Zeal Tax Practitioners

Corporate Tax Compliance

Non-compliance with tax laws exposes your business to the risk of audits, penalties, and reputational damage. Our Corporate Tax Compliance service is designed to ensure your organisation remains fully compliant with all relevant tax obligations—accurately, timely, and efficiently. We help you navigate complex tax requirements, reduce exposure to regulatory risk, and maintain the integrity of your tax affairs.

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Analysis of GRA’s Directive on VAT Invoices for Income Tax Deductions:

In a recent directive issued by the Ghana Revenue Authority (GRA), businesses and the general public are now mandated to use the Commissioner-General’s VAT invoice as evidence for expense deductions for income tax purposes. Starting from April 1, 2024, the VAT invoice will be the only acceptable proof of allowable expense deductions under Section 9 of the Income Tax Act, 2015 (Act 896), as amended.

This directive requires businesses to demand VAT invoices for all transactions involving goods and services. If not adhered to, businesses may face significant consequences, as the GRA will disallow income tax deductions for expenses that are not supported by VAT invoices. This could lead to higher taxable incomes and, consequently, increased tax liabilities for non-compliant businesses.

Are Businesses Complying?
A major concern is whether businesses are prepared to comply with this directive. Historically, many businesses in Ghana, especially SMEs, may not have been meticulous in demanding VAT invoices for purchases or services rendered. The informal sector, which constitutes a large portion of the economy, often operates without formal VAT documentation, making compliance a challenge for certain sectors.

For those businesses that fail to adjust to this new requirement, the GRA's stringent enforcement will result in significant financial implications. A failure to secure the correct VAT invoices for expenses could lead to increased tax liabilities as more expenses are disallowed during income tax filing. This could especially affect small and medium enterprises (SMEs) that may not have the administrative systems in place to easily shift to these new rules.

Consequences for Non-Compliance:
The increase in disallowed expenses could seriously impact businesses’ profit margins. For instance, a company that previously enjoyed deductions for key business expenditures may now find that those deductions are denied, resulting in higher taxable income and larger tax bills. This will be a hard hit for businesses already grappling with inflation and other financial pressures in the Ghanaian market.

Tax practitioners and professionals must prioritize educating their clients about this directive to avoid the risk of having their tax filings challenged by the GRA.

In conclusion, while the GRA’s directive aims to enhance tax compliance and revenue collection, businesses that do not adapt quickly could face severe penalties in the form of disallowed deductions and increased tax liabilities. It is crucial for businesses, particularly those operating informally, to start preparing now by ensuring they receive VAT invoices for all transactions and maintain the necessary records to support their income tax filings.

For guidance or assistance, kindly get in touch with Zeal Tax

Taxation of Undistributed Profits in Ghana:

In Ghana, resident companies that distribute dividends to their shareholders are required to withhold tax at a rate of 8% on the dividend amount. This tax must be remitted to the Ghana Revenue Authority (GRA) on behalf of the shareholders.

However, tax law also addresses cases where companies, particularly those controlled by five (5) or fewer individuals and their associates, do not distribute a reasonable portion of their profits to shareholders within a reasonable period after the end of the basis period. In such cases, the Commissioner-General has the authority to intervene. If the Commissioner-General determines that the company has not made a fair distribution of income, they may issue a written notice treating a portion of the company’s retained income as a deemed dividend. This means that the undistributed profits may be taxed as if they had been paid to shareholders as dividends, even though no actual distribution has taken place.

This provision is designed to prevent shareholders of closely-held companies from avoiding dividend taxes by indefinitely retaining earnings within the company. The Commissioner-General’s determination of what constitutes a "reasonable part" of the income and a "reasonable time" for distribution is discretionary and based on the specific circumstances of the company.

By enforcing this rule, the GRA ensures that companies are not using retained earnings to avoid the tax obligations that arise from dividend distributions. For businesses, it is important to be mindful of this regulation to avoid unexpected tax liabilities on undistributed profits.

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Master Accounting Software with Strong Fundamentals!

Accounting software is a powerful tool, but it doesn’t automatically relieve you of your role as an accountant. Garbage in, garbage out—without a solid understanding of basic accounting concepts, even the best software can't prevent errors or poor financial insights.

That’s why fundamental accounting skills are essential. Our company, Zeal Tax, helps you not only understand how the software operates based on double-entry principles, but also ensures you have the knowledge to input the right data for accurate results.
Strong fundamentals mean smarter software use—maximize your potential today!

We provide training and implementation of Xero and QuickBooks Online.

