FREE ZONES COMPANIES OPERATIONS AND THEIR IMPLICATIONS FOR VAT

1.  INTRODUCTION

Free Zones Companies are Companies which operate in Ghana but are outside Ghana’s custom territory.  The Free Zone enclaves can be located anywhere in Ghana upon the approval of Ghana Free Zones Board (GFZB).

The Ghana Free Zones scheme is an integrated programme to promote processing and manufacturing of goods through the establishment of Export Processing Zones (EPZs) and encourage the development of commercial and service activities at seaport and airport areas.  

2.  PROCEDURE FOR ESTABLISHMENT OF FREE ZONE DEVELOPMENT PROJECTS AND ENTERPRISES

An investor who wishes to establish as a Free Zone developer or set up an enterprise in Ghana Free Zone will require various licenses and permits to enable him operate.  The Ghana Free Zones Board provides a “one stop approval service” to investors to assist them complete formalities for the establishment of Free Zone investment projects.

v The Free Zones developer should incorporate a company or partnership in Ghana.

v The developer should obtain and complete the GFZB form one (1) and submit it with required attachment to the Secretariat of the Board.

v The GFZB shall notify the developer of the status of his/her application for license within 28 working days of receipt of application.

v A Developer’s license shall be issued to the successful applicant who should commence activities within six months of approval.

v The investor(s) should show evidence of possession or lease of

real property or intent to acquire such property.

3.  ENTRY VISA

All Free Zone investors, representatives and employees must secure entry visa to Ghana. Entry permit may be obtained from a Ghana Embassy or High Commission abroad.  A temporary entry permit may be obtained on arrival at a point of entry in Ghana, upon prior notification of GFZB.  All foreign employee of Free Zone shall require work and residence permits.

4.  VAT IMPLICATIONS

The imports of a free zone developer, sub-contractor or enterprise into a free zone or single-factory zone shall be exempt from direct and indirect taxes and duties.  The FZEs are allowed to sell up to 30% of their production of goods and services to the national customs territory.

The VAT Service does not deal directly with the Free Zone Enterprises (FZEs) but rather CEPS handles all VAT related issues on behalf of the Service with the exception of relief on electricity.

4.1      IMPORT INTO THE FREE ZONE (FROM THE DOMESTIC MARKET)

Section 15 of the VAT Act 1998 (Act 546), zero-rates exports of taxable supplies and non-traditional export.  To the extent that free zone enterprises are enclaves operating outside the customs zone, supplies from the domestic economy to free zone enclaves are exports and are therefore, eligible for zero-rating under the VAT law, provided the necessary customs documentation and procedures are strictly complied with.

4.2      REQUIREMENTS FOR ZERO-RATING OF SUPPLIES TO FREE ZONES ENTERPRISE

Goods

The supplier making supply of goods to the Free Zone Enterprise will need among other things, to complete the Form 9 of the Free Zone Board, the non-traditional export forms of CEPS and obtain the relevant certification and endorsement of the proper CEPS officer who would have ensured that the goods have passed into the free zone.  The VAT invoice covering such a transaction should show a tax rate of zero percent (0%).

Services

v A written contractual agreement between the Free Zone Enterprise and the service provider duly signed by the parties and with legal adviser(s) as witness(es).

v Form 9 from Ghana Free Zone Board completed and duly signed.

v A VAT invoice indicating a tax rate of zero issued by the supplier on fulfillment of the above conditions.

Utilities

Zero-rating supply of electricity to Free Zone Enterprises require application to the Commissioner of VAT Service supported with a letter from the Ghana Free Zones Board attesting: 

v to the Free Zone Enterprise’s good standing,

v that the electricity meters are located within the enclave.

4.3      Export From The Free Zone (Into The Domestic Market)

Any free zone company exporting into the domestic market must first buy Ghana Free Zones Board form 9A and fill.  A passenger Baggage Declaration Receipt (PBDR) must be issued by a resident CEPS officer.  The import duty and VAT must be paid in this instance to CEPS.

5.      CONCLUSION

Free Zone transactions must be done in foreign currency.  In the case of purchase with local currency, Free Zone Enterprises shall produce evidence of conversion of foreign currency to the local suppliers and CEPS Resident officer.