provisions of Act 896
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