Uganda Individual Tax Guide

Uganda

Kampala

EY

Ernst & Young House

18 Clement Hill Road

P.O. Box 7215

Kampala Uganda

Executive and immigration contacts

Muhammed Ssempijja

+256 (41) 230-637

Fax: +256 (41) 251-736 Email: muhammed.ssempijja@ug.ey.com

Allan Mugisha +256 (41) 343-520 Fax: +256 (41) 251-736 Email: allan.mugisha@ug.ey.com

Prosper Ahabwe +256 (41) 343-520 Fax: +256 (41) 251-736 Email: prosper.ahabwe@ug.ey.com

Because of the possible changes to the tax law, readers should obtain updated information before engaging in transactions.

A. Income tax

Who is liable. Residents are subject to tax on worldwide income. Nonresidents are taxable on Ugandan-source income only.

Individuals are considered resident in Uganda for tax purposes if they meet at least one of the following conditions:

• They maintain a permanent home in Uganda.

• They are present for 183 or more days in the tax year. The tax year runs from 1 July to 30 June.

• They are present for an average of 122 days in the tax year and the two preceding tax years.

• They are employees or officials of the government of Uganda posted abroad during the tax year.

Income subject to tax. The taxation of various types of income is described below.

Employment income. Employment income includes wages, sal aries, vacation pay, sick pay, payment in lieu of vacation, directors’ fees, commissions, bonuses, gratuities, and entertainment or other allowances received for employment. Employment income also includes most benefits in kind, including employer-provided car, housing and stock options. Travel allowances are taxable if they are deemed to be excessive.

Education cash allowances provided by the employer to all of the employer’s local and expatriate staff are taxable for income tax purposes and social taxes. However, the allowances are not sub ject to social taxes if the employer pays directly the school fees to the school or college, or reimburses the actual fees paid by the employee.

A nonresident is subject to income tax on employment earnings if his or her employer is resident in Uganda or has a permanent establishment in Uganda. Income derived from services performed outside Uganda by a short-term resident is exempt from tax. A short-term resident is a resident individual who is not a citizen of Uganda and is present in Uganda for a period not exceeding two years.

A resident individual who earns foreign-source employment income is exempt from tax on that income if the individual has paid foreign income tax with respect to that income.

If the employee is receiving a motor-vehicle benefit from his or her employer, the motor vehicle is depreciated at an annual reducing-balance rate of 35% when computing the motor-vehicle benefit.

Self-employment and business income. Business income includes the following:

• Trading profits

• Gains from disposals of business assets, shares of profits or partnership interests

• Professional and management fees

• Insurance compensation and legal damages for loss of profits

Investment income Dividends received by residents and nonresi dents are subject to final withholding tax at a rate of 15%. For resident persons, royalties are aggregated with other income and are taxed at the rates set forth in Rates. Income received by resi dents from the rental of immovable property is taxed separately at a rate of 30% on net income. Net income for individuals is gross rent derived less allowable deductions. Effective from 1 July 2021, 75% of rental income is taken as allowable expenses and losses incurred by a person in the production of income, subject to verification by Uganda Revenue. In addition, interest expense incurred by an individual on a mortgage from a financial institution to acquire or construct premises that generate rental income is also an allowable deduction. A final withholding tax is levied on interest income received by residents at a rate of 15%.

Nonresidents are subject to withholding tax at a rate of 15% on investment income, income from the rental of real property, management fees, royalties, consultancy fees and any payments for services performed in Uganda. The withholding tax rate may vary if Uganda has entered into a double tax treaty with the coun try in which the nonresident is based. For a list of Uganda’s double tax treaties, see Section E.

Capital gains. Capital gains derived from the disposal of business assets are subject to tax at a rate of 30%.

Deductions

Personal deductions. No personal deductions are allowed.

Business deductions. Expenses are deductible to the extent they are incurred in the production of income. Identified bad debts incurred in the production of taxable income are also deductible.

