Uganda’s tax regime is geographical for all Ugandan residents and source-based for non-residents. Any non-resident who carries on business in Uganda, is employed in Uganda, or sells certain types of properties will be subject to the tax system, provided they derive income from sources in Uganda. Uganda does not have a provincial tax system; the tax regime is the same nationwide. Every individual that is liable to pay tax is obliged to apply to the Uganda Revenue Authority for registration. Once this process is concluded, a certificate of registration is issued. The case is the same for any foreign investor seeking to operate in Uganda.

The Ugandan Income Tax Act Cap 340 (ITA) imposes income tax on income of corporations, partnerships, trusts and individuals residing or carrying on business within the country. The aforementioned is subject to various deductions and exemptions under the ITA.

The ITA also imposes a withholding tax on individuals and corporations, which is withheld at source at the time of payment. In Uganda, this tax is imposed while making certain payments, such as employment income (“pay as you earn”), payments on dividends and interests, professional fees and others. This tax is also imposed on every non-resident that derives interest, dividends and royalties from sources in Uganda. The rate of withholding tax on most payments in Uganda is 15%. However, in respect of goods and services, a withholding tax of 6% is levied.

Currently, Uganda has double-taxation treaties (DTTs) with nine (09) countries: Denmark, India, Italy, Mauritius, the Netherlands, Norway, South Africa, the UK and Zambia. The main purpose of these DTTs is to eliminate double taxation and facilitate the allocation of taxing rights. All these treaties pose different legal provisions from those envisaged under the ITA. It is important to note that in the event that there is a conflict between the provisions of ITA and the terms of a particular DTT, the latter takes precedence owing to Uganda’s Constitution, which enjoins it to respect international law and treaty obligations.

In addition to the above, Uganda levies consumption taxes on goods and services, save for those that are zero-rated or tax-exempt. These include value-added tax (VAT), import duty, export duty and excise duty. The standard VAT rate is currently 18%. Other consumption taxes vary depending on the particular goods or services.

In this chapter 

• Legal system
• Taxation authorities
• Business vehicles
• Financing a company subsidiary
• Corporate income tax
• Cross-border payments
• Payroll taxes
• Indirect taxes

Legal system

Taxation has always been a mandate of the Uganda Revenue Authority (URA), a semi-autonomous body of the central government. This is pursuant to articles 152 (i) of the Ugandan Constitution, which provides that no tax shall be imposed except under the authority of an Act of Parliament. Therefore, the Uganda Revenue Authority Act Cap 196 was put in place to provide the administrative framework in which taxes under various acts are collected, including:

1. Income Tax Act Cap 340
2. Value Added Tax Act Cap 349
3. Customs Tariff Act. Cap 337 
4. East African Customs Management Act 2004
5. Excise Duty Act, 2014
6. The Tax Procedures Code Act 2015
7. Stamp Duty Act 2014 
8. The various Finance Acts. 

Taxation authorities

The Uganda Revenue Authority Act Cap 196 created URA, the only tax collection and administration authority in Uganda. The URA enforces the numerous enacted tax laws.

Business vehicles

A non-resident who wishes to establish their business in Uganda may either incorporate a Ugandan company or operate directly through a foreign entity by simply registering as a branch of the foreign company. Generally, Ugandan business vehicles include corporations (limited liability or unlimited liability), partnerships (general or limited), sole proprietorships and trusts. However, the most common business vehicle for investment is the private limited liability company.

Corporations

Incorporation of a company usually takes a maximum of two days, depending on the availability of all necessary requirements.

The jurisdiction of incorporation does not impact a company’s income tax liability. However, the nature of tax liability will be determined by the nature of registration or operation in Uganda. Therefore, where a foreign company comes to operate in Uganda, it will be taxed depending on whether it is operating as a branch or a subsidiary of that company. This is irrespective of the nationality of the directors.

A corporation is not required to have received any capital at the time of its incorporation. However, it must have received a nominal amount of capital at the time it allots shares. Capital may be paid in any mode acceptable to the company.

Foreign corporations

A foreign corporation conducting business in Uganda is subject to taxation under the ITA. This is determined by whether that foreign corporation derives its business income from sources in Uganda. A foreign corporation that operates through a branch will be subject to the standard Ugandan corporate income tax as well as an additional tax on the profits repatriated to the country of origin or incorporation.

The ITA imposes a withholding tax of 15% on all payments made to non-resident persons who derive any dividend, interest, royalty, rent, natural resource payment or management charge from sources in Uganda. A withholding tax rate of 20% is imposed on income from government securities whose maturity period does not exceed 10 years and 10% for government securities whose maturity period is at least 10 years.

