Executive summary

The Commissioner-General (CG) of Ghana Revenue Authority (GRA), the officer responsible for the administration of the tax laws, has issued new administrative guidelines (AG) on:

1. The requirement to show CG’s invoice as proof of expenses incurred for income tax purposes (Guideline on the Requirement to Show CG’s Tax Invoice as Proof of Expenses Incurred)
2. Value-added tax (VAT) on the supply by estate developers and supplier of an immovable property for rental purposes (VAT Administrative Guideline on the Supply by an Estate Developer and Supplier of an Immovable Property for Rental Purposes)

This Global Tax Alert highlights the key matters set forth in the AGs.

Detailed discussion

The CG published both AGs on 24 March 2024, pursuant to the CG’s powers to issue directives for the implementation of tax laws under the Revenue Administration Act, 2016, Act 915, as amended.

AG on the requirement to show the CG's tax invoice as a supporting document

Section 9 of the Income Tax Act, 2015, Act 896, as amended (the ITA) provides that a “person who is ascertaining the income of that person or of another person from an investment or business conducted for a year of assessment or for a part of that year shall deduct from the income an expense to the extent that that expense is wholly, exclusively and necessarily incurred by the person in the production of the income from the investment or business during the year.”

Section 27 of the Revenue Administration Act, 2016, Act 915, as amended (the RAA) provides that:

1. A person shall maintain, within the country, necessary records
1. to provide information in respect of documents to be filed with the CG under a tax law;
2. to enable an accurate determination of tax payable under a tax law; and
3. that may be prescribed by Regulations or by the CG.
2. For the purpose of subsection (1), necessary records include underlying documents, however described in the nature of receipts, invoices, vouchers, contracts or in the case of electronic records, any medium by which the information can be extracted.

“Invoice” as stated in section 27 of the RAA means a tax invoice (VAT invoice). Thus, to qualify for a deduction from income under section 9 of the ITA, a person is required to maintain necessary records (including VAT invoices).

The CG requires that any person who conducts business with a VAT-registered or VAT-registerable person must obtain a tax invoice issued under section 41 of Act 870 as evidence of the transaction. According to Section 41(1) of Act 870, a taxable person shall issue to the recipient upon making a tax supply of goods and services, a tax invoice in the form and with the details that are prescribed by the CG. Additionally, section 41(2) requires a taxable person to issue an invoice through a Certified Invoicing System (CIS) and ensure that the CIS of the taxable person is integrated with the invoicing system of the CG.

In view of the above, a person may not be allowed a deduction under section 9 of the ITA if the person is unable to provide a tax invoice as proof of the taxable supplies procured. Furthermore, a person is required to provide a tax invoice to support the purchase of depreciable assets for capital allowance claim purposes. When it relates to domestic or excluded expenditure as defined in section 130 of the ITA, a person may not be allowed a deduction even if the person possesses a tax invoice.

Expenses incurred in transactions with VAT-registered or VAT-registrable persons

Where a person incurs an expense through transactions with VAT-registered or VAT-registrable persons, they must obtain and keep a tax invoice as proof of the expense.

Expenses without a tax invoice will not be deductible from income, unless the transaction is excluded from requiring a tax invoice (e.g., transactions with persons below the VAT registration threshold or involving exempt supplies).

Expenses incurred from transactions with person not required to register for VAT

If the goods or services procured are VAT-exempt or listed under the First Schedule to Act 870, a person is not required to provide a VAT invoice as evidence. Instead, any invoice supported by other documents satisfactory to the CG may be considered for tax deduction, provided that the deductibility criteria under section 9 of the ITA are met.

For goods or services that are taxable under Act 870 but procured from non-VAT-registered persons, the taxpayer must prove to the satisfaction of the CG that the supplier is not required to register for VAT. A taxpayer who fails to do so may be denied deduction of the expense. In determining whether a supplier meets the VAT threshold, the taxpayer must consider the value of the transaction with the supplier and reasonably assess whether it will put the supplier above the minimum VAT threshold.

Expenses that do not require issuance of a tax invoice

For expenses that do not require a VAT invoice, such as payroll costs, regulatory fees and charges, a person may be allowed a deduction for the expenses if the deductibility criteria in section 9 of the ITA are met.

Transitional arrangements

Implementation of this guideline applies to transactions commencing from 1 April 2024. If a taxpayer's basis period spans from 2023 to 2024, the guideline shall apply only to transactions from 1 April 2024.

For example, if a taxpayer has a basis period of 1 August 2023 to 31July 2024, the period from 1 August 2023 to 31 March 2024 will not be affected by the implementation of this guideline. However, expenses relating to the period 1 April 2024 to 31 July 2024 must be supported by tax invoices to qualify for deduction under the ITA.

