2012 africa oil and gas tax workshop: sub-saharan africafile/doing-business-in-ghana.pdf · page 2...

Doing business in Ghana2012 Africa Oil and Gas Tax Workshop: Sub-Saharan AfricaParis, France

23–24 February 2012

Doing business in Ghana2012 African Oil and Gas Tax Workshop: Sub-Saharan Africa

► Legal framework► Taxation► Recent and expected legislative changes

Contents


Ghana is located in west Africa

Legal framework


Legal framework

► The relevant legal framework applicable to the oil and gas sector inGhana is:► Petroleum (Exploration and Production) Act, 1984, PNDCL 84

► There is a Bill before Parliament to replace PNDCL 84

► Petroleum Commission Act, 2011, Act 821► Ghana National Petroleum Corporation (GNPC) now focuses on its role as a

player in the exploration, development and production of oil and gas in Ghana► End of the dual «Referee and Player» role for GNPC

► Establishment of a Petroleum Commission (PC)► As a regulator of oil and gas sector► As a manager of utilization of petroleum resources

► GNPC to concentrate on exploration, development and production► But, CEO to have a seat on the board of the PC► How independent will the board of the PC be?

► Petroleum Income Tax Law, 1987, PNDCL 188► Sets out the framework for direct taxation of companies in the oil and gas sector

► Petroleum Agreements signed by the Government of Ghana, GNPC and thepetroleum contractors under development.


► Other supporting laws include:► Internal Revenue Act, 2000, Act 592 (as amended) and its

related legislative instruments► Value Added Tax Act, 1998, Act 546 (as amended) and its

related legislative instruments► Customs, Excise and Preventive Service (Management) Act,

1993, PNDCL 330 (as amended)► Companies Act, 1963, Act 179 (as amended)

Legal framework


Legal frameworkEstablishment of a company

► Every person who wishes to carry on petroleum operations in Ghana is required to incorporate a company. ► Currently, foreign companies are allowed to register a branch in Ghana to carry on

upstream oil field services.► The new law requires the incorporation of a company.

► Currently, there is no legal requirement to have a local partner to carry on the business in the oil and gas sector

► The Petroleum Commission Act, however, provides for the setting up of a local content committee under the board to promote local content and local participation in petroleum activities:► Local content and local participation to be spelled out in regulations► Preference to be given to Ghanaian citizens with the requisite expertise/qualifications► No discrimination on grounds of race, nationality or gender in the conditions of service

provided to employees► Preference to be given to local goods and services vis-a-vis foreign ones ► Locals to have a minimum of 5% equity stake in oil and gas companies


Legal frameworkRegistration process

► Incorporation of a company with Registrar General’s Department:► Incorporation of a company normally takes approximately 2 weeks.► Cost of registration is approximately US$130 (payable to Registrar General).► Stamp duty of 0.5% is payable on the stated capital (share capital).

► Registration with Petroleum Commission:► For support services companies, registration may take about 6 weeks.► For petroleum contractors, registration takes 3 to 4 months.

► Registration with Ghana Revenue Authority: ► For direct and indirect tax purposes► Takes approximately 2 weeks► Registration with Social Security and National Insurance Trust (SSNIT):

► For employee pension ► May take a day

► After registration with the Registrar General's Department, all other registrations can be done concurrently.


Legal frameworkRegistration process

► Processes for obtaining exploration block in Ghana:► Application form is completed and submitted to Ministry of Energy► The PC evaluates the application and conducts the necessary due

diligence on applicant; the evaluation report with recommendations is submitted by the PC to the Ministry of Energy

► Team is constituted to negotiate a petroleum agreement; team made of representatives from Ministry of Energy, Ministry of Finance and Economic Planning, Ghana Revenue Authority and Attorney General’s Department

► Draft petroleum agreement is submitted to cabinet for consideration► Petroleum agreement is forwarded to Parliament for ratification

Taxation


TaxationCorporate income tax

► The corporate income tax rate applicable to petroleum contractors is 50% or as stated in the petroleum agreement.► All Petroleum Agreements signed to date provide for 35%.

► Subcontractors are subject to a final withholding tax of 5% on the aggregate income derived from works and services rendered to the petroleum contractors.