Partnerships

Income arising from activities conducted by a partnership is taxed in accordance with the ITA. Unlike corporations, partnerships, whether general or limited liability, are not liable for the payment of tax since they are not distinct legal persons. The partners are charged with fulfilling the tax obligations of the partnership. This is paid by both resident and non-resident partners.

The gross income of a resident partner for the year of income includes the partner’s share of partnership income for that year, less the allowable deductions incurred in the production of that income. The gross income of a non-resident partner for the year of income includes the partner’s share of income attributable to sources in Uganda.

Partnerships in their own right are required to file a return of income. However, it is the partners of the partnership, rather than the partnership itself, that are subject to income tax under the ITA. A partnership in Uganda is considered a resident partnership if any of the partners is a resident person in Uganda during the year for tax purposes under the ITA. The finding of a resident partnership has nothing to do with the nationality or origin of the partners.

Financing a corporate subsidiary

Equity financing

Contributions for shares

Equity investment into a Ugandan company is made in exchange for shares for the capital contributed. Where the equity financer is to take up new shares, the company will have to allot new shares, thereby increasing its number of shares. The issuance of such shares at incorporation does not carry tax implications. However, in the case of an equity financer acquiring shares for their capital contribution to the company after incorporation, the shares will be subject to a stamp duty of 1.5%. The sale and transferability of shares is governed by the company’s articles. The amount of the investment into the company then forms part of its paid-up capital. The transfer of shares is subject to a stamp duty of 1.5%.

Distributions by a company

A distribution, also known as a dividend, is a company’s payments to its shareholders/equity financiers. A distribution may be by payment of cash, stock or other property. Distributions are governed by the company’s articles of incorporation and the Companies Act. A company may only make a distribution out of its profits. At the time of payment of dividends to the equity financer, the company is required to withhold tax at 15% of the gross amount of the dividend paid.

Debt financing

Withholding tax implications

Debt financing of companies involves the company borrowing or getting credit from different lenders, such as banks. No tax is levied on the repayment of the loan principal. At the time of repayment, the ITA levies a 15% withholding tax on the gross amount of the interest paid.

Thin capitalization

Thin capitalization refers to a situation in which a company is financed through a relatively high level of debt compared to equity. Currently, section 25 of the ITA permits a deduction for interest incurred in respect of a debt obligation during the year to the extent that the debt obligation was incurred in the production of income included in gross income.

The thin capitalization rules that were earlier provided by the ITA were repealed by the Income Tax (Amendment) Acts of 2018 and 2019, which introduced new interest deductibility rates under section 25 of the ITA. The Amendment Acts state that:

1. The amount of the deductible interest in respect of all debts owed by a taxpayer that is a member of a group shall not exceed 30% of the tax earnings before interest, depreciation and amortization (EBIDA)
2. A taxpayer whose interest exceeds 30% may carry forward the excess interest for not more than 3 years and the excess interest shall be treated as incurred during the next year of income.

The amendment defines EBIDA to mean the sum of gross income less allowable deductions, depreciation and amortization. It also defines “group” to mean persons other than individuals with common underlying ownership.

Stamp duty

The Stamp Duty Act imposes varying duty rates depending on the nature of transaction.

Corporate income tax

A standard 30% income tax rate is imposed on corporations. This applies to both resident and non-resident corporations. A company is resident in Uganda if it is incorporated or formed under Ugandan law, if it has management and control of its affairs exercised in Uganda or if the majority of its operations are carried out in the country during the taxation year. Residents are taxed on their worldwide income whereas non-residents are taxed only on income sourced in Uganda.

In the case of non-resident corporations, in addition to payment of the standard 30% corporate tax, a withholding tax rate of 15% is levied on a branch of a foreign company on the profit repatriated to the head office.

The ITA also designates as exempt from tax, income earned by specific types of organizations. The ITA expanded the definition of exempt organizations to include a non-profit research institution. The intention of this is to promote investment in not-for-profit research.

Capital gains

Capital gains tax under the current Ugandan tax regime is provided for under Part VI of the ITA. Capital gains tax arises from the disposal of a business asset, such as stock investments, land and buildings. Under the ITA, disposal of an asset occurs when an asset has been sold, exchanged, redeemed, distributed, transferred by the taxpayer by way of gift, destroyed or lost. A capital gain is calculated as the total sale price minus the original cost of the asset.

Capital gains are included in the gross income of the taxpayer and assessed as business income. Capital gains are taxed at the standard corporate tax rate of 30%. In the case of a venture capital fund, a capital gain will not be recognized if the fund is registered with the Capital Markets Authority of Uganda and reinvests 50% of the proceeds of its investment within the year of income.

