Remote working, sometimes simply described as working from home, is used to refer to the concept where an employee of an organization is given the liberty to work from a location of his or her choice other than the confines of his or her employer’s business address or location. This concept, as we know it today, originated in the 1980s after the advent of the internet and gradually gained prominence in the western world. It has, however, gained significant popularity across the globe in recent times following the outbreak of the COVID-19 pandemic and the implications it has had on the free movement and gathering of people. It has also enabled the development of cross-border work arrangements where an individual may work from a base in one country for an employer or client in another country. The location of an individual, especially one who is engaged in the exercise or performance of income-generating activity, however, has implications on his or her personal income taxation under the income tax laws of Ghana. This article seeks to explore the various Ghanaian personal income tax implications remote working and working across borders are likely to have on the taxability of incomes accruing to an individual.
The World Health Organization (WHO) declared the novel COVID-19 virus a pandemic on 11 March 2020. The aftermath of the global outbreak of COVID-19 led to various countries adopting stringent measures to clamp down on the spread of the virus. Countries introduced and enforced restrictions on the movement of people; some also added the closure of borders to minimize the importation of infections.
The restrictions on the movement of people and the closure of the borders came with their own manifest and latent effects that cut across all facets of life the world over. While the more obvious effects included the instant impact on travel — together with the concomitant impact on various economies, one latent but the far-reaching effect was the fact that it heralded the more hastened and wider adoption of remote working; a culture which, though was gradually gaining momentum, was not quite yet common globally. Although remote working initially served as the business community’s solution to ensure business continuity during the period of restrictions and border closures, its attendant benefits, such as reduced costs and increased productivity have ensured its continued popularity even after the restrictions have been eased and some borders reopened.
Ghana’s reaction to the pandemic as well as events that have unfolded thereafter has not been any different. Following an increase in the number of reported cases locally, the government announced on 21 March 2020 the closure of its borders from 22 March 2020 as part of wider measures it was implementing to curb the spread of the virus. All borders subsequently remained closed until the reopening of the airports on 1 September 2020. During this period, akin to what was happening globally, some employees as well as individual business owners worked remotely. The situation after the reopening of the borders has not been significantly different as employers and business owners alike continue to take advantage of the benefits that remote working has proven to produce with some even offering additional benefits or incentive payments to employees who work from remote locations. Businesses across various sectors of the economy have adopted varied levels of remote working with businesses within the services sector such as those providing financial, telecommunication, information, educational and professional services seeing the most adoption. The phenomenon, however, has Ghanaian income tax implications, especially where cross-border work is involved.
Overview of Personal Income Taxation in Ghana
Taxation, a topic of increasing interest in Ghana, remains the principal means by which governments of many developing countries attempt to fund the operation of a state. It has mostly been tied to the income-generating activities of persons within the state or with ties to the state. These ties are based mostly on citizenship, residency and the establishment of a permanent establishment in the country.
The incidence of tax can thus generally be avoided by refraining from such activities and/or preventing the formation of such ties. There may, therefore, be an issue to be resolved where such ties are created involuntarily or due to legislative restrictions beyond the control of the person.
In Ghana, taxation of individuals in any tax year (which is the same as the calendar year) is linked to tax residency as well as to the source of the income. The Income Tax Act, 2015, Act 896, as amended (ITA) generally defines tax resident individuals to include:
- citizens who have been present in the country for a day or more within the tax year, and
- non-citizens who have been “present in the country for 183 days or more within any 12-month period beginning or ending within the tax year”.
The ITA also goes on to provide the rules to determine whether income has a source in Ghana. These rules which are set out in the ITA may be summarised as follows:
- Business Income: has a source in Ghana where the activities are “carried out in Ghana” or the income-generating asset is “situated in Ghana”
- Investment income: has a source in Ghana where the “payment is made by a resident person” or where the payment relates to an “asset or risk situated in Ghana”
- Employment income: has a source in Ghana where the employment is “exercised while physically present in Ghana”.
While tax residents, with one exception, are taxable on their worldwide income (i.e. income received from sources around the globe), tax non-residents are taxable only on income with a source in Ghana. The exception, in relation to the taxation of the worldwide income of tax residents, is where the income is from employment exercised by an individual while physically present in a foreign location. Here, such income is not taxable in Ghana provided the employment is with:
- “a non-resident employer” or
- “a Ghana resident employer where the individual is present in the foreign location for 183 continuous days or more”.
Note that for the purpose of understanding the instances where the above exception to worldwide taxation of resident individuals apply, reference will need to be made to the ITA’s definition of resident entities. In the case of companies, the ITA provides that, they are to be considered resident if they are either “incorporated under the Companies Act, 2019, Act 992, or have the management and control of their affairs exercised in the country at any time during the year”.
Lastly, on the subject of personal income tax rules, it is important to note for the purposes of this article that, in addition to the rules on residency and source, the ITA goes further to define what is to be included or excluded in the calculation of the income of a person. It also provides for what deductions may be made in the calculation of chargeable (taxable) income. Where employment income is concerned, the ITA provides that, “a payment made by an employer to an employee for an expense incurred by the employee on the employer’s behalf is not to be included in calculating the employee’s employment income provided the expense was incurred in furtherance of the employer’s business”. The ITA also goes on to provide that, “with the exception of the interest component of qualifying mortgage payments, no deductions are to be allowed for the purpose of calculating employment income”. It is important to note here the difference between being excluded from the calculation and being deductible. In the former, the item is not to be considered at all in the calculation of income whereas, in the latter, the item is to be deducted from items already considered.
In applying the law as summarised above to the situation as we have it, one will note that there are a number of consequences for the personal income taxation of persons who voluntarily or involuntarily work or have worked remotely. The implications can be summarised as follows:
- A non-resident individual who was involuntarily forced to stay in the country during the 164 days of total border closure is likely to have triggered tax residency in Ghana by meeting the 183-day threshold if one is to consider any additional days he or she may have spent in the country immediately before or after this period. In such a case, such an individual will consequently be taxable in Ghana on his or her worldwide income for the 2020 tax year.
- A resident or non-resident Individual who continues or continued to exercise employment and/or conduct business activities while voluntarily or involuntarily in the country is likely to be deemed taxable on the income received from such activities based on the source rules mentioned earlier. This category of persons will include, Ghanaian citizens who have taken advantage of remote working to work for foreign employers while they were in Ghana as well as foreign nationals who worked or conducted business activities while holed up here.
- A resident employee of a Ghanaian resident employer who continues or continued to exercise his or her employment while voluntarily or involuntarily staying outside the country is likely to be exempted from taxation in Ghana on the income he or she earns or earned while working overseas to the extent that his or her stay in the foreign location meets the 183-day threshold provided under the exception to worldwide income taxation mentioned earlier. This category will include employees of Ghanaian companies who have taken advantage of remote working to travel and work from overseas locations.
- A payment receivable by an employee who works or worked remotely from his or her employer for expenses incurred in furtherance of the business of the employer is likely not to be considered taxable in the hands of the employee. Such expenses may include the purchase of office furniture and computer equipment such as headphones, printers and scanners intended to be used solely for work purposes. On the other hand, an employee who incurs such an expense out of pocket (i.e. without reimbursement or advance payment from the employer) will not get a deduction of the expense from the calculation of his or her employment income.
- Employers who have employees impacted by the three preceding points will need to review the effect on their PAYE tax withholding obligations in order to avoid underpaying or overpaying the tax.
Notwithstanding the above and the implications they may have for the double taxation of the affected individuals, Ghana is currently party to Double Taxation Agreements with 11 countries with the aim of relieving the incidence and effect of double taxation as would arise given the above implications. These agreements may, therefore, provide separate overriding rules as to whether Ghana has taxing rights to any income.
The above implications of the COVID-19 restrictions on the taxation of individuals are not unique to Ghana and several countries such as the United Kingdom, Ireland and Australia have issued guidance noting that the triggering of tax residency due to exceptional circumstances created by the pandemic is to be disregarded. The Organisation for Economic Co-operation and Development (OECD) has also lent itself to the position taken by these countries and has made clear its view that such tax implications are to be ignored, given the extraordinary and temporary nature of the causative factors.
Ghana, however, has yet to issue any such guidance. So far, the personal income tax-related legislative response to the pandemic has been limited to tax exemptions on the following:
- Emoluments of frontline health workers, and
- Premature withdrawals from Tier 3 provident funds or personal pension schemes by individuals who have either permanently lost their employment or capital due to the pandemic
The implication, therefore, is that, with the exception of the aforementioned exemptions, the law in its current state is to apply.
It is imperative for individuals and employers so affected by the border closure, individuals working remotely and employers with employees working remotely, to review their tax positions in order to ensure full compliance with the Ghanaian tax rules. It also behoves the Ghana Revenue Authority (GRA) to review its enforcement measures in order to identify and pursue new incidences of tax created by the border closure as well as the increased popularity of remote working.
The writer is Benjamin Arthur, a manager at EY Ghana and is responsible for Tax, Payroll and Accounting services. He is a Chartered Accountant and a Chartered Tax practitioner. He has been assisting businesses and individuals in various sectors with tax, accounting and payroll services for over 11 years.
This Publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organization cannot accept responsibility for loss to any person relying on this article.