- 20 Marks
Question
(a). The Chief Executive Officer (CEO) of Dana, a meat processing company based in the United Arab Emirates is exploring the possibility of expanding the operations of the company to Ghana. The CEO intends to establish a cattle farm and an ultra-modern meat processing which would process the meat for export to the Middle East. His initial inquiries revealed that Ghana has tax incentives for investors who seek to establish businesses which produce items for export.
Required: As the preferred tax advisor, provide an opinion on the income tax consequences of establishing a cattle farm indicating whether the location of the farm impacts on the tax incentives available to an investor.
(b). Based on your knowledge of the Free Zone Act, 1995 (Act 504) state and discuss five (5) tax incentives which the investor can obtain if he registers the meat processing factory as a Free Zone Enterprise.
Answer
(a). Income Tax Consequences of Establishing a Cattle Farm
Under paragraph 1 of the Sixth Schedule to the Income Tax Act, 2015 (Act 896), an individual who conducts farming business wholly in the country is subject to the tax at the rate of 1% for a period of 10 years starting from the year in which the business commences if the person is engaged in cattle farming. The Income Tax (Amendment) (No. 2) Act, 2016 (Act 924) inserted the following applicable tax rates for the next five-year period after the temporary concession period:
| LOCATION | RATE OF INCOME TAX |
|---|---|
| Accra and Tema | 20% |
| Other Regional Capitals outside the Northern Savannah Ecological Zone | 15% |
| Outside other Regional Capitals | 10% |
| The Northern Savannah Ecological Zone | 5% |
This above table shows that the location of the cattle farming has an impact on the tax incentives available to the business after the concessionary period of 10 years.
(b). Tax Incentives for Free Zone Enterprise
The following are five tax incentives provided for in the Free Zone Act, 1995 (Act 504) for a meat processing factory registered as a Free Zone Enterprise:
- Non-application of Import Laws to Free Zones (s. 21): Free Zone Enterprises are exempt from standard import regulations, allowing seamless import of raw materials and equipment without customs duties, reducing operational costs.
- Exemption from Income Tax on Profits for First Ten Years (s. 28): A Free Zone Enterprise is exempt from paying income tax on profits for the first ten years from the date of commencement of operations, enhancing cash flow for reinvestment.
- Reduced Tax Rate on Exports After Concessionary Period (First Schedule to Act 896): After the ten-year exemption, income from export of goods outside the national customs territory is taxed at a reduced rate of 15%, lower than the standard corporate tax rate.
- Exemption from Withholding Taxes on Dividends (s. 28): Shareholders of a Free Zone Enterprise are exempt from withholding taxes on dividends arising from free zone investments, increasing returns to investors.
- Guaranteed Unconditional Transfer of Funds (s. 30): The enterprise can freely transfer dividends, loan servicing payments, technology transfer fees, and proceeds from sale or liquidation in convertible currency through authorized banks, ensuring financial flexibility.
- Tags: Export, Free Zone Act, Meat Processing, Tax Incentives, Withholding Tax
- Level: Level 2
- Topic: Tax Incentives
- Series: AUG 2018
- Uploader: Samuel Duah