The Ghana Revenue Authority (GRA), acting on behalf of the government, has introduced new compliance measures aimed at taxing the foreign incomes of resident Ghanaians. This initiative serves as a substitute for the suspended 18 percent Value Added Tax (VAT) on electricity.
According to the GRA, the strict enforcement of the foreign income tax is seen as a viable alternative to the unpopular VAT on electricity.
It is anticipated to generate approximately GH¢1.8 billion in revenue.
In response to this development, resident Ghanaians are granted a three-month period starting from May 1, 2024, to voluntarily disclose their foreign income. Those who comply within this timeframe will receive an exemption from interest charges on their accounts.
Now, what exactly does the foreign income tax entail, and which groups of Ghanaians will it affect?
About the ‘Foreign Income Tax’
To begin with, the foreign income tax isn’t a novel taxation policy. Despite its existence, it remains unfamiliar to many Ghanaians due to the lenient enforcement by successive governments.
Established in 2015 under the Income Tax Act (Act 896), this tax aims to levy incomes earned by Ghanaians from overseas sources.
The GRA defines foreign income as “income you receive for services you perform in a foreign country in a period during which your tax home is in a foreign country and you meet either the required residence test or the physical presence test”. That is the income a Ghanaian earns for services while living and working in a foreign country.
According to the act, “The foreign income of a resident person is taxable except, where the employment income of the resident individual is from a foreign source and derived from a non-resident employer”.
Another category of Ghanaian residents who would not attract the foreign income tax is “where a resident person is an employer and the individual is present in a foreign country for at least one hundred and eighty-three (183) days continuous”.
George Ankomah, a senior tax partner at Deloitte, provided insights during an interview with JoyNews, elucidating on Ghana’s foreign income tax. According to Ankomah, this tax “has to do with Ghanaians who have incomes that are earned outside Ghana and the requirements under the income tax law which was passed way back in 2015, is that once you are a resident of Ghana, your global income is taxable in Ghana”.
Furthermore, Ankomah emphasized that Ghanaians earning foreign income wouldn’t be obligated to pay the foreign income tax if their income declaration reveals that they pay more taxes in the countries where they work than what they are required to pay in Ghana.
What the Foreign Income Tax covers:
Now let us take a look at the types of foreign income of resident Ghanaians which would attract the tax.
According to PwC Ghana, resident Ghanaians are taxed on their worldwide income, including their foreign income gained from:
1. Remuneration from any employment, including salaries, allowances and other benefits.
2. Gains or profits from trade, business, profession, or vocation.
3. Gains from realization of assets and liabilities.
4. Gifts.
5. Dividends.
6. Any charge or annuity.
7. Royalties, premiums, and any other profits arising from property.
8. Receipts, including royalties or periodic or deferred payments, of any kind derived from any transaction wherever and whenever made, affecting directly or indirectly, and/or from any natural resources in Ghana, and notwithstanding whether the receipts are paid within or outside Ghana.
How much foreign income you would be taxed depending on your income:
According to PwC Ghana, residents Ghanaians are subject to graduated personal tax rates with rates ranging from 0% to 35%. Annual income up to GH₵ 5,880 is taxed at 0%. Any income in excess of GH₵ 600,000 is taxed at 35%.
Below is a schedule of taxes provided by PwC:
Nonresident individuals pay taxes on their employment income at a rate of 25%.
Benefits of paying foreign income tax:
Another thing not known to most Ghanaians is that taxpayers, including those who pay foreign income tax, are eligible for tax credits – foreign tax credit.
The tax law states, “A resident person other than a partnership may claim a foreign tax credit in respect of tax paid to a foreign country. A person may relinquish a foreign tax credit and claim it as a deduction”.