Plant and machinery qualify for an annual capital allowance deduction. Eligible plant and machinery placed into service for the first time outside the radius of fifty kilometers from the boundaries of Kampala also qualify for an initial allowance of 50%. The amount of the initial allowance is subtracted from the depreciable cost of an asset. The balance is subject to a deprecia tion (wear-and-tear) allowance at the applicable rate.

Capital allowances for industrial buildings and certain commer cial buildings are permitted on a straight-line basis over 20 years. In addition, industrial buildings qualify for an initial allowance of 20% if their construction began on or after 1 July 2000. The ini tial allowance was repealed in 2014 but was reintroduced by the 2017 Income Tax Amendment, effective from 1 July 2017. Plant and machinery are eligible for a wear-and-tear allowance using the declining-balance method at rates ranging from 20% to 40%.

Effective from 1 July 2021, the following is the reclassification of depreciable assets.

Class Assets

Declining-balance depreciation rate (%)

1 Computers and data handling 40

2 Plant and machinery used in farming, manufacturing and mining 30

3 Automobiles; buses, minibuses, goods vehicles, construction and earth moving equipment, specialized trucks, tractors, trailers and trailermounted 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

Capital allowances for wear and tear of an asset are deferred to the next year of income if the asset qualifies for an initial allow ance.

Similarly, there is also deferral of a deduction for the deprecia tion of an industrial building to the next year of income if the building qualifies for an initial allowance.

Effective from 1 July 2021, allowable expenses and losses under rental income are capped at 75% of rental income for purposes of determining rental income for individuals. However, the expenses and losses relating to the 75% allowable deduction are subject to verification by the Uganda Revenue Authority. In addition, mortgage interest is also an allowable deduction if the loan obligation was incurred in generating rental income.

Rates. The resident individual tax rates are set forth in the follow ing table. These rates apply to employment income and taxable business income.

Annual taxable income Tax on lower Rate on Exceeding Not exceeding amount excess UGX UGX UGX %

2,820,000

0 2,820,000 4,020,000

10 4,020,000 4,920,000 120,000 20 4,920,000 120,000,000 300,000 30 120,000,000 34,824,000 40

For nonresidents, taxable income, including investment income, is taxed at the rates in the following table.

Annual taxable income

Tax on lower Rate on Exceeding Not exceeding amount excess UGX UGX UGX %

4,020,000 0 10 4,020,000 4,920,000 402,000 20 4,920,000 120,000,000 582,000 30 120,000,000 35,106,000 40

The amount of tax payable is reduced by tax withheld.

Income derived by resident individuals from the rental of real property is taxed at a rate of 30%, effective from 1 July 2021.

Withholding tax. The Income Tax Act Cap 340 specifies persons who are required to withhold tax as well as those on whom the tax should be imposed, depending on the nature of transaction. This tax is deducted at source by a withholding agent on making the payment to another person.

A withholding tax agent is the person who makes the payment and is required to withhold tax; the recipient of the payment is the payee.

If a taxpayer is designated by the minister to withhold tax, and the payer pays an amount or amounts in aggregate exceeding UGX1 million for a supply of goods and services, the payer with holds tax at a rate of 6% on local payments. If a taxpayer is not a designated withholding tax agent, the payer withholds tax only on payments made with respect to professional services and management fees. For international payments, tax is withheld at a rate of 15%. However, for countries that have double tax treaties with Uganda, the rate at which tax is withheld varies per country.

Relief for losses. Losses may be carried forward to be offset against future profits. In general, losses may not be carried back. However, with respect to long-term contracts, a loss in the final year of the contract can be carried backward to offset reported tax profits of previous years.

A long-term contract is a contract for manufacturing, installation, or construction or for the performance of services related to such activities, if not completed within the year of income in which work under the contract commenced, excluding a contract esti mated to be completed within six months of the date on which work under the contract commenced.

