Expatriate Tax Planning In Ghana

As a contractor in Ghana, two of your biggest tax concerns are probably going to be:

  1. Paying less taxes, and
  2. Reducing the admin involved in paying them.

Maybe these goals are obvious, but actually achieving them takes some planning. Having a strategy is crucial, because you may be able to work completely tax free.

Expatriate Tax Planning In Ghana

Organising your taxes in Ghana on your own

Not only is the Tax system in Ghana dense, it’s updated regularly… meaning you’ll need to do a lot of studying if you want to organise your own taxes.

Generally, a taxpayer is any person who:

  • Is domiciled in Ghana;
  • Has resided in Ghana for 183 days or more;
  • Derives income from sources in Ghana.

As an independent contractor, you may be eligible for certain tax advantages (or liable for taxation in other ways). You may not need to pay any taxes in Ghana at all. And, of course, you’re going to need to sort out what you owe in your home country.

Most people need some sort of specialist advice to begin understanding their tax liability in these situations. However, even after understanding what’s required of you, you will likely need to spend hours going over the return in meticulous detail.

Can employers organise Ghana expatriate taxation?

Yes, some can.

Unfortunately for a lot of contractors, though, most clients don’t offer that service to freelance workers. This route requires little to no effort from you, but it can be a huge burden to pick and choose your clients based on which ones can offer this service.

Are there any other options for expatriate tax in Ghana?

Many contractors choose to work under an Umbrella Company.

An Umbrella Company will calculate what you owe in taxes and fees, and process your payments. They act as your “employer,” although you still work exactly like you would as a contractor.

This allows you to pay as you earn, similar to having an employer or client organise your taxes. In this scenario, however, you don’t have to worry about who’s going to organise your taxes each time you take on a new contract. 

Send your details for more information

Tax Residency for UK Expats in Ghana

UK TAX RESIDENCY IN GHANA

Understanding tax obligations is one of the biggest challenges for UK expats working in Ghana. Your UK residency will play an enormous role in what kind of taxes you owe, how you file, and your net income.

Find out how to determine both your current and preferred residency, as well as advice on capital gains tax, owning UK property while you are in Ghana, and more. You can also contact us if you would like to speak to a professional about your specific circumstances.

Non-Resident for UK Tax

UK tax residents will need to pay UK tax on their worldwide income, although this amount is subject to relief based on foreign tax paid. Non-residents are taxed at the same rates as residents, but only on income sourced in the UK – this means you can avoid the extra hassle of securing relief for the foreign taxes you’ve already paid.

Aside from needing to comply with tax law in Ghana (more on that here), you might still need to submit a UK tax return. Since there are several variables that can affect your earnings, it will be important to understand your non-resident status and how it can affect how much you owe (or don’t owe) in both the UK and Ghana. Head here for more info.

 

When do I become non-resident of UK?

When you leave the UK to work full-time in Ghana, you generally become non-resident the day after you depart the UK. However, certain conditions must still be met:

  • The employment contract must be for at least one year.
  • You need to have left the UK to commence employment, rather than for recreational travelling or holiday. 
  • You must be absent from the UK for an entire year; if you visit the UK, these visits cannot total 183 days or more (and need to average less than 91 days per year throughout your time of absence up to the first four years).

If you’re leaving to work in Ghana, you could potentially be resident for one part of the year, and non-resident for the other – this is “split year treatment” (jump here for more info on split year treatment).

 

How to become a UK non-resident

In general, you’re automatically considered non-resident if you leave the UK to work full-time in another country, spend less than 16 days inside the UK, or were non-resident for the previous three tax years.

If you aren’t a UK resident based on those tests, then a “sufficient ties” test might be used to establish residency instead. This is an evaluation of the ties you have to the UK, namely:

  • Family tie
  • Accommodation tie
  • Work tie
  • 90-day tie
  • Country tie (this considers whether the UK was the country where you’ve spent the largest number of days)

You should look to reduce as many of these ties as possible if you want to establish non-resident status.

 

UK non-resident income taxes

If you’re considered non-resident, you’ll only need to pay tax on income originating in the UK. However, this can include capital gains, or you may be subject to tax on UK income while you were resident.

 

Filing a UK non-resident tax return from Ghana

You might not need to file a tax return if you’re only earning investment income from the UK, such as interest or dividends. Conversely, you will need to file a return and declare any UK earnings if they’re from self-employment, directors’ fees, partnership profits, or a bonus that accompanies work performed in the UK before you become non-resident.

Further, non-residents might potentially need to declare income from renting property in the UK if tax hasn’t been deducted under the Non-Resident Landlord Scheme (read more about that here).

When in doubt, it’s safest to submit a tax return to ensure that you’ve claimed all necessary expenses or allowances.

