Restructuring Plan for Mr. Kofi Opoku’s Companies

Tax Analysis

• Unique Farms Ghana Limited: Engaged in tree crop farming, its chargeable income is taxed at 1% for 10 years from 2019 (first harvest year) per Paragraph 1(1), Sixth Schedule, Income Tax Act, 2015 (Act 896).
• Speed Transport Ghana Limited: No tax concessions, taxed at 25% on chargeable income.
• Dividends:
  • Returns from both companies to Mr. Opoku are dividends (Section 133, Act 896).
  • Dividends are not deductible for tax purposes (Section 130(4), Act 896).
  • Dividends paid to Mr. Opoku are subject to 8% withholding tax (Section 115, First Schedule, Act 896).
• Inter-Company Dividend Exemption: Dividends paid by a resident company to another resident company are exempt from tax if the receiving company controls at least 25% of the voting power (Section 59(3), Act 896).

Restructuring Strategy

• Make Unique Farms a Subsidiary: Restructure so Speed Transport Ghana Limited becomes the direct shareholder of Unique Farms Ghana Limited.
  • Benefit: Dividends paid by Unique Farms to Speed Transport would be tax-exempt, leveraging the 25% voting power exemption.
  • Financing Advantage: Unique Farms’ after-tax profits (taxed at 1%) can be transferred as tax-exempt dividends to Speed Transport, providing a low-cost financing option compared to high-cost borrowing.
• Share Swap Arrangement:
  • Mr. Opoku exchanges his shares in Unique Farms for additional shares in Speed Transport.
  • This makes Speed Transport the direct shareholder and Mr. Opoku the indirect shareholder of Unique Farms.
  • Tax Deferral: The share swap is a replacement of a realized asset under Section 46, Act 896, deferring tax on any gains from the disposal of Unique Farms shares.

Conclusion

This restructuring reduces Mr. Opoku’s tax exposure by leveraging tax-exempt inter-company dividends and provides Speed Transport with a cost-effective financing mechanism using Unique Farms’ profits.