I. A 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 company is 33% i.e. 25% at the corporate level and 8% at the shareholder level.

II. A 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 recognized 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 scale which starts from 0 to 30% if the partners are resident for tax purposes. However, if a 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. Sole Proprietorship
A sole proprietorship is not distinct from its individual owner for purposes of income tax.
Income earned by the sole proprietorship is taxed in the hands of the individual.
If the owner is resident for tax purposes, the income will be taxed on the graduated scale up to a maximum of 30%. [See First Schedule to Act 896] If the owner is non-resident for tax purposes, the income will be taxed at a flat rate of 25%. [See First Schedule to Act 896]

a) Which of the above forms business provides the least tax exposure for an investor.
If the partnership is established by either resident or non-resident entities, the tax rate on the income will be 25%.
If a sole proprietorship is owned by a resident individual, the income will be taxed on the graduated scale up to a maximum of 30%. Similarly, if a partnership is owned by resident individuals, the income will be taxed on the graduated scale up to a maximum of 30%.
Income earned by a company is generally taxed at the rate of 25% and dividends distributed to the shareholders is taxed at the rate of 8% and this brings the total tax exposure of the investment to 33%.
Thus, the effective tax rate of the sole proprietor, the resident status of the partners and the type of business organization of the partners will be critical in determining which of the forms of business provides the least tax exposure to an investor.