► Petroleum contractors are allowed a deduction for costs incurred wholly, exclusively and necessarily for the purposes of generating income, including:► Rentals► Royalties► Sums payable by way of interest, fees or charges upon money borrowed ► Bad debts arising from debts incurred in the conduct of petroleum operations and

proved to the satisfaction of the Commissioner-General to be bad debts► Contributions to pension or provident fund approved by the Commissioner-General► Sums expended for the training and education of citizens and nationals of Ghana in

approved educational and technical institutions► Sums representing special carried interest allowance► Capital allowance► Losses incurred



► Deductions not allowed include the following:► Depreciation of fixed assets, including premises, plant and

machinery.► Private and domestic outgoings► Costs which are not wholly, exclusively and necessarily incurred to

conduct petroleum operations► Any income tax, profit tax or similar tax paid, whether incurred in

Ghana or outside► Sums recoverable under insurance policy or contract of indemnity



► Returns► Petroleum contractors are required to file quarterly and annual

returns for every year of assessment.► The quarterly returns must be filed within 30 days after the end of the

quarter.► The annual returns must be filed within four months after the end of the

year of assessment.► Extension of time may be granted by the Commissioner-General for the

quarterly and annual returns upon reasonable grounds.► Subcontractors are required to file annual returns within four

months after the year of assessment.► In all cases, the Commissioner-General may request for returns in

addition to the quarterly and annual returns.


TaxationPersonal income tax

► Ghana applies the source rule for the taxation of income.► Accordingly, employees who exercise their employment in Ghana shall be subject

to tax in Ghana on the entire employment income receivable by them by virtue of the employment relationship irrespective of where the payment is actually made.

► Employees who are present in Ghana for a period less than 183 days are deemed as nonresidents and subject to a 15% final withholding tax on their respective employee income .

► Employees present in Ghana for a period of 183 days or more are deemed as residents and subject to tax using the graduated scale. The top bracket of the graduated scale attracts 25%.

► Petroleum agreements (PAs) usually provide for exemptions from income tax for foreign national employees of contractors, their affiliates and subcontractors who are present in Ghana for a certain number of days .

► In the PAs sighted by us so far, foreign national employees who are not present in Ghana for more than 30 days continuous or 60 days in aggregate in a calendar year may be exempted from the payment of income tax. The exemption period varies from one PA to another.



► Further, under the tax treaties entered into by Ghana with other states, employees who are resident in the other contracting states are exempt from the payment of income tax in Ghana, provided all the following holds:► They are present in Ghana for less than 183 days in aggregate in any 12-

month period.► Payment of their salary is made by or on behalf of an employer who is not

resident in Ghana.► Such payment is not charged back to a permanent establishment that the

employer has in Ghana.► (NB: Ghana has an anti-treaty shopping provision in its domestic law.)

► Resident “employers” are required to withhold appropriate tax from payments to their employees on account of their employment in Ghana.

► Taxes withheld should be remitted to the Ghana Revenue Authority by the 15th of the month following the month in which the deductions were made.



► Failure to withhold the appropriate tax and remit same to the Commissioner-General of the Ghana Revenue Authority by the due date (15th of the subsequent month) attracts a penalty:► 20% where the default is for a period not exceeding three months.► 30% where the default exceeds three months.► The penalty imposed on outstanding tax.► Interest (Bank of Ghana rediscount rate plus 5%) may also be imposed.

► An additional penalty of 5% may be imposed if the default continues without any reasonable excuse: ► On sum of outstanding tax, penalty and interest

► Employers are required to file annual income tax returns on behalf of each resident employee for every year of assessment.► For employees, the year of assessment runs from 1 January – 31

December.► Returns must be filed by 31 March of the subsequent year.


TaxationValue added tax and national health insurance levy

► Supply of hydrocarbon products is exempt from tax. ► Petroleum contractors are relieved from the payment of the Value Added Tax (VAT) and

National Health Insurance Levy (NHIL).► They pay the VAT and NHIL components of their invoices using a VAT Relief Purchase Order

(VRPO).

► Subcontractors that provide taxable services are required to register and charge VAT and NHIL.

► The VAT and NHIL rates are currently 12.5% and 2.5%, respectively.► VAT is accounted for one month in arrears .► VAT return forms must be completed and submitted every month, mainly disclosing:

► VAT and NHIL charged on supplies (output VAT).► VAT and NHIL incurred on imports and local purchases (input VAT).► The difference is VAT payable or receivable.

