Ghana-Morocco income tax treaty in effect
Ghana and Morocco entered into a double tax treaty on 17 February 2017 to promote and strengthen economic relations between the two jurisdictions, avoid double taxation, and prevent tax evasion. Following successful completion of the required ratification processes, the treaty entered into force on 18 October 2022 and became effective on 1 January 2023 in both Ghana and Morocco. This article provides a summary of the key provisions of the treaty and implications for businesses in the two contracting states.
Scope of the treaty
Articles 1 and 2 of the treaty set out the persons and taxes covered. The treaty applies to taxes on income and capital gains imposed on behalf of the two contracting states, or the states’ political subdivisions or local authorities. Specifically, the treaty covers income tax in Ghana (which applies to both individuals and corporations), and income tax and corporation tax in Morocco, and applies to persons who are residents of either or both contracting states. Where a person would otherwise be a resident of both contracting states, article 4 of the treaty provides “tie-breaker” rules for the determination of residence.
For an individual, residence is determined by applying the following tests in the order specified:
- The state in which the individual has a permanent home available. If the individual has a permanent home available in both states, the state with which the individual has the closer personal and economic relations (their center of vital interests).
- If it is not possible to determine the center of vital interests, or the individual does not have a home available in either state, the state in which the individual has their habitual abode.
- If the individual has a habitual abode in both states or neither of them, the state of nationality.
- If the individual is a national of both states or neither of them, by mutual agreement between the competent authorities of the two states.In the case of a person other than an individual, the state of residence is the place of effective management.
Permanent establishment rules
Article 5 of the treaty provides a general definition of a permanent establishment (PE) as “a fixed place of business through which the business of an enterprise is wholly or partly carried on.”
A PE under the treaty specifically includes an enterprise having any of the following in a contracting state:
- A place of management, a branch, or an office;
- A factory or workshop;A mine, oil well, or similar place of exploration or extraction of natural resources;
- A sales outlet; or
- A warehouse at the disposal of a person providing storage facilities to others.
Construction activities lasting over six months may create a PE. The continuous provision of services by an enterprise through employees or other contracted personnel in a contracting state, for one or more periods of more than six months in total within any 12-month period, also constitutes a PE.
An insurance company in one contracting state may create a PE in the other contracting state if it collects premiums in the second contracting state, or insures risks situated in the second contracting state other than through an independent agent or for the purposes of reinsurance.
In addition, the treaty provides protection for businesses against creating a PE in a contracting state where their activities qualify as being of a preparatory and auxiliary nature, as defined under the treaty. However, the use of facilities for “delivery” of goods or merchandise is not covered under this protection and may result in the creation of a PE.
Income from employment
Article 16 of the treaty provides a general rule for taxation of employment income derived by a resident of either Ghana or Morocco. Employment income is ordinarily subject to tax in the state where the employment is exercised; therefore, if an individual takes up employment in Ghana, the income is generally taxable in Ghana. However, the treaty provides for an exemption from taxation in some instances. For an individual resident in Morocco who exercises employment in Ghana, the income is not taxable in Ghana provided all of the following conditions are met:
- The individual is present in Ghana for a period or periods not exceeding 183 days in total in any 12-month period commencing or ending in the relevant fiscal year;
- The remuneration is paid by, or on behalf of, an employer who is not a resident of Ghana; and
- The remuneration is not borne by a Ghanaian PE of the Moroccan employer.
The same exemption and conditions apply to individuals resident in Ghana who exercise employment in Morocco.
Withholding tax rates
Payments made by a Ghanaian resident to persons outside of Ghana are subject to withholding tax (WHT) under domestic law at rates ranging from 5% to 20%. The treaty provides for a cap on withholding tax rates for some payments, and the applicable withholding tax rates on dividends, royalties, and technical service fees paid by a resident of Ghana to a resident of Morocco are reduced under treaty articles 10, 12, and 13, respectively, subject to meeting beneficial ownership requirements.
Exchange of information
Article 27 of the treaty allows for the exchange of information between the competent authorities in Ghana and Morocco necessary to carry out the provisions of the treaty.
Deloitte Ghana comments
The Ghana-Morocco income tax treaty is expected to boost bilateral trade between Ghana and Morocco by providing certainty on the tax treatment of transactions, and potential relief from the double taxation of income sourced from one state and received in the other. The relevant tax authorities may seek to leverage the exchange of information provisions and mutual agreement procedures to mitigate tax evasion and assist in dispute resolution, respectively.