A non-resident (other than an individual) who becomes a resident person will be deemed to have acquired all assets at the time of becoming a resident. 

Branch tax

The ITA imposes the standard corporate tax rate of 30% on a branch of a foreign company. The branch has to pay an additional 15% tax on its total profits repatriated to its country of origin. If Uganda has a DTT in place with the country of origin, the branch will only be liable to pay the tax prescribed in the DTT. Before a non-resident can enjoy the benefits of a DTT, they must fulfill the three conditions imposed by the ITA:

1. The non-resident must be the beneficial owner of the income;
2. The non-resident must have full and unrestricted ability to enjoy the income as well as determine its future use; and
3. The non-resident must have economic substance in the treaty country.

The ITA defines a beneficial owner to include a natural person who owns or controls a customer and further defines who comprises a beneficial owner in relation to a legal person. The latter includes a person who exercises ultimate control over a legal person or arrangement, and a natural person holding 10% or more of the shares or voting rights.

The definition still largely restricts a beneficial owner to a natural person, the implication of which is that a non-natural person (such as a company, foundation, government owned entities, etc.) cannot be a beneficial owner, even if the entity is not ultimately owned or controlled by individuals. As Uganda prepares to participate in the Automatic Exchange of Information arrangement with other countries, this amendment aligns Ugandan tax laws with the OECD requirements.

The definition is only relevant for the purposes of sections 75 and 88 of the Act, which deal with change in control of a company and international agreements respectively.

Individual income tax

Rates range from 10% to 40%, depending on the individual’s income. An individual is a tax resident if they have a permanent home in Uganda, spend at least 183 days in any 12-month period in Uganda or are present in Uganda for an average of more than 122 days during three consecutive tax years. A taxpayer is generally subject to tax on their income from carrying on their business. The income that is subject to tax is that derived after subtracting any allowable deductions. When computing business income, a taxpayer is generally permitted to deduct expenses and losses incurred in the production of income. As a rule, capital expenditures are not deductible. However, depreciation expense is an allowed capital deduction. Depreciable assets are allowed a deduction as specified in the Sixth Schedule of the ITA.

Turnover taxes for small business taxpayers

Small business taxpayers are subject to income tax computed as a percentage of business turnover. The turnover tax are final taxes and taxpayers in this category are not expected to file tax returns. Tax rates vary depending on a business’ turnover.

Cross-border payments

Transfer pricing

The primary legislation regulating transfer pricing is the ITA. It empowers the commissioner general of URA to distribute, apportion or allocate income, deductions or credits between the parties to any transaction who are associates or are in an employment relationship. This is necessary for the purposes of reflecting the chargeable income that the taxpayers would have realized in an arm's length transaction. In so doing, the commissioner general can determine the source of income and the nature of any payment or loss as revenue, capital or otherwise.

The secondary legislation regulating transfer pricing in Uganda is the Income Tax (Transfer Pricing) Regulations 2011. These regulations apply to controlled transactions, defined as transactions between two associated enterprises.

Withholding tax on passive income

A resident who makes payments to another resident person in respect of certain types of interest payments, rents, royalties or dividends is required to withhold tax at 15% of the gross amount of the interest paid. A tax is also imposed on every non-resident person who derives any dividend, interest, royalty, rent, natural resource payment or management charge from sources in Uganda. A tax is withheld by the payer at a rate of 15% of the gross amount before the payment or remittance of the amount is made. However, this does not apply to income received from activities of a Ugandan branch of the non-resident. The rate may be reduced under an applicable DTT.

Withholding tax on service fees

Withholding tax (WHT) is imposed on every non-resident person who derives any professional fees or management fees from sources in Uganda. This tax is imposed on specified payments made to both residents and non-residents. The tax is withheld by the payer at the rate of 5% on the gross amount before payment in the case of a professional fee payment from a resident to another resident. A 15% tax is withheld on the payments made to a non-resident. WHT on payments to non-residents may be reduced or eliminated by an applicable DTT.

Withholding tax on in-bound transportation

The ITA now clarifies that for the avoidance of doubt, income derived by a non-resident from the carriage of passengers, cargo, or mail that is not embarked in Uganda is not income derived from a Ugandan-source service contract and therefore exempt from withholding tax.

The URA in past sought to collect 15% WHT on these transport payments under Section 85(1) and (2) of the ITA but faced stiff resistance from taxpayers as such a tax rendered Uganda’s economy uncompetitive since the cost of all imports would increase by 15% as the transporters pass the cost of the tax to importers. The wording of the new provision removes this uncertainty.

