Executive summary

The Commissioner-General (CG) of the Ghana Revenue Authority (GRA), the officer responsible for the day-to-day administration of the GRA affairs and answerable to the Board for the performance of the functions of that office, has issued multiple practice notes on the interpretation of certain provisions in the Value Added Tax Act, 2013, Act 870 (as amended) (VAT Act) pursuant to sections 100 and 101 of the Revenue Administration Act, 2016, Act 915 (RAA).

This Alert summarizes the guidance set forth in the practice notes.

Detailed discussion

Section 100 of the RAA empowers the CG to issue practice notes setting out the interpretation he places on certain provisions of the tax laws. Consequently, the CG has issued three practice notes covering:

Supplies to and from Free Zones under the VAT Act (DT/2021/002)

Civil Engineering Public Works under the VAT Act (DT/2021/003)

Supplies that are exempt at importation but taxable in the domestic market under the VAT Act (DT/2021/004)

These practice notes were issued on 30 September 2021.

Practice Note on supplies to and from Free Zones

This practice note is issued to provide the CG’s view on what he considers to be the acceptable tax treatment of supplies of goods and services to and from the Free Zones to achieve consistency in the administration of the VAT Act.

This practice note applies to:

Supply of goods¹

Supply of goods from the domestic market to a Free Zone Developer² or Enterprise³

Supply of goods from a Free Zone Developer or Enterprise to the domestic market

Supply of services⁴

Supply of services from the domestic market to a Free Zone Developer or Enterprise

Supply of services from a Free Zone Developer or Enterprise to the domestic market

Supply of utilities

Supply of electricity from the domestic market to a Free Zone Developer or Enterprise

Supply of utilities from a Free Zone Developer or Enterprise to the domestic market

Supply of goods or services from one Free Zone Enterprise to another Free Zone Enterprise does not fall within the scope of the VAT Act.

Supply of goods from the domestic market to a Free Zone Developer or Enterprise

The supply of goods from the domestic market to a Free Zone Developer (FZD) or Free Zone Enterprise (FZE) is zero-rated, in accordance with Section 36 and the Second Schedule to Act 870. Consequently, a VAT-registered person in the domestic market that supplies goods to any FZD or FZE must issue a VAT invoice stating the tax rate of zero percent on satisfaction of the underlisted conditions in the Free Zones Act, 1995 (Act 504), its Regulations and Ghana Free Zone Authority's Standard Operating Procedures.

Conditions for the issuance of a VAT invoice with a tax rate of zero percent are the following:

The local supplier must obtain a completed and duly signed Form 9A from the purchaser (i.e., the FZD or FZE) indicating the description and the value of goods.

The completed form 9A must be endorsed by the Ghana Free Zone Authority (GFZA).

The local supplier must also obtain an introductory letter from the FZD or FZE issued by the GFZA and addressed to the local supplier.

The goods must be covered by the appropriate Customs documentation.

Supply of goods from a Free Zone Developer or Enterprise to the domestic market

The supply of goods by FZDs and FZEs to the domestic market are considered as imports into the domestic market. Thus, the recipient of such imports must meet all the necessary Customs requirements governing the import of goods.

The FZD or FZE must also comply with the provisions of the Free Zone Regulations, 1996 (L.I. 1618), on declaration of removal of goods from the free zone as well as the standard operating procedures of GFZA on supplies of goods to the domestic market. These include:

Purchase of Form 9A from GFZA Secretariat.

Completion of the Form 9A, indicating the description of goods and the CIF (Cost, Insurance and Freight) value.

Attachment of the invoice of goods to be sold into the domestic economy to Form 9A.

Presentation of the duly completed form and supporting documents to the GFZA Secretariat for endorsement.

Submission of the endorsed documents to the appropriate Customs office for tax assessment on the goods.

Inspection of the goods by Customs to ensure that they tally with what has been indicated on Form 9A and the invoice before release into the local economy.

In addition to the above, the recipient of the imports is required to procure and retain all relevant documentation on the imports.

Supply of services from the domestic market to a Free Zone Developer or Enterprise

A VAT-registered local service provider who makes a supply to an FZD or FZE is required to issue a VAT invoice indicating a tax rate of zero percent on satisfaction of the underlisted conditions in Act 504, its Regulations as well as GFZA's Standard Operating Procedures.

Conditions

A written contractual agreement between the FZD or FZE and the service provider duly signed and witnessed.

A completed Form 9E (issued by GFZA and completed by the FZD or FZE), indicating the description of services and the value.

The completed form along with the proforma invoice of services to be purchased must be endorsed by the GFZA.

An introductory letter from the GFZA addressed to the service provider introducing the FZD or FZE.

Supply of services from a Free Zone Developer or Enterprise to the domestic market

The supply of services from an FZD or FZE into the domestic market constitutes an import to the recipient and may come under any of the following:

A recipient who exclusively uses the service to make exempt supplies.

Where a person imports services from an FZD or FZE and does not utilize the services for the making of taxable supplies, the supply constitutes imported service. The importer or recipient of the service is required to:

Obtain a written contractual agreement between the service provider (the FZD or FZE) and the recipient duly signed and witnessed.

Obtain a completed Form 9E (issued by GFZA and completed by the FZD or FZE), indicating the description of services and the value. The completed form along with the proforma invoice of services to be purchased must be endorsed by the GFZA.

Obtain an introductory letter from the GFZA addressed to the recipient of the service introducing the FZD or FZE.

File imported service returns and account for the VAT and levies in accordance with section 53⁵ of the VAT Act.

A recipient who uses the service to make both exempt and taxable supplies.