B. Other taxes

Value-added tax. Uganda imposes value-added tax (VAT) on the sale or import of taxable goods and services. Supplies of services

or goods may be exempt, zero rated (subject to a VAT rate of 0%) or standard rated. The standard VAT rate is 18% on the gross amount paid. Exempt goods or services are neither zero rated nor subject to the rate of 18%. They include supplies of livestock, unprocessed foods, financial services and other items listed in the second schedule of the VAT Act. Zero-rated goods or services include exports, international transport, and drugs and medicines manufactured in Uganda.

The VAT payable on a taxable supply made to a government ministry, department or agency by a contractor executing an aidfunded project is deemed to have been paid by that ministry, department or agency if the supply is solely and exclusively for the use of the aid-funded project. A credit for input tax is allowed if a person is dealing in standard and zero-rated goods.

The Electronic Fiscal Receipting and Invoicing System (EFRIS) to handle e-invoicing and e-receipting is mandatory, effective from 1 January 2021. All VAT-registered taxpayers are required to configure this system into their businesses depending on the preferred channel. Taxpayers are not able to claim a deduction (income tax) or credit (VAT) for purchase expenses if these trans actions are not supported by e-invoices or e-receipts.

Section 28 of the VAT Act was amended to limit the time period for applying for an input tax credit to six months from the date of the invoice.

Import duty. Uganda charges import duty on goods at the time of importation except for exempt imports. A traveler is allowed duty-free imports of up to USD500.

Effective from 1 February 2005, the East African Community Customs Union (EACCU) consisting of Kenya, Tanzania and Uganda, became operational. In 2008, Burundi and Rwanda were admitted to the EACCU. The EACCU provides for the duty-free movement of goods among member states and a common exter nal tariff (CET) on goods from third countries. The CET is gener ally imposed at a rate of 0% to 25% on goods imported from third countries into Uganda. However, sensitive products are subject to a duty rate exceeding 25%. Eligible goods from Common Market of East and Southern Africa (COMESA) and Southern African Development Community (SADC) countries continued to attract preferential treatment for 2009 and 2010. The import duty rate on goods imported into Uganda from Kenya was progressively reduced by two percentage points per year, from an initial 10% in 2005 to 0% in 2010. The EACCU also provides various tax incentives for producers of goods for export.

Excise duty. Uganda charges excise duty on certain items, includ ing spirits, beer, soft drinks, cigarettes and mobile phone airtime. EFRIS also applies to excise duty.

Other taxes. Estate and gift tax is not levied in Uganda. Net worth tax is not levied in Uganda.

C. Social security

The National Social Security Fund (NSSF) is a statutory savings program to provide employees with retirement benefits.

Employees contribute 5% of their total monetary remuneration, and employers contribute an amount equal to 10% of each employee’s total monetary remuneration.

D. Tax filing and payment procedures

Tax is withheld from employees under the Pay-As-You-Earn (PAYE) system.

The tax year runs from 1 July to 30 June. Individuals must file quarterly provisional returns. A penalty is imposed for the failure to file provisional returns.

Individuals must file their final tax returns within six months after the end of the accounting year. An assessment is made based on the return, with a credit given for taxes withheld at source and for provisional taxes paid.

Nonresidents who trade in Uganda through permanent establishments are subject to the same filing requirements as residents.

Interest and a penalty are imposed for unpaid tax. Any penalties or interest paid cannot exceed the principal amount of the tax outstanding.

E. Double tax relief and tax treaties

Residents may deduct foreign taxes paid from Ugandan income tax payable on foreign-source income. Uganda has entered into double tax treaties with the following countries.

Denmark Mauritius South Africa India Netherlands United Kingdom Italy Norway Zambia

Certain treaties are in the final discussion phase including treaties with Belgium, China, the East African Community (EAC) Egypt, Seychelles, Sudan and the United Arab Emirates.

F. Temporary permits

All foreign visitors must obtain valid entry visas to enter Uganda, with the exception of nationals of member countries of the COMESA or the EAC, and nationals of the following countries.

