Finance Ministry to introduce 36 additional double taxation agreements

Head of the Tax Policy Unit at Ghana's Ministry of Finance, Daniel Nuer has disclosed plans by his ministry to introduce 36 additional Double Taxation Agreements (DTAs). 

This would add to the 14 agreements that are currently active in the country.

Mr. Nuer explained that six of these new agreements are awaiting ratification by Parliament, while negotiations are ongoing for five others with countries such as Hungary, Israel, UAE, Korea, and Egypt. Additionally, five agreements have been concluded but have not yet been signed. 

Mr. Nuer disclosed this at a webinar hosted by the UK-Ghana Chamber of Commerce (UKGCC) and PwC Ghana on Tax Residency Rules in Ghana.

A double taxation agreement(DTA) is a contract signed by two countries (referred to as the contracting states) to avoid or alleviate (minimize) territorial double taxation of the same income by the two countries.

Once enforced, DTAs aim to eliminate double taxation, reduce tax rates based on specific agreements, grant exemptions to companies like foreign airlines and shipping firms, and provide access to the Mutual Agreement Procedure (MAP) for resolving disputes.

However, to benefit from these treaties, an individual or entity must reside in Ghana, the treaty partner country, or both. 

They must also be the beneficial owner of the income and meet any applicable Limitation of Benefits (LOB) or Entitlement to Benefits provisions.

In Ghana, the Income Tax Act 2015 (Act 896) mandates taxation on the total income of 'Resident Persons,' including companies, from all domestic and foreign sources.

Michael Adu-Owusu, the Head of CRS Compliance & Enforcement at the Ghana Revenue Authority (GRA), clarified what a 'company' in Ghana is under the Companies Act 2019, Act 992 which establishes what is known as a Permanent Establishment (PE), treated as a separate taxable entity under Section 1, similar to a resident company if it is a Ghanaian PE. 

The activities of a PE include scenarios where the owner of a company employs a resident of Ghana or sells trading stock similar to that sold through the PE. 

Mr. Adu-Owusu noted that if a business qualifies as a PE, it must adhere to the relevant tax regulations.

A company might also be subject to taxation based on its Place of Effective Management (PoEM), which is determined by where key management decisions crucial to the entity’s overall operations are made. 

 Mr. Nuer thus advised taxpayers to consult with the GRA's Commissioner General to clarify their status. "It's crucial to engage with the GRA. If it’s determined that you qualify as a PE, the company will need to file returns and fulfill its tax obligations," he emphasized.

Mr. Nuer also noted that residency status directly affects how an entity is taxed but does not alter its tax liability. In cases without a Double Taxation Treaty, a foreign tax credit (FTC) system mitigates double taxation issues.

He again mentioned that the UN Model Convention is being revised to establish a framework for international tax cooperation, which will standardize DTAs across various jurisdictions, resolving inconsistencies in defining resident companies.

He expressed optimism that once these revisions are completed, there will be clearer guidelines for multinational companies operating in Ghana. "We expect the revised convention to harmonize existing double taxation issues, making it easier for multinationals to comply with Ghana’s tax residency rules," Mr. Nuer stated.

Mr. Nuer therefore encouraged non-resident taxpayers to reach out to the GRA’s Client Service Unit for assistance in understanding and complying with Ghana's corporate tax laws.