 

Double taxation agreements with the UK and Ghana

The UK is part of over a hundred double taxation agreements, or DTAs, with various countries. Among other purposes, these agreements help ensure that individuals who are resident in one country and working in another aren’t subject to taxed doubly on one source of income. 

For non-residents who are still earning UK income, you can claim relief under one of these DTAs by submitting a double taxation claim form. The form will need to be certified by the relevant authorities in Ghana to affirm that you are a resident.

 

Non-Resident Landlord Scheme

As an expat in Ghana, you might still rent out land or property in the UK despite being out of the country. The Non-Resident Landlord Scheme applies to individuals who own rental property in the UK, but whose regular home is in another country. It requires that the basic tax rate is deducted from the rental income before it’s passed to you, the landlord.

If you’re a non-resident, you may be eligible to receive your rental income without tax being deducted. You will need to apply with the HMRC to determine eligibility. You can apply at any time (including before you have departed the UK, or before you have begun the rental period).

 

Capital gains tax for UK non-residents

Non-residents are not usually liable for tax on capital gains in the UK. Nonetheless, you may owe tax on capital gains even as a non-resident if the assets are held in order to perform work through an agency or branch in the UK.

You may also owe tax on capital gains that arise during “temporary of non-residence.” A simplified definition of this term is “a period of non-residency for five years or less.” You can learn more about capital gains tax as a non-resident, temporary non-residence, and selling assets while working in Ghana by clicking here.

 

Pensions and national insurance contributions for UK non-residents in Ghana

If you do not make national insurance contributions while you are working in Ghana, you risk losing full entitlement to state pension upon retirement. However, you can potentially keep making contributions throughout your employment contract abroad.

Your ability to do this will depend on the terms of your contract in Ghana, as well as the specific provisions of the pension scheme. For UK state pension, expats can make voluntary national insurance contributions to preserve their pension rates.

To be eligible to make these contributions, you will need to have lived in the UK for a continuous three year period, or have paid contributions for three or more years prior to going abroad.

 

UK Property and Non-Residency

Non-residents aren’t typically subject to capital gains tax (even if the individual is selling an asset located within the UK). However, there are some important exceptions to this.

As mentioned in our section on capital gains, you might still be liable for assets sold during “temporary non-residence,” which is a period of non-residence under five years. Learn more about temporary non-residence here.

You may also be subject to CGT if you sell or dispose of assets in the UK that were held in the course of work for a UK agency or branch.

If you’re selling or disposing of property in the UK that served as your main residence, it may be exempt from CGT. The property will need to meet certain criteria to be considered your “main dwelling” and your exemption will also depend on other factors, such as when you moved into the residence after acquiring it.

Selling property in the UK while you’re a non-resident working in Ghana can sometimes involve a multitude of factors, so make sure to contact us if you’d like to speak to a professional.

 

Residency Tests: Are you a non-resident or resident?

There are a number of tests that apply to determine your tax residency status.

However, because your country of domicile can play a large role in determining your residency, it’s also important to establish where you are domiciled.

Definition of domicile

The country in which you maintain your permanent, or “real,” home is your country of domicile. You can only have one country of domicile.

In broad terms, your domicile is where you intend to return. If you are living and working in Ghana, but have no intention to remain there permanently, then generally it won’t be considered your domicile.

Types of domicile

  • Domicile of origin: In many cases, this type of domicile can be thought of as the “default” domicile; it’s usually a person’s main domicile until a new one is acquired. It’s the domicile you have at birth, and is often the country your father considered his real or permanent home (or, in some cases, the country your mother considered her real or permanent home).
  • Domicile of dependence: If an individual (usually a child) is legally dependant on another person, then he or she typically assumes the domicile of that person.
  • Domicile of choice: In the UK, a person who is at least 16 years of age can choose his or her own domicile. In other words, you could choose Ghana as your domicile. However, a person would have to provide sufficient evidence to prove a new domicile for tax purposes.

Residency in Ghana versus domicile in UK

It is possible to be have tax residency in Ghana while being domiciled in the UK. In fact, for many expats in Ghana, the UK will still be their country of domicile despite being a non-resident for tax purposes. Read more about residency and domicile.

 

Non-domicile tax

If you’re a UK resident, but domiciled in Ghana, you will have to pay tax on income arising from the UK. However, for income and gains acquired in Ghana, you can be taxed on a remittance basis.

 

UK Tax Residency Tests Explained

The statutory residence test determines whether an individual will be considered UK resident for the tax year. There are several stages of this, which are comprised of automatic tests: 

  • The First Automatic UK Test (183 day rule): Whether the individual is inside the UK for 183 days or more (for that tax year)
  • The Three Automatic Overseas Tests
  • The Second Automatic UK Test: If the individual has a home in the UK for all (or part of) the tax year
  • The Third Automatic UK Test: Whether the individual works full time in the UK for 365 days (with no sizable break)
  • The Sufficient Ties Test

Keep reading to learn more about each of the tests, or check out a more detailed break-down of them here.