Multilateral Instrument

As of June 2021, Uganda is not a signatory to the MLI.

Payroll taxes

Employees that earn income above a designated income threshold pay a Pay As You Earn (PAYE) payroll tax. Rates range from 10% - 40% depending on income earned.

Uganda pension plan

Employers paying employment income to employees must make monthly contributions under the National Social Security Fund Act of Uganda. The employer makes a standard contribution of 5% while the employee makes a contribution of 10%, which is withheld from the employee’s paycheck at the time of payment.

Employment insurance

Uganda does not require employers to contribute to employment insurance. The Employment Act of Uganda, 2006, excludes an employee’s insurance from the wages an employee is entitled to for the work done or to be done under a contract of service.

However, employers often offer employment insurance as an employee benefit. This insurance is handled by private service providers. Payment for these services is not subject to withholding tax.

Indirect taxes

Indirect taxes levied on the consumption of goods and services include VAT, excise duty and import duty. These are regulated by, respectively, the Value Added Tax Cap. 349, the Excise Duty Act, 2014, and the East African Community Customs Management Act (EAC-CMA). 

Value-added tax (VAT)

Currently, the standard VAT rate is 18% of the gross amount paid. Some goods and services are exempt from VAT or zero-rated.

The First Schedule of the VAT Act contains a list of Public International Organisations that are entitled to certain VAT reliefs, including the International Development Law Organisation (IDLO) and the Foreign, Commonwealth and Development Office (formerly known as DFID).

Exempt goods or services are neither zero-rated nor subject to the standard rate. Exemptions include livestock, unprocessed foods and agricultural products, and financial services, among others as listed under the Second Schedule of the VAT Act. The Second Schedule has recently been amended to include the supply of airport user services charged by the Civil Aviation Authority (CAA) and the supply of assistive devices for persons with disability. These assistive devices like hearing aids, orthotic devices, etc. enable PWDs to conduct activities of daily living (e.g., talking, eating, bathing, dressing, toileting, and home maintenance).

It is noteworthy that the VAT Act has repealed the provision enacted in 2021 that exempted imported services used in the provision of exempt supplies. This means that imported services will only be considered as exempt if they are specifically listed as such in the Second Schedule of the VAT Act. This is poised to have a significant impact on businesses involved in exempt supplies, such as banks.

Additionally, the Ugandan Government has moved to incentivize investors to invest in setting up hospitals by doing away with the requirement for the investor to establish a hospital at the level of a national referral hospital and with capacity to provide specialized medical care in order to qualify for a VAT exemption.

Zero-rated goods or services attract a zero (0%) VAT rate. These include drugs, medicine and medical services exported from Uganda, the supply of educational materials including educational materials manufactured in a Partner State of the East African Community (EAC), the supply of menstrual cups including inputs for their manufacture, among others, as per the Third Schedule of the VAT Act.

For entities that make supplies to the Ugandan Government, the VAT Act provides the option to account for VAT on such supplies on a cash basis. This means that revenue and expenses are recognized when actual payments are received or paid to the supplier, as opposed to recognition at the earliest date of either delivery of the goods or service, payment for the goods or services, or issuance of the tax invoice. In the past, the option to apply the cash basis computation for supplies to Government had only been allowed to VAT-registered taxpayers with sales below UGX. 500 million.

Excise tax

Excisable goods and services are stipulated under the Second Schedule of the Excise Duty Act, 2014, in accordance with the excise duty specified therein. A person providing such an excisable service is liable to pay the duty on that service, and the liability arises on the date of provision.

A manufacturer of an excisable good is liable to pay the duty on the manufactured good when it leaves the manufacturer’s premises. An importer of excisable goods pays excise duty at the time of import, as per Section 4 of the Excise Duty Act.

A person liable to pay excise duty shall do so on the date of filling the annual return with the URA Commissioner, or in the case of an assessment, pay within 45 days after receiving the notice of assessment. For services, a person becomes liable to pay on either the date on which the performance of the service is completed, the date on which payment of the services is made or the date on which the invoice is issued. An importer pays duty at the time of import.