✳ Back-to-Back Arrangement:

A back-to-back arrangement in tax refers to a transactional structure where two or more related parties, typically within a corporate group, enter consecutive transactions with each other, often involving intermediaries or subsidiaries. This creates a chain of transactions that can be used to:
1. Minimize tax liabilities
2. Optimize tax benefits
3. Manage cash flows
4. Reduce tax risks

Common examples of back-to-back arrangements include:
1. Back-to-back loans: Two companies within the same group borrow and lend funds to each other, often to reduce withholding tax or optimize interest deductions.
2. Back-to-back sales: A company sells goods or services to an intermediary, which then sells them to the final customer, often to reduce tax liabilities or optimize profits.
3. Back-to-back leases: Companies within a group enter into consecutive lease agreements, often to optimize tax benefits or reduce tax liabilities.
While back-to-back arrangements can be legitimate and tax-efficient, they may also attract scrutiny from tax authorities if they are deemed to be:
1. Aggressive tax planning
2. Tax avoidance
3. Evasion

Tax authorities may challenge back-to-back arrangements if they lack economic substance, are not arm's length, or violate tax laws and regulations. It is essential to ensure that these arrangements are properly documented, meet legal requirements, and are transparent to tax authorities.

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Have the best of the week!

Tax Treaty Shopping:

Tax treaty shopping refers to the practice of a company or individual structuring their business or investments to take advantage of favourable tax treaties between countries. Tax treaties are agreements between countries that aim to avoid double taxation and fiscal evasion.
Tax treaty shopping involves exploiting the differences in tax rates, exemptions, or other provisions between countries to minimize tax liabilities. This can be done by:
1. Incorporating in a country with a favourable tax treaty
2. Routing investments or income through a country with a favourable tax treaty
3. Using hybrid entities or structures to exploit tax treaty benefits

While tax treaty shopping is legal, it can be considered aggressive tax planning and may attract scrutiny from tax authorities. Ghana has implemented several anti-avoidance rules to combat tax treaty shopping: Among these includes:

1. Limitation of Benefits (LOB) clause: Ghana's tax treaties include LOB clauses, which deny treaty benefits to entities not meeting certain substantive requirements, such as having a genuine presence in the treaty partner country.

2. Principal Purpose Test (PPT): Ghana's tax authorities apply the PPT to determine if the principal purpose of a transaction or arrangement is to obtain tax benefits under a tax treaty.

3. Anti-Conduit Rules: Ghana has anti-conduit rules to prevent the use of intermediate entities or arrangements to circumvent tax treaty benefits.

4. Beneficial Ownership: Ghana requires that the beneficial owner of income be a resident in the treaty partner country to claim tax treaty benefits.

5. Permanent Establishment (PE) provisions: Ghana's tax laws and treaties include PE provisions to prevent companies from using tax treaty benefits to avoid taxation on business profits.

6. Transfer Pricing regulations: Ghana has transfer pricing regulations to ensure arm's length dealings between related parties and prevent tax avoidance.

7. Disclosure requirements: Taxpayers must disclose tax planning arrangements and report certain transactions to the Ghana Revenue Authority.

8. General Anti-Avoidance Rule (GAAR): Ghana's Income Tax Act 2015 (Act 896) includes a GAAR, which allows the Commissioner-General to challenge tax arrangements deemed to be abusive or contrived.

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TAX EQUALIZATION ARRANGEMENT

A tax equalization arrangement is a policy used by companies to ensure that employees on international assignments pay the same amount of taxes as they would in their home country. The company compensates the employee for any additional taxes owed in the host country, so the employee's net income remains the same.

Here's a breakdown:

- Tax equalization aims to neutralize the impact of different tax systems on employees.
- The company calculates the hypothetical tax liability in the employee's home country.
- The company then compares this amount to the actual taxes owed in the host country.
- If the host country taxes are higher, the company reimburses the employee for the difference.

This arrangement helps companies to:

- Ensure fairness and consistency in employee compensation
- Facilitate global mobility by reducing tax-related stress for employees
- Attract and retain top talent in a competitive global market

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Know Your Rights as a Taxpayer

As a taxpayer in Ghana, you have rights that protect you. These rights include:

- You have the right to be treated fairly and with respect by tax authorities.
- You have the right to privacy and confidentiality regarding your tax information.
- You have the right to appeal decisions made by tax authorities.
- You have the right to receive clear and concise information about tax laws and procedures.
- You have the right to seek assistance and support from tax authorities.

Exercise your rights and fulfill your obligations as a taxpayer.

For more information contact:
Zeal Tax
+233(0)555005098

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