Angola Gambia St. Vincent and Antigua Ghana the Grenadines

Bahamas Grenada Sierra Leone

Barbados Jamaica Singapore

Belize Lesotho Solomon Islands Cyprus Malta Tonga Fiji Vanuatu

Dependents’ passes are issued to family members and relatives of foreign nationals with valid permits. These passes are linked to the principal’s permit and are canceled on expiration or cancella tion of the principal’s permit.

Students’ passes are issued to foreign students who wish to study in Uganda. All EAC nationals studying or seeking to study in Uganda must obtain student passes from designated immigration offices. These passes are issued at no cost.

Special passes are issued to foreign nationals wishing to work in Uganda on a short-term assignment (three to five months). A special pass is valid for three months and may be extended once.

Visitors’ passes are issued on entry into Uganda. They are valid for three months and may be extended for up to six months.

Transit passes are normally valid for seven days.

Prohibited immigrant passes are issued to foreign nationals who, under normal circumstances, would not be granted visas. They are granted only in special cases and are valid for seven days.

When applying for passes, applicants must have valid passports or equivalent travel documents. No quota system exists for immi gration purposes in Uganda.

G. Work permits and self-employment

Only special passes and work permits allow foreign nationals to undertake employment in Uganda.

Temporary work permits, called special passes, are valid for three months and may be extended for up to a maximum of five months.

A work permit or entry permit is issued for up to three years and may be renewed every three years. Work permits are divided into seven classes (Classes A through G), which are summarized below.

Class A permits are issued to foreign diplomats, United Nations staff and foreigners recruited to work in Uganda government service. They require the submission of the following documents:

• Copies of passport (bio-data page)

• Recent passport-size photograph

• Cover letter from the embassy (diplomatic note)

• Letter from the Ministry of Foreign Affairs of Uganda

Class B work permits are issued to investors in agribusiness and require the submission of the following documents:

• Registration certificate (certificate of incorporation)

• Company Form 7

• Memorandum and articles of association

• Analysis of the viability of the proposed venture

• Photocopies of the applicant’s passport

• Photographs

• Land title

• Recommendation letter (possibly from a local authority)

• Clearance from the Ministry of Agriculture regarding an intended agricultural venture

• Clearance from Interpol

• Copy of nonrefundable prepayment receipt or a copy of identi fication from nationals of Burundi, Kenya and Rwanda

• Copy of security bond

• Income tax clearance

• Tax identification number (TIN) of the company

• Completed entry/work permit form

Class C work permits are issued to investors prospecting for, or mining, minerals and require the documents listed below:

• License issued by the Ministry of Energy and Mineral Develop ment

• Support letter from the permanent secretary or designated offi cer of the Ministry of Energy and Mineral Development

• Memorandum and articles of association

• Company Form 7

• Income tax clearance

• Physical address and active telephone contacts

• TIN of the company

• Registration certificate (certificate of incorporation)

• Photocopies of the applicant’s passport

• Analysis of the viability of the project

• Copy of nonrefundable payment receipt

• Copy of Uganda Investment Authority license

• Security bond

• Recent passport-size photograph

• Police clearance from Interpol or home country

Class D work permits pertain to general business or the retail trade. In addition to the documents listed for Class B permits, excluding the analysis of viability, the application for a Class D work permit requires bank statements.

Class E permits are issued to manufacturers. In addition to the documents required to obtain Class B permits, excluding the analysis of viability, applicants for Class E permits must produce an investment license.

