In arriving at chargeable income (taxable income), one has to go through the process of adjusting profits by taking into account deductions allowed and deductions not allowed.
A taxpayer is allowed a deduction for the cost of trading stock disposed of during the year, which is determined by adding to the opening value of the trading stock the cost of trading stock acquired during the year and subtracting the closing value of stock. The opening value of the stock is the closing value for the previous year or, where the taxpayer commenced business during the year, the market value at the time of commencement of the business of the trading stock acquired prior to commencement. The closing stock valuation method is the lower of cost or market value. Trading stock is allowed to be valued using either the absorption costing or prime cost method. The stock valuation method chosen may not be changed, except with written permission of the Commissioner.
Capital gains are included in and taxed together with the business income at a rate of 30%. There is no separate capital gains tax. Capital gains arise on disposal of non-depreciable business assets as well as sale of shares.
A change in ownership by 50% or more in a company located in Uganda (with a few exceptions) triggers a deemed realisation of all assets and liabilities for market value (immediately before the change).
Taxpayers selling assets 12 months or more after purchase are allowed to apply a Consumer Price Index (CPI) indexation to the asset cost base when calculating a potential gain or loss on disposal.
The general rule is that dividend income is taxable as part of business income at a rate of 30%. Dividend income is also subject to WHT at the rate of 15%. The WHT paid in respect of the dividend income is creditable where the income is subject to the corporation tax rate of 30%. The WHT rate for dividend payments to resident persons is 15%. For dividends paid out by companies listed on the stock exchange to individuals, the rate is 10%.
Dividend income is exempt from tax if the recipient company directly or indirectly controls the paying company through ownership of 25% or more of the voting power of the paying company.
The general rule is that interest income is taxable as part of business income at a rate of 30%. Interest income is also subject to WHT at the rate of 15%. The WHT paid in respect of the interest income is creditable where the income is subject to the corporation tax rate of 30%. Also, interest income earned with respect to government securities is subject to tax at 20% as a final tax. However, government securities with a maturity period of at least ten years are subject to WHT at a rate of 10% as a final tax.
The general rule is that royalty income is taxable as part of business income at a rate of 30%. Royalty income is also subject to WHT at the rate of 15%. The WHT paid in respect of the royalty income is creditable where the income is subject to the corporation tax rate of 30%.
Companies are required to disclose their rental income separately from other business income. Taxable rental income is the net income after allowing for any expenditures and losses in respect of the rental income derived by non-individuals. For companies and other non-individuals (excluding partnerships), the deduction of expenses against rental income is capped at 50% of gross rents. Any excess expenditure is not eligible for carrying forward. Individuals are subject to tax on annual rental income in excess of UGX 2.82 million at a flat tax rate of 12%. Individuals are not entitled to deduct any expenses against their rental income.
The Minister of Finance has powers to prescribe estimates of rent based on the rating of the rental property in a specific location in respect of persons who fail to file a return of rental income or whose return is misleading on the face of it and has been contested by the Commissioner. Further, all rental agreements are required to be executed and effected in Ugandan shillings.
Foreign income is taxable on resident recipients, and tax suffered in the country where it is sourced (if any) is creditable, subject to the provisions of any double taxation agreements (DTAs). This credit is limited to the amount of Ugandan tax payable on that income.
There are no provisions for deferring tax on income earned abroad by tax residents.