The importer or recipient of the service is required to meet the following requirements:

Obtain a written contractual agreement between the service provider (the FZD or FZE) and the recipient duly signed and witnessed.

Obtain a completed Form 9E (issued by GFZA and completed by the FZD or FZE), indicating the description of services and the value. The completed form along with the proforma invoice of services to be purchased must be endorsed by the GFZA.

Obtain an introductory letter from the GFZA addressed to the recipient of the service introducing the FZD or FZE.

Indicate the relative portions utilized for making taxable and exempt supplies.

Where it is impossible to determine the relative portions utilized in making the taxable and exempt supplies, a ratio of exempt supplies to total supplies is used to determine the portion of the cost of the service attributable to exempt supplies.

File imported service returns on the portion used in making exempt supplies, and account for the VAT and levies.

A recipient who uses the service to make only taxable supplies

Supply of electricity from the domestic market to a Free Zone Developer or Enterprise

The supply of electricity to an FZD or FZE is treated as a supply of goods. However, due to its unique nature, the following requirements apply in zero-rating the supply:

The FZD or FZE should Purchase Form 9B from the GFZA Secretariat.

The form should be completed indicating the meter number and payment point.

GFZA then writes to the CG to authorize the zero-rating of the supply. The GFZA letter should attest that:

The FZDs or FZEs are in good standing.

The meters are located within the free zone.

The authorization to zero-rate is granted annually.

Supply of utilities from a Free Zone Developer or Enterprise to the domestic market

The purchase of utilities from an FZD or FZE by a domestic recipient is an import of goods, hence the requirements under Supply of goods from a Free Zone Developer or Enterprise to the domestic market above applies.

Practice Note on Civil Engineering Public Works

Paragraph 18(d) of the First Schedule to the VAT Act provides that civil engineering public works, including roads and bridges are exempt from VAT. The meaning of civil engineering public works is not specifically defined in the VAT Act.

This practice note is issued to provide the CG’s view on the meaning and scope of civil engineering public works in respect of the VAT exemption provided under item 18(d) of the First Schedule to the VAT Act, and to address the administrative and operational challenges that arise from the interpretation of the scope of the exemptions regarding civil engineering public works.

The practice note defines civil engineering public works to mean:

The construction, maintenance, reconstruction, demolition, repair or renovation of a building, structure, surface or system, and includes site preparation, excavation, erection, assembly, installation or plant, fixing of equipment, laying out of materials, decoration and finishing in relation to infrastructure projects for public use and paid for with public funds.⁶

According to the practice note:

All civil engineering works which are not public works as defined above shall not qualify for the VAT exemption.

Services such as architectural designing and drawings, consultancy, supervision of works, catering services, hotel services, and similar services related to civil engineering public works are taxable.

Practice Note on supplies that are exempt at importation but taxable in the domestic market

The VAT Act and the Customs Act, 2015 (Act 891) (as amended) generally provide the legal basis for:

Supply of goods that are exempt from VAT both at importation and within the domestic market.

Supply of goods that are exempt from VAT at importation, but taxable in the domestic market.

Supply of goods that are taxable both at importation and in the domestic market.

Tax treatment of imported goods in the domestic market

Goods classified as exempt import under the Harmonized System and specified in the First Schedule to the VAT Act

Goods classified as exempt import under the Harmonized System and specified in the First Schedule to the VAT Act are not to be subject to VAT both at importation and when supplied in the domestic market.

Goods classified as exempt import under the Harmonized System but NOT specified in the First Schedule of the VAT Act are taxable in the domestic market

The supply of goods that is not specified in the First Schedule of the VAT Act but exempt under the Harmonized system is taxable when supplied in the domestic market, even though the supply qualified for exemption upon importation.

Import of goods which are neither specified in the First Schedule to the VAT Act nor classified as an exempt good under the Harmonised System

The supply of any goods that is neither specified in the First Schedule to the VAT Act nor classified as exempt under the Harmonized System is taxable at importation and when supplied in the domestic market.

_________________________________

For additional information with respect to this Alert, please contact the following:

Ernst & Young Chartered Accountants, Accra

Isaac Sarpong | isaac.sarpong@gh.ey.com

Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris

Bruno Messerschmitt | bruno.messerschmitt@ey-avocats.com

Alexis Popov | alexis.popov@ey-avocats.com

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Kwasi Owiredu | kwasi.owiredu@uk.ey.com

Byron Thomas | bthomas4@uk.ey.com

Ernst & Young LLP (United States), Pan African Tax Desk, New York

Brigitte Keirby-Smith | brigitte.f.keirby-smith1@ey.com

Dele A. Olagun-Samuel | dele.olaogun@ey.com

_________________________________

ENDNOTES

Goods as defined under the VAT Act includes movable and immovable tangible property, thermal and electrical energy, heating, gas, refrigeration, air conditioning and water, but does not include money.

Free Zone Developer means a person who acquires a free zone area and is licensed for its use or uses it for operations allowed under the Free Zones Act, 1995 (Act 504) or rents or sells it or provides to enterprises which wish to carry on or are carrying on business within the free zone and includes agents or subcontractors of the developer.

Free Zone Enterprise means an industry, project, undertaking or business for commercial purposes licensed to carry out operations in a Free Zone under Act 504.

Services means anything other than goods or money.

Section 53 of the VAT Act requires that a person liable to pay tax on imported service furnishes the CG with a service import declaration (imported service return) and pays that tax due within 21 calendar days after the tax period in the which the services were imported.

According to Article 175 of the 1992 Constitution, public funds of Ghana shall be the Consolidated Fund, the Contingency Fund and any other public funds as may be established by or under the authority of an Act of Parliament. Public funds therefore include funds established under the Public Private Partnership Act, 2020, Act 1039.