Zealow Ltd, a car battery dealer holds 26% voting power of Aboye Ltd, an energy and power distribution company. Both companies are resident in Ghana. Aboye Ltd declared dividend and the portion of dividend that should be credited to the accounts of Zealow Ltd is GH¢78,900.
Required:
Determine the taxes payable if any and comment on the treatment of dividend to Zealow Ltd. (5 marks)
View Solution
Under section 59(3), a dividend paid to a resident company by another resident company is exempt from tax where the company that received the dividend controls indirectly or directly, at least twenty-five percent of the voting power of the company which paid the dividend.
From the above, Zealow Ltd holding 26% voting power of Aboye Ltd, makes Zealow Ltd a shareholder and entitled to dividend. The dividend in this case is exempt from tax under section 59(3) of Act 2015 Act 896.
In conclusion, the dividend of Ghc78,900 credited to the accounts of Zealow is exempt from tax in the hands of both Zealow Ltd and Aboye Ltd.