PT – May 2020 – L2 – Q2e – Corporate Tax Liabilities

Determines the tax treatment for dividends received by a resident company holding significant voting power in another resident company.

Question

Zealow Ltd, a car battery dealer, holds 26% voting power of Aboye Ltd, an energy and power distribution company. Both companies are resident in Ghana. Aboye Ltd declared a dividend, and the portion of the dividend that should be credited to the accounts of Zealow Ltd is GH¢78,900.

Required:
Determine the taxes payable, if any, and comment on the treatment of dividend to Zealow Ltd.
(5 marks)

Answer

Under section 59(3) of the Income Tax Act 2015 (Act 896), a dividend paid to a resident company by another resident company is exempt from tax where the recipient company controls, directly or indirectly, at least 25% of the voting power of the company that paid the dividend.

Since Zealow Ltd holds 26% voting power in Aboye Ltd, the dividend of GH¢78,900 credited to the accounts of Zealow Ltd is exempt from tax. The dividend is not taxable in the hands of either Zealow Ltd or Aboye Ltd.

(5 marks)

Tags: Corporate Tax, Dividend, Resident companies, Tax exemption
Level: Level 2

Topic: Corporate Tax Liabilities
Series: MAY 2020

Uploader: Cheoli