Enhancing diplomatic and economic ties - Ghana-Morocco double tax agreement to come into force in 2018 – (Part 1)
On February 17, 2017, the Republic of Ghana (“Ghana”) and the Kingdom of Morocco (“Morocco”) signed a Double Tax Agreement (‘’DTA’’) to foster bilateral trade and investment between the two countries.
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Statistics from the International Trade Centre show that, Ghana’s export to Morocco as at 2015 is estimated at about US$3.6 million, which is less than 1per cent of the country’s total export whereas imports from Morocco for the same period is estimated at US$64 million (source:www.thebftonline.com). It is expected that once the DTA comes into force, the value of trade between the two countries could potentially increase.
Bilateral relationship
The bilateral relationship between Ghana and Morocco was further deepened, with the visit of King Mohammed VI, The King of Morocco to Ghana in February 2017.
During this visit, 25 economic and trade co-operation agreements between Morocco and Ghana were signed. Five of these agreements related to governmental agreements while the remaining twenty were Public-Private Partnership Agreements. The DTA between Ghana and Morocco, is one of such agreements that were signed during the King’s visit.
This article highlights some key provisions of the Ghana-Morocco DTA on income earned by residents of both countries and other issues such as the taxation of business income, investment income, employment income, income from service rendered and other considerations.
Provisions under the DTA for Ghanaian residents and vice versa
Elimination of double taxation
When the DTA becomes effective, the incidence of double taxation of income of Ghanaian residents will be eliminated by the grant of a foreign tax credit to such resident persons of Ghana, on tax suffered on income derived from Morocco.
In the case of dividends paid by a Moroccan resident company to a Ghanaian tax resident who controls at least 10 per cent of the capital of the Moroccan company, a tax credit shall take into account (in addition to any tax for which the credit may be allowed).
It is observed that, one of the key benefits of this DTA is that in most circumstances, the highest amount of tax payable in the two respective countries put together, does not exceed the maximum tax payable in any one country.
Permanent Establishment
The DTA defines a permanent establishment (“PE”) to include a place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry or any other place of exploration and extraction of natural resources, a sales outlet, a warehouse put at the disposal of a person providing storage facilities for others.
The DTA further provides that a building site, a construction, assembly or installation project and supervisory activities in connection with such activities qualify as a PE.
Consultancy services performed for more than 6 months in aggregate by the employees of an enterprise or other persons on behalf of the enterprise within any 12 month period of a fiscal year also constitutes a PE.
A person, other than an agent of an independent status acting in Ghana on behalf of an enterprise of Morocco may also be deemed to constitute a PE subject to certain conditions specified in the DTA.
Unlike re-insurance businesses, an insurance business in Ghana may be deemed to have a PE in Morocco if it collects premiums in Morocco’s territory or insures risks situated therein via a person other than an agent of an independent status as specified in the DTA.
Taxation of business income
Profits of a business resident in Ghana and carrying on business in Morocco, may be assessed to tax in Morocco where such profits are sourced through a PE or sales in Morocco of goods or merchandise and conduct of business of the same or similar kind as those sold through that PE.
In the case of businesses that are in the operation of ships or aircraft in international traffic, profits are taxable only in the country which has the place of effective management of the enterprise carrying on that business activity.
Furthermore, unlike under domestic laws of Ghana, in determining the profits of a PE under the DTA, deductions are not allowed for some payments to the head office of the enterprise or any of its other offices.
These disallowed payments include royalties, fees or other similar payments for use of patents, commissions, management fees or interest on moneys lent to the PE (excluding banking enterprise). Similarly, charges to the head office or any of its offices by a PE for the expenses specified above to the head office of the enterprise or any of its other offices shall not be taken into account in determining the PE’s profit.
Technical services arising in Ghana and paid to a resident of Morocco may be taxed in Ghana at a maximum rate of 10 per cent.
In our next publication, we will discuss the taxation of investment, employment and service incomes as well as other considerations under the DTA.
George Kwatia is a Partner for PwC Africa and Tax Leader for PwC Ghana and Sierra Leone. He is also the West African Mining Leader within PwC.