 

The 183 Day Rule: The First Automatic UK Test

If you were present in the UK for more than 183 days, then you are were UK resident for tax purposes and don’t need to continue on to the other tests. If not (say, if you were living and working in Ghana for 183 days or more), then you will still need to meet one of the three automatic overseas tests.

In other words, being out of the UK for 183 days is necessary, but not sufficient, to be considered non-resident.

The Three Automatic Overseas Tests

First Automatic Overseas Test
  1. Have you been inside the UK for at least one of the previous tax years?
  2. During this tax year, have you spent fewer than sixteen days in the UK?

If you can answer “yes” to both questions, then you are non-resident.

Second Automatic Overseas Test
  1. Were you non-resident in the UK for the last three consecutive tax years?
  2. This tax year, have you spent less than 46 days inside the UK?

If “yes” to both, you’re a non-resident for UK tax.

Third Automatic Overseas Test
  1. Did you work abroad, full time, during the tax year? (Click here to clarify whether or not you’re considered to be working “full time.”)
  2. Were you in the UK for less than 91 days in the tax year?
  3. Did you work less than 31 days in the UK?

If “yes” to all three, then you’re a non-resident for UK tax.

If you haven’t met any of the three overseas tests, you’ll need to move on to the second and third Automatic UK Tests.

 

The Second and Third Automatic UK Tests

Do you currently have a home in the UK, or have you previously? If so, the Second Automatic Test will apply to you.

The Second Automatic UK Test
  1. Have you had a home in the UK for 30 consecutive days of the tax year?
  2. Were you present in this home for at least 30 days of the tax year?
  3. Did you have the home for 91 consecutive days or more, in total?
  4. Did you have no home overseas OR a home abroad where you spent less than 30 days of the relevant tax year?

If your answer is “yes” for all three questions, then you’re tax resident in the UK.

The Third Automatic UK Test
  1. Did you work in the UK for a 365 period where said period falls within the tax year in question?
  2. Of those work days, were at least 75% spent working in the UK?

If “yes” to both of the above, then you have met this test. If not, you will need to progress to the Sufficient Ties Test.

 

The Sufficient Ties Test

If you’re not resident in any of the three preceding tax years, and you do not satisfy the Automatic UK Tests, nor the Automatic Overseas Tests, then a “sufficient ties test” is used to determine tax residency.

We touched upon sufficient ties in our section on becoming non-resident. Sufficient ties are:

  • Family ties: Was your partner or child under 18 considered tax resident in the UK?
  • Accommodation ties: Did you have a place to live in the UK that was available to you for 90 or more days? AND did you spend one or more nights there?
  • Work ties: Did you work 40 days in the UK, for three or more hours a day in the tax year?
  • The 90 day tie: Did you spend 90 or more days in the UK in either of the previous tax years?

Even if you’ve spent fewer than 183 days inside the UK, if you have one or more “sufficient ties,” you may still be considered resident.

Go here for more in-depth information on the Sufficient Ties Test.

 

What is split year treatment for UK expats in Ghana?

When you’re considered resident in the UK for a tax year, you’re usually taxed for the entire year as a resident. Nonetheless, you might be eligible for split year treatment. 

If you’re working in Ghana for part of a tax year, you might only be taxed as a UK resident for the portion of the year when you were working in the UK. 

Split year treatment can occur within “8 Cases.” To learn more about what these situations are and how to work out which rules apply to what circumstances, click here.

 

How can I check my residency status?

The HMRC website has a tool called the “Tax Residency Indicator,” which lets you check your tax residency status. You need to register online with HMRC, and the tool is not always available because only a limited amount of users can access it at one time.

HMRC also provides a flowchart that can take you through the steps of the Statutory Residence Test.

 

Tax Residency Certificates

You can only take advantage of the rates of many double tax treaties when you’re a resident of one of the countries involved in the agreement; therefore, you may need to prove your UK resident status to the authorities in Ghana by providing evidence of your entitlement to benefits under the treaty.

To provide evidence, you may need to obtain a tax residency certificate issued by the HMRC.

 

The HMRC and UK Residency

You must inform HMRC, using form P85, of the date when you depart the UK and how long you intend to stay in Ghana. This will help ensure that you will be able to claim any appropriate reliefs. It will also help the HMRC make any necessary changes to your records in the PAYE system to avoid double taxation.

If you’re contacted by the HMRC, the safest route is to first seek professional help to clarify your rights, as well as the rights of the HMRC to request information. Read more about the HMRC, form P85, what they’re looking for, and how to deal with contact from them.