(a). Tax Implications for Urok Group of Companies

I. Subsidiary Company

• A company is taxed separately from its shareholders. [s. 58(1) of Act 896]
• Income derived or expenditure incurred by managers or shareholders whether jointly or severally on behalf of a company is regarded as income derived or expenditure income by the company even if the company lacks legal capacity to derive the income or incur that expenditure. [s. 58(2) of Act 896]
• All arrangements between a company and a manager or shareholder of a company are recognized for tax purposes unless the arrangement offends anti-avoidance provisions in the Act. [s. 58(5) of Act 896]
• Generally, the corporate income is taxable at the rate of 25%. [See First Schedule to Act 896]
• Generally, dividends paid by a resident company to a shareholder are subject to withholding taxes at the rate of 8%. [s. 59(1) and First Schedule to Act 896]
• Thus, generally the total tax exposure on an investment in a wholly owned subsidiary is 33% i.e. 25% at the corporate level and 8% at the shareholder level.

II. Partnership

• A partnership is not liable to pay tax on its income and not entitled to any tax credit with respect to that income but is liable to tax with respect to final withholding payments. [s. 52(1) of Act 896]
• The income or loss of the partnership is allocated to the partnership in line with their profit and loss sharing ratio as stated in the partnership agreement. [s. 52(2) of Act 896]
• Arrangements between a partnership and its partners are recognised for tax purposes and considered in determining the share of an individual partner unless stated otherwise in the Act. [s. 52(6) of Act 896]
• The income or loss of the partnership for a year of assessment is allocated to the partners as income or loss in their profit or loss sharing ratio. [s. 54(1) of Act 896]
• Taxes paid under the Act and foreign income taxes paid or treated as paid by a partnership is allocated to the partners, in their profit and loss sharing ratio and treated as paid by the partners. [s. 54(6) of Act 896]
• Since the profits are allocated to the partners in their profit or loss sharing ratio, the income of the individual partners will be taxed on the graduated scheme which starts from 0 to 35% if the partners are resident for tax purposes. However, if the partner is non-resident for tax purposes, the income will be taxed at the rate of 25% as provided for in the First Schedule to Act 896.
• Given the fact that section 133 of Act 896 defines partnership to mean an association of two or more individuals or corporations carrying on business jointly for the purpose of making profit, irrespective of whether the association is recorded in writing, it is possible that the partners could be entities.
• If the partners are entities, the profit allocated to the partners will be taxed at the corporate tax rate which is generally 25% as provided for in the First Schedule to Act 896.

III. Branch

• A branch of a non-resident person is usually regarded as a permanent establishment of that person in the country. This is because the establishment of a branch provides a place in the country for a non-resident person carries on business. [See s. 110 of Act 896]
• A branch of a non-resident person in Ghana is subjected to tax in the same manner as a resident company [s. 107(1) of Act 896]
• The branch and its owner are treated as persons in a controlled relationship and thus the transactions must satisfy the arm’s length principle. [s. 107(2)(a)(i) of Act 896]
• A Ghanaian PE is expected to withhold tax on payments made, pay taxes on payments received and pay tax by instalments after assessment in the same manner a resident company will do under a similar circumstance. [s. 107(3) of Act 896]
• A branch profit tax of 8% is imposed on the repatriated profits of the branch. [s. 60 of Act 896 and reg. of LI 2244]
• Thus, the total tax exposure on an investment in a branch is 33% i.e. 25% at the corporate level and 8% whenever branch profits are repatriated.

(b). Least Tax Exposure for Urok Group

If we assume that the individual shareholders of Urok Group of Companies are nonresident for tax in Ghana, the establishment of a partnership in Ghana will provide the least tax exposure because the tax rate on the income will be 25%. If the partnership is established by either resident or non-resident entities within the Urok Group, the tax rate on the income will be 25%. Alternatively, if the partnership is established by resident shareholders of the Urok Group, the conclusion as to which form of the business organisations gives the least tax exposure will depend on the tax bracket of the individual shareholders since the resident individuals are taxed on the graduated scale from 0 to 35%. Thus, if the effective tax rate of the individual shareholders is below 33%, establishing a partnership will give the least tax exposure since the total tax exposure on a wholly owned subsidiary and a branch are fixed on 33%.