In the Excise Duty (Amendment) Bill 2022, which is yet to be assented to by the President, the Bill proposes to:

1. Introduce a definition for fruit juice to mean unfermented liquid extracted from the edible parts of a fresh fruit whether the extracted liquid is diluted or not. The Finance Committee of Parliament proposed to further amend this definition to exclude ‘fruit puree for industrial use that is not ready for final consumption’. This is aimed at ensuring that there is no double taxation of both fruit pulp raw material and the fruit juice itself;
2. Introduce a definition of vegetable juice to mean unfermented liquid extracted from the edible part of a vegetable whether the extracted liquid is diluted or not; and
3. Introduce a definition for un-denatured spirits to mean spirits that are not mixed with any substance to render the spirit unfit for human consumption, including neutral spirits or alcoholic beverages made from neutral spirits that are fit for human consumption.

The President has expressed concern over Parliament’s rejection of the proposal to impose 40% excise duty on each kilogramme on sacks and bags of polymers and other plastics. He has also contested the re-introduction of 20% excise duty on sugar confectioneries and returned the Bill for Parliament’s consideration.

Customs duty

Rates of import duties and export duties are set out in the schedules of the EAC-CMA and in the Common External Tariff book for the East Africa Customs Union. Such duties and taxes are payable through self-assessment procedures. Taxpayers are required to use the services of licensed clearing and forwarding agents to make declarations that are captured in the Automated System for Customs Data (ASYCUDA) system to enable payment of tax in designated banks. Simplified clearance procedures apply for small traders and consolidators.

Partner States of the EAC have agreed on a 35% import duty rate for products classified under band 4 of the revised Common External Tariff, effective July 1, 2022. The products under band 4 include: animal products such as fish, meats, and dairy, agro-processing products including tea and coffee, horticultural products, luxury goods such as human hair, wigs, cosmetics, perfumes and beverages, refined edible oils, salt, cement, paints, soaps, tanks, packaging items, wood products, leather products, ceramics, furniture, iron and steel products, sugar, confectionery items such as chewing gum, biscuits and chocolates, tomato sauces, sausages, and peanut butter.

Import duty

This refers to the tariff levied on goods at the time of importation into the country. Therefore, everyone who imports goods into Uganda, depending on their classification, is liable to pay import duty. However, certain goods which are classified as duty free have a zero percent duty levied on them.

Most finished products are subject to a 25% duty, while intermediate products face a 10% levy. Raw materials (excluding food stuffs) and capital goods may still enter duty free.

Imported goods are also charged VAT of 18% and a withholding tax of 6%. Imports are also subject to a charge of 1.5% infrastructure tax to finance railway infrastructure development.

Export duty

Almost all exports in Uganda are tax- free, save for tobacco leaf, fish, fish maw, gold and unprocessed hides and skins.

Administrative tax measures under the Tax Procedure Code Act

Under Ugandan tax laws, procedures for the administration of specified tax laws are carried out under the enabling provisions of the Tax Procedure Code Act (TPCA).

The Tax Procedure Code Act has introduced the following measures to encourage voluntary compliance and expand the existing tax base:

1. Change of the effective date of expiry of all tax agents’ registration to December 31 every calendar year irrespective of the commencement date of their registration;
2. Imposition of a penal tax that is double the tax due on the goods or Uganda Shillings Fifty Million (UGX. 50,000,000) whichever is higher on any person who fails to activate a tax stamp on locally manufactured or imported goods;
3. Temporary closure of businesses that do not comply with the requirements of electronic receipting and invoicing or tax stamps after receiving a URA notice of the intention to close the business;
4. Imposition of the requirement for persons in construction or extractive industries to disclose all contractors to be used in conducting all operations within 7 days from the date of signing of the contract and introduction of a penalty of UGX. 20 Million for failure to comply. This is intended to widen the tax base by bringing more persons into the tax bracket;
5. Increase in the quantum of the penalty for making false or misleading statements from UGX. 4 Million to UGX. 110 Million;
6. Exclusion of URA staff as whistle-blowers/informers and revision of the scope of informers and their reward to include persons who provide information leading to:
• Identification of unassessed tax or duty and the reward is the lesser of 1% or UGX. 15 Million; or
• Recovery of unassessed tax or duty and the reward is the lesser of 5% or UGX. 100 Million.
7. Imposition of a fine of UGX. 30,000,000/= or imprisonment not exceeding 10 years or both for:
• Failure to fix or activate tax stamps;
• Forgery of an EFRIS invoice;
• Printing over or defacing tax stamps;
• Interfering with an EFRIS control device;
• Forgery of tax stamps; or
• Failure to use EFRIS.
8. Imposition of a fine of UGX. 50,000,000/= for each day in default or imprisonment not exceeding ten years for:
• Failure to file an information return relating to automatic exchange of information;
• Failure to maintain records for purposes of automatic exchange of information;
• Making a false or misleading statement in the information return; or
• Omitting from a statement made in the information return.