Class F permits, which are issued to practicing professionals (for example, lawyers and accountants), require the submission of the following:

• Qualifications and references or résumés

• Copy of the passport (bio-data page)

• Copy of a recent passport-size photograph

• Clearance letter from Interpol or home country

• Registration certificate with relevant professional body in Uganda

• Cover letter from the organization

• Copy of nonrefundable prepayment receipt or a copy of identi fication from nationals of Burundi, Kenya and Rwanda

• Security bond

Class G has two sub-classifications of work permits, which are Class G1 and Class G2. They are issued to employees. Applicants for Class G1 permits (missionaries, volunteers and workers for nongovernmental organizations [NGOs]) are required to produce the following documents:

• Certified copy of qualifications

• Appointment letter from the organization

• Copy of the passport (bio-data page)

• Copy of a recent passport-size photograph

• Cover letter from the organization

• Clearance letter from the Interpol or home country

• An employment contract

• Recommendation from the National Bureau for NGOs

Applicants for Class G2 (expatriates) are required to produce the following documents:

• Appointment letter from the organization

• Copy of the passport (bio-data page)

• Certified copy of qualifications

• Copy of a recent passport-size photograph

• Cover letter from the organization

• Clearance letter from Interpol or home country

• Income tax clearance for the organization

• Copy of nonrefundable prepayment receipt

The flow of the immigration process is adjusted, effective from 1 July 2016. The following is the flow of the process:

• The company must register and obtain an organization code so that all assignees apply under the company’s account (the requirements for obtaining an organization code include filling out the Imm001 form and then attaching the company docu mentation under each class on a CD, which is shared with the immigration department).

• After the company obtains an organization code, the applicant must fill out the permit application form online.

• The applicant is then prompted to upload the required docu ments as per the type of permit.

• The application is then submitted, and follow-ups can be made based on the application identification number, passport num ber and date of birth.

• An approval letter is sent by email or downloaded through the Uganda electronic visa/permit website. This letter establishes that the applicant is eligible for the approved visa or permit, but it does not establish that the application is definitely approved.

• The final approval is issued at the selected point of entry (in the case of a visa) or at the immigration office headquarters where the visa or permit sticker is printed and pasted on the passport.

Payment of the government fees is due after approval has been received.

After all documents are received, it takes from three to four weeks to process a work permit. All passes (special passes, dependent passes and student passes) usually take one to two weeks to be approved.

As a result of the introduction of the organization code, nonresidents seeking permits are not required to present company documentation (for example, articles and memorandum of association), because they are applying for a permit under an organization’s account that was issued an organization code on presentation of the necessary documentation mentioned above.

Foreign nationals may change employers after they have obtained work permits. However, they must apply for new work permits under their new employers.

An investment license, issued by the Uganda Investment Authority, is required for all foreign business operations in Uganda. Investment incentives, including tax holidays, are avail able to businesses that satisfy certain conditions and bring spe cific amounts of capital into Uganda.

H. Residence permits

Certificates of residence allow foreign nationals to work and live in Uganda. The duration for the certificates can be 5 years, 10 years or a lifetime.

Foreign nationals seeking certificates of residence must have resided in Uganda for at least 10 consecutive years, be married to a Ugandan or be a former citizen of Uganda.

I. Family and personal considerations

Family members. Dependents of expatriates with work permits may obtain long-term entry permits called dependents’ passes. The length of validity of these passes depends on the duration of the expatriate’s work permit. However, the duration of the passes is granted at the discretion of the Commissioner General.

Working spouses of work permit holders do not automatically receive the same type of pass or permit as the principal permit holder. Applications must be filed independently.

Driver’s permits. Uganda has driver’s license reciprocity with British Commonwealth countries only. Foreign nationals from a British Commonwealth country may drive legally in Uganda with their home country driver’s licenses for three months. Thereafter, the foreign national can apply to the Uganda Revenue Authority for a Conversion Permit, which allows the national to obtain a Ugandan driver’s permit with classes equivalent to those in his or her home country permit.

To obtain a local driver’s license in Uganda, an applicant must obtain a provisional driver’s license after paying a general fee. This enables the applicant to go to a driving school and to per form a driving test, after which he or she is issued a driving permit. No written or physical examination is required. However, a medical examination is now required before an applicant can take a driving test.