► Failure to pay VAT and NHIL on the due date attracts interest equal to 25% of the Bank of Ghana rediscount rate plus one-quarter of the applicable rediscount rate every month.

► Failure to file VAT returns on the due date attracts a penalty equal to GHS100 plus GHS0.50 for each day of default. (USD1 equals approximately GHS1.6).


TaxationCustoms duties

► Petroleum contractors and subcontractors are normally permitted to import plant, equipment and materials into Ghana solely and exclusively for the conduct of petroleum operations without paying any import duties.

► Foreign nationals employed by petroleum contractors and their subcontractors are allowed to import their personal and household effects into Ghana without incurring any import duties.► Employees must not sell such items in Ghana, to avoid incurring any import duties.

► The recommended practice for the importation of items by contractors and subcontractors is as follows:► Petroleum contractor notifies PC of the importation and requests an exemption► PC considers whether items being imported are required and will be used to conduct

petroleum operations► Where satisfied, PC, in turn, notifies the Customs Division of the Ghana Revenue

Authority (GRA) of its recommendation for the exemption► GRA (Customs Division) grants the exemption

► The petroleum contractor is required to notify the PC prior to re-exportation of items previously imported under the exemptions package.► Where this is done, no duties will be levied by GRA


TaxationLevies

► Royalties:► Contractors are required to pay royalties on production. Though the rate is

not fixed, the PAs cited by us prescribe royalty rates ranging from 3% to 10%.

► Carried interest:► An initial carried interest of at least 10% shall have to be provided for in the

PA for the Republic (acting through the GNPC).► The Republic has the right to acquire additional interest within a specified

period of time as stated in the PA.► The additional interest is a paying interest .

► Additional oil entitlement:► PAs levy additional oil entitlement payable to the Government of Ghana if

contractors’ respective internal rates of return exceed targeted rates of return.

► Rentals:► Surface rentals are payable to the Government as provided in the PAs.


TaxationDouble tax treaties

► Ghana has entered into double tax treaties with the following countries:► Switzerland, Belgium, United Kingdom, Italy, the Netherlands, Germany, France and

South Africa.► Ghana has an anti-treaty shopping provision that precludes companies from enjoying

the benefits pertaining to a treaty unless more than 50% of the underlying owners of the Ghanaian entity are themselves resident in the other contracting state.

* 5% - the payor is resident in France , 7.5% - the payor is resident in Ghana

South Africa

United Kingdom

Germany France Italy Netherlands Switzerland Belgium

Income type % % % % % % % %

Management fees 10 10 8 10 10 8 8 10

Royalties 10 10 8 10 10 8 8 10

Interest 5/8 8 8 8 8 8 10 10

Dividends (where recipient is an equity holder of 10%+)

5 7.5 5 5 /7.5* 5 5 5 5

Dividends (in any other case) 8 8 8 8 8 8 8 8


TaxationTransfer pricing (TP)

► Currently, TP laws in Ghana are not rigorous.► General anti-avoidance provisions apply presently:

► Transactions between related parties are required to be at arm’s length.

► No documentation is required.► The Government of Ghana, acting in concert with the Ghana

Revenue Authority and with assistance from the Africa Tax Administrators Forum, has prepared a set of regulations to govern TP in the very near future.► The draft is expected to be presented to Parliament by the end of

Q1 in 2012.► Judging by the pace at which the Ghanaian Parliament works, it

may not be until 2013 before the regulations come into effect.

Recent and expected legislative changes


Recent and expected legislative changes

► Loans from third parties not to exceed the lowest market interest rates for similar loans

► Third-party lenders to be considered subcontractors; interests payable to them to be subject to withholding tax (presently 5% and final)

► Percentage of loans-to-total-capital to receive the prior approval of the Minister► Interests on “unapproved” loans to be disallowed► Profits from direct or indirect assignment, transfer or disposal of rights regardless

of beneficiary, type or location of the transaction to be subject to capital gains tax ► Written approval of the Minister to be sought by a contractor before direct or

indirect transfer of shares to a third party► Offset of VAT credit against corporate tax outstanding a possibility ► No less than 5% of contractor’s entitled petroleum to be supplied to the domestic

market at a negotiated price► Contractors obliged to meet domestic supply requirements (pro rata but not to

exceed total entitlement)

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