A free zone is a designated area in which companies are taxed at highly reduced rates or nothing at all in order to encourage investments and increased economic activity within the economy.
The creation of free zones also has the effect of generally regarding import and customs duties of goods imported by free zone companies as being outside the customs territory and thus exempt from tax. Free Zones basically are “outside jurisdiction” for all transactions with Customs.
The Ghana Free Zones Authority (GFZA) was set up to enable the creation of free zones in Ghana and to regulate free zones activities within the country. The legislation governing the GFZA creates an attractive environment through the provision of very attractive incentives to free zone companies.
In Ghana, companies registered under the Ghana Free Zones Authority (GFZA) are taxed at a rate of 1% for the first ten (10) years of their operation, and thereafter at a rate of 15% on Income.
A free zone company is required to export at least seventy (70) percent of its annual production. Further, sales to the local market is prohibited from exceeding 30% of annual output. It must be noted that sales to the local market falls within the Ghanaian customs jurisdiction and are therefore taxable.
A licensed free zone entity, has the right to produce any type of goods or services for export provided that it is not environmentally hazardous.
However, note that a company must be registered as a body corporate under the Companies Act 1963 (Act 179) or a partnership under the Private Partnership Act 1962 (Act 152) to qualify for registration under the free zones scheme.
Incentives of Free Zone Enterprises
A major incentive of free zone enterprises is that the laws relating to import and export of goods and services (other than consumer goods for commercial purposes) do not to apply to imports to a free zone company or the dispatch of goods for export from a free zone.
Other incentives available to free zone companies are:
- 100% exemption from payment of direct and indirect duties and levies on all imports for production and exports from free zones;
- 100% exemption from payment of income tax on profits for 10 years from the date of commencement of operation and income tax thereafter shall not exceed 8%;
- Total exemption from payment of withholding taxes from dividends arising out of free zone investments;
- Relief from double taxation for foreign investors and employees where Ghana has a double taxation agreement;
- No import licensing requirements;
- Minimal customs formalities;
- 100% ownership of shares by any investor, foreign or national, in a free zone enterprise is allowed;
- There are no conditions or restrictions on the repatriation of dividends or net profit, payments for foreign loan servicing, payments of fees and charges for technology transfer agreements and remittance of proceeds from sale of any interest in a free zone investment; and
- Ability to operate foreign currency accounts with banks in Ghana.
Free Zone investments are guaranteed protection against nationalisation and expropriation.
A license to establish a free zone company may be granted to a company or partnership incorporated in Ghana.
An application to establish a free zone company must;
- be in writing
- be submitted to the secretariat of the Board of the Ghana Free Zones Authority (“the Board”)
- specify the zone, trade or industry in which the applicant wishes to trade
- any other requirements as may be specified by the Board.
The Ghana Free Zone Authority has identified 11 areas that are regarded as priority sectors for Free Zones Investment. These priority sectors are :
- Information and Communication Technology [ICT]
- Textile/apparel Manufacturing
- Agro-food Processing
- Seafood Processing
- Jewellery/Handicraft Production
- Metal/Hand Tool Fabrication
- Light Industry/Assembling Plant
- Ceramic Tiles Manufacturing
- Ethnic Beauty Products
Therefore if your business is export oriented and falls within any of the above listed sectors, what are you waiting for? The right time to consider registering under the Free Zones Act to fully take advantage of all the available incentives is now.
Audrey is a qualified lawyer, and the managing partner of AudreyGrey, a legal, tax and compliance firm in Accra. A member of the Ghana Bar Association, her areas of expertise are corporate and commercial law, taxation, labour and insolvency law. She has previously worked as an associate at PricewaterhouseCoopers (Gh) Ltd and a law firm N Dowuona and Co in Accra. She is a member of and serves as the legal advisor to the Ghana Association of Restructuring and Insolvency Advisors (GARIA) where she assisted with drafting and policy formulation for the new Companies Act and Corporate Insolvency Bill. She is also an experienced Chartered Accountant and a member of the Association of Chartered Certified Accountants, ACCA (UK) and the Institute of Chartered Accountants, Ghana (ICAG). She is currently pursuing the Chartered Institute of Taxation (CIT) certification.
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