This note sets out at a high level the basics and mechanics of double taxation agreements in Ghana. This note is particularly relevant for persons (a) living in one country and working in another; (b) with investments in any country other than Ghana; and (c) who earn rental income or investment income from abroad.
Embarking on a joint venture or an individual business venture in a foreign state or investing internationally, can pose several challenges to companies. Key among them is the threat of paying taxes in both countries or jurisdictions. This risk is known as double taxation.
Double taxation results in an international company or business persons having to pay tax twice or more on the same income. Unsurprisingly, the problem of double taxation discourages international investment and business. It also causes hardship to the taxpayer; and for a developing country like Ghana, taxing a person twice on the same income renders the country unattractive for business and reduces foreign direct investment.
This is where Double Tax Treaties (“DTTs”) come in. DTTs provides international business entities and persons with the much-needed relief from the double taxation of their incomes – that is accruing to the residents of contracting states within either of the jurisdictions covered by the treaty.
DTTs are bilateral in nature. That is to say, they are tax agreements between two jurisdictions that mitigate double taxation problems or the occurrence of double taxation. The contents of these DTTs are usually dependent on the nature of the relationship between the states involves and the interests they seek to achieve. DTTs will typically spell out specific tax exemptions and tax credit reliefs that may be available.
As a foreign resident, your income may be exempt under a DTTs if:
- the income is derived or arises from Ghana and is earned by you (you will usually be exempt from paying taxes in Ghana);
- you carry on business in your resident country and derive profit from trading in Ghana―you will be exempt in Ghana unless the profit arises from a “permanent establishment” in Ghana;
- your business has to do with shipping or air transport in which case you would only be taxed in the country where the business resides and are to be exempted from tax in the other country;
- you’re an international student or apprentice receiving full-time education or training in Ghana (you’re exempt from tax on payments from your home country for your maintenance, education, or training).
Taxpayers can also benefit from tax credit reliefs under DTTs. Here, your country of residence would give you an allowance in respect of the tax that arises in Ghana to essentially provide a relief where the income is not covered by a specific exemption. The effect that this has is to set the credit against the tax on the same income to limit the credit to the lower of the two taxes.
Essentially, DTTs go a step further to foster foreign investment and trade, offer a stable and predictable tax environment, reduce tax evasion, and improve relations between the two countries. DTTs will generally supersede any conflicting tax provisions that the contracting states may have in place. Ghana has DTTs with the following countries;
- United Kingdom
- South Africa
- the Netherlands
- The Czech Republic*
The treaties Ghana has with the Czech Republic, Singapore and Ireland are not yet in force.
Aside countries with which we have a double tax agreement, persons who have experienced double taxation from any foreign country can apply the credit relief method to seek a deduction from their Ghanaian tax liability in respect of taxes paid abroad where applicable.