Definitions

“Tax Invoice” (VAT Invoice) means an invoice issued for the supply of taxable goods and services in accordance with the Value Added Tax Act, 2013, Act 870 (as amended) and the Value Added Tax Regulations, 2016, L.I 2243. This includes an electronic tax invoice issued through a Certified Invoicing System for the supply of goods and services by a taxable person in accordance with Act 870, as amended by the Value Added Tax (Amendment) Act, 2022, Act 1082 and the Regulations made under Act 870.

“Certified Invoicing System” means an electronic invoicing system certified by the CG in accordance with Act 870.

VAT Administrative Guideline on supply of immovable property by estate developer and supplier of immovable property for rental purposes

The AG seeks to offer clear directives for the smooth implementation of the VAT laws as they relate to the:

1. Supply of immovable property by an estate developer
2. Supply of immovable property for rental purposes
3. Provision for other related matters

Application of AG

The AG provides the VAT implications of some transactions relating to item 18 under the First Schedule to the VAT Act, 2013, Act 870, as amended. These include the following:

VAT rate and levies applicable

VAT and COVID-19 Health Recovery (Covid-19) Levy are applicable on the taxable value at the rate of 5% and 1% respectively on:

• The taxable supply of immovable property for dwelling by the estate developer
• The taxable supply of an immovable property for rental purposes other than for accommodation in a dwelling on a commercial establishment

Paragraphs 4.1.1 to 4.1.3 of the AG provides some illustrations on the application of VAT and levies.

Deductible input tax claim

An estate developer who supplies immovable property for dwelling or a supplier of immovable property for rental purposes who accounts for VAT at a flat rate of 5% does not qualify to claim input tax on its purchases relating to that supply.

Registration and compulsory registration

Both an estate developer who is in the business of supplying immovable property and a person engaged in the supply of immovable property for rental purposes other than for accommodation in a dwelling on a commercial rental establishment must register for VAT upon meeting the registration threshold. This registration is independent of other registrations in respect of income tax and other taxes.

In accordance with sections 14 and 15 of the VAT Act, an estate developer who fails to register upon becoming registerable for VAT will be compulsorily registered and face sanctions.

Filing returns

An estate developer who is engaged in the business of supplying immovable property is required to file returns for VAT Flat Rate and COVID-19 levy in the prescribed form not later than the last working day of the month immediately following the month to which the returns relate. This is required even if there is no tax and levy payable for the given month.

Further, the payment of the tax and levy must be made not later than the last working day of the month immediately following the month to which the payment relates.

Business activities other than supply of immovable property

An estate developer that engages in taxable business activities other than the supply of immovable property must charge and account for VAT and National Health Insurance Levy, Ghana Education Trust Fund levy and COVID-19 (the VAT & Levies) on those other taxable business activities at the standard VAT rate of 15%. Following are examples of other taxable business activities that may be carried on by an estate developer:

Services supplied in the course of construction and demolition, including:

1. Landscaping
2. Maintaining building structures or works
3. Leasing
4. Professional services
5. Any taxable activity

The input tax incurred by an estate developer from engaging in a taxable activity other than rental of immovable property may be claimed as deductible input tax on expenses incurred for making that other taxable supply. If an indirect purchase cannot be attributed directly to either the immovable property supply or other taxable supply, the estate developer must apportion the indirect purchase between the two types of supply based on the relative proportion of each type of supply. However, in the case of mixed supplies (i.e., taxable and exempt supplies), an apportionment of the input tax shall be determined using the formula under Section 26 of VAT Act 870.

The formula is expressed as follows.

Deductible input tax = {Y/(X+Y)}*Z, where:

• X represent taxable value of supplies of immovable property
• Y represents taxable value of other supplies
• Z represents non-directly attributable input tax

Paragraphs 8.1 of the AG provides some illustrations on the calculations to determine the input tax claimable.

Returns for other business activities

The supply of these other taxable business activities shall be accounted for on VAT Standard Rate Return.

Definitions

“Estate developer” means a commercial establishment or an individual engaged in the business of construction or renovation and supply of immovable property. The supply of immovable property by any person other than an estate developer for dwelling is exempt.

The AG lists the following indicators to be used in assessing whether a person engaged in a particular business is an estate developer for VAT purposes:

1. Profit seeking motive
2. Number of transactions
3. Existence of similar trading transactions or interests
4. Changes to the form of the immovable property
5. Way of carrying out the sale
6. Source of financing
7. Interval of time between purchase and sale
8. Method of acquisition

Notwithstanding the above, a person will qualify to register for VAT even if that person is not registered as an estate developer with the key state agencies but engages in the business of construction or renovation and supply of immovable property for dwelling.

“Dwelling” means any building, premises, structure or any place or any part of these which is not a commercial rental establishment and which is used predominantly as a place of residence or abode of a natural person or which is intended for use as a place of residence or abode of a natural person, together with any appurtenances belonging to the place and enjoyed with the place.

The definition of a “commercial rental establishment” is explained in this table: