Issuu

Kampala

Ernst & Young House

18 Clement Hill Road

P.O. Box 7215

Kampala

Uganda

Principal Tax Contact

 Muhammed Ssempijja

Global Compliance and Reporting

Allan Mugisha

+256 414-343-520

Fax: +256 414-251-736

+256 414-343-520

Mobile: +256 752-240-012

Email: muhammed.ssempijja@ug.ey.com

+256 414-343-520

Mobile: +256 702-403-551

Email: allan.mugisha@ug.ey.com

In the 2024 financial year, the government of Uganda introduced significant income tax amendments to the Income Tax Act. For example, manufacturers of electric vehicles, batteries and charging equipment, as well as fabricators of electric vehicle frames and bodies, now enjoy exemptions under the Income Tax Act. In addition, operators of specialized hospital facilities also benefit from these exemptions. For further details regarding the amendments, see Section G.

A. At a glance

(a) Applicable to capital gains on business assets, shares in private limited liability companies and commercial buildings.

(b) Applicable to residents and nonresidents (see Section B for further details).

(d) The rate for interest payments on government securities is 20% if their maturity period does not exceed 10 years and 10% if their maturity period is at least 10 years.

(e) Applicable to nonresidents.

(f) This withholding tax is imposed on resident professionals who are not exempt from withholding tax.

(g) A 10% withholding tax is imposed on nonresident contractors who derive income from providing services to licensees in the mining and petroleum sectors.

(h) This withholding tax is imposed on payments in excess of UGX1 million to any person in Uganda who is not exempt from withholding tax for goods and services supplied to, or under a contract with, the government, a local authority, an urban authority, a company controlled by the government of Uganda or any person designated in a notice by the Minister.

(i) This withholding tax is imposed on nonresident persons who carry on the business of the following:

• Ship operator, charterer or air transport operator who derives income from the carriage of passengers who embark or cargo or mail that is embarked in Uganda

• Road transport operator who derives income from the carriage of cargo or mail that is embarked in Uganda

However, income derived from carriage of passengers who do not embark in Uganda or cargo or mail that is not embarked in Uganda is not income derived from a Ugandan-source service contract and accordingly is not subject to tax in Uganda.

(j) In general, loss carrybacks are not allowed. However, for long-term construction contracts that result in a loss in the final year, a loss carryback for an unlimited number of years is allowed.

(k) As of 1 July 2023, a taxpayer who after seven years of income carries forward assessed losses is only allowed a deduction of 50% of the losses carried forward in the following year of income and the subsequent years of income.

B. Taxes on corporate income and gains

Corporate income tax. Resident companies are subject to tax on their worldwide income, but tax credits are granted for taxes paid on foreign-source income (see Foreign tax relief). Nonresident companies are subject to tax on income derived from sources in Uganda.

A company is resident in Uganda if any of the following applies:

• It is incorporated in Uganda.

• The management and control of its affairs are exercised in Uganda during the tax year.

• During the tax year, it performs the majority of its operations in Uganda.

Rates of corporate tax. The regular corporate income tax rate is 30%.

Rental income earned in Uganda is taxed separately from other income and taxed at a rate of 30%. It is no longer consolidated with other income.

Digital service tax. A nonresident deriving income from providing digital services to a customer in Uganda delivered over the internet, electronic network or an online platform is subject to income tax at a rate of 5% and is required to file a tax return by the 15th day after the end of a tax period.

Capital gains. Capital gains on business assets, shares and commercial buildings are subject to tax at a rate of 30%.

Effective 1 July 2021, the cost base of the asset is to be determined according to the formula indicated below stipulated under section 50(3) of the Income Tax Act (ITA):

CB x CPID

CPIA

The following are the amounts in the formula:

• CB is the amount of an item of cost or expenditure incurred determined in accordance with Section 52(2) of the ITA Cap 340.

• CPID is the Consumer Price Index number published for the calendar month of sale.

• CPIA is the Consumer Price Index number published for the month immediately prior to the date on which the relevant item of cost or expense is incurred.

The formula above does not apply to an asset that is sold within 12 months from the date of purchase.

Administration. Companies must file provisional income tax returns within six months after the beginning of the accounting period. This return includes an estimate of the income that will be earned by the company during the accounting period. The tax liability shown in the provisional return must be paid in two equal installments, which are due 6 months and 12 months after the beginning of the accounting period. A final tax return must be filed within six months after the end of the accounting period, and any balance of tax due must be paid when this return is filed. A taxpayer with an annual turnover of UGX500 million must submit audited financial statements prepared by an accountant registered by the Institute of Certified Public Accountants of Uganda with the taxpayer’s return.

Penalties are imposed if the final tax liability for the year exceeds the tax liability shown in the provisional return by more than 10%. However, the penalty for underestimating provisional tax does not apply to companies engaged in agricultural, plantation or horticultural farming.

Effective from 1 July 2016, the Tax Procedure Code Act regulates all procedural aspects relating to income tax, value-added tax and excise duty, and any other taxes that could be added by the Minister of Finance by statutory instrument. The provisions of the act replace the provisions in the various tax laws that dealt with procedures such as those for filing returns, objections, recovery, penal taxes and tax offenses.

Effective 1 July 2021, asset depreciation classes were reduced from four to three with depreciation rates adjusted for some classes as shown in the following table.

Class Assets

I Computers and data handling equipment 40

II Plant and machinery used in farming, Manufacturing and mining. 30

III Automobiles; buses, minibuses, goods vehicles, construction and earth moving equipment, specialized trucks, tractors, trailers and trailer-mounted containers, rail cars, locomotives, and equipment, vessels, barges, tugs, and similar | water transportation equipment, aircraft, specialized public utility plant, equipment and machinery, office furniture, fixtures and equipment, and any depreciable asset not included in another class 20

Effective from 1 July 2023, the initial allowance for eligible property or new industrial buildings placed in service for the first time during the year of income was repealed.

Relief for losses. Losses may be carried forward for an indefinite period of time to offset future profits. However, a taxpayer that after seven years of income carries forward assessed losses is only allowed a deduction of 50% of the losses carried forward in the following year of income and the subsequent years of income.

In general, loss carrybacks are not allowed. However, for longterm construction contracts that result in a loss in the final year, a loss carryback for an unlimited number of years is allowed.

Groups of companies. No provisions exist for filing consolidated returns or for relieving losses within a group.

D. Other significant taxes

The following table summarizes other significant taxes. Nature

Social security contributions to the National Social Security Fund (NSSF), on salaries; the contributions are not tax deductible; paid by

E. Miscellaneous matters

Foreign-exchange controls. The foreign-exchange market is now fully liberalized. A company can freely transfer foreign exchange into and out of Uganda without restriction, provided that the transfer is through a bank and complies with anti-money laundering regulations. A company can prepare financial statements in foreign currency if it obtains approval from the tax authorities.

Transfer pricing. Transfer-pricing regulations apply to a controlled transaction (transaction between associates) if a person who is party to the transaction is located in and is subject to tax in

Uganda, and the other person who is party to the transaction is located in or outside Uganda. The minimum threshold for transactions between associates who are both located in Uganda is UGX500 million (approximately USD130,000); no minimum threshold applies to cross-border transactions. The regulations require a person to record in writing sufficient information and analysis to verify that a controlled transaction is consistent with the arm’s-length principle.

For a year of income, this transfer-pricing documentation must be in place before the due date for the filing of the income tax return for that year.

Thin-capitalization rules. The Income Tax (Amendment) Act, 2018 repealed the thin-capitalization provisions and replaced them with limitation of interest deductibility rules. With the exception of financial institutions, micro-finance deposit taking institutions, Tier 4 micro-finance institutions and persons carrying on insurance business, the amount of deductible interest for all debts owed by a taxpayer that is a member of a group may not exceed 30% of the tax earnings before interest, tax, depreciation and amortization. The excess interest may be carried forward for not more than three years and will be treated as incurred during the next year of income.

F. Treaty withholding tax rates

The table below lists treaty withholding tax rates. With the exception of publicly listed companies, tax treaty provisions that lower Ugandan tax or provide exemptions from Ugandan tax for nonresident persons apply only if the nonresident is a resident of the state that has a tax treaty with Uganda, receives the income in a capacity of a “beneficial owner,” has full and unrestricted ability to enjoy that income and to determine its future uses, and possesses economic substance in the country of residence.

Effective from 1 July 2022, a “beneficial owner” is defined as the following:

• A natural person who ultimately owns or controls a customer or the natural person on whose behalf a transaction is conducted and includes a person who exercises ultimate control over a legal person or arrangement

• In relation to a legal person, a “beneficial owner” includes the following:

The natural person who either directly or indirectly holds at least 10% of shares or voting rights of the legal person

The natural person who exercises control of the legal person through other means, including personal or financial superiority

The natural person who has power to make or influence decisions of a legal person

• In relation to trust, a “beneficial owner” includes the following:

The settlor

The trustee

The protector

The beneficiary, or the individual benefitting from the trust who is yet to be determined

Any other natural person exercising ultimate control of the trust