Corporate - Income determinationLast reviewed - 03 March 2023
Section 11 of the ITA provides general guidance on the principles of stock (inventory) valuation for income tax purposes. A person making a determination of the cost of trading stock is required to use the absorption cost method. The owner of a trading stock or other fungible assets may determine the cost of that asset by using the first in first out (FIFO) method or the average cost method. The closing value of inventory is valued for tax purposes at the lower of cost or market value.
Capital gains are included as part of business income and taxed at the applicable CIT rate.
A dividend paid to a resident company by another resident company is exempt from tax where the company receiving the dividend controls, directly or indirectly, 25% or more of the voting power in the company paying the dividend.
The issue of stock dividends is permitted under Section 77 of the Companies Act, 2019 (Act 992). It is, however, subject to income tax at the dividend withholding tax (WHT) rate of 8%.
Interest received by a resident company from another resident company is subject to WHT at a rate of 8%.
However, WHT does not apply to interest received by a resident financial institution.
Royalty income received by a company is included in the investment income and taxed at the applicable corporate tax rate with a general rate of 25%.
The mineral royalty rate is 5% of the total revenue earned from minerals (excluding petroleum and water) obtained from mining operations by a holder of a mining lease, restricted mining lease, or small-scale mining licence.
Specific exemptions from tax include the following:
- Income of a local authority.
- Income of a statutory or registered building society where only individuals are eligible to be members and the organisation does not engage in political party activities.
- Non-business income of a charitable organisation.
- Income of organisations formed for the purpose of promoting social or sporting amenities.
- Income of a registered trade union.
- Gain or profit from the business of operating ships or aircraft by non-resident persons if an equivalent exemption is granted by the person's country of residence to persons resident in Ghana.
- Retirement contributions received by a retirement fund.
- Gains from the realisation of Ghana Stock Exchange (GSE) listed securities and Securities and Exchange Commission (SEC) approved securities.
- Income of an approved unit trust scheme, mutual fund, or real estate investment trust (REIT).
- Income of privately-owned universities when they plough back all their profit into the business.
Resident corporations are taxed on their worldwide income. Foreign income is taxed together with other income derived in Ghana, and double taxation is avoided through treaties or foreign tax credits. No special rules exist for taxing undistributed income of foreign subsidiaries.