Value-added tax (VAT)
VAT is governed by the VAT Act and administered by the Uganda Revenue Authority (URA). VAT is charged at the rate of 18% on the supply of most goods and services in the course of business in Uganda. Specified goods and services, as well as exports outside of Uganda, attract a zero rate of tax.
Some supplies are exempt from VAT, the main categories being services to conduct feasibility studies, locally produced raw materials subject to investment thresholds and industry, liquefied petroleum gas, financial services, health and life insurance, agriculture insurance policies, re-insurance services, unimproved land, leases and sale of certain residential properties, betting and gaming, education, medical and health services, imported drugs, medicines and medical sundries, assistive devices for persons with disabilities, oxygen cylinder or oxygen for medical use, social welfare services, pesticides, petroleum products subject to excise duty and supply of animal feeds and mixed components.
Zero rating is preferable to exemption because the VAT on costs incurred in making a zero-rated supply can be recovered while those incurred in making an exempt supply cannot be recovered.
The zero-rated supplies include the supply of goods and services exported from Uganda; the supply of educational materials, including educational materials manufactured in a partner state of the East African Community; sanitary towels, menstrual cups, tampons, and the inputs for their manufacture; drugs and medicines manufactured in Uganda; the supply of seeds, fertilisers, pesticides, and hoes; and the supply of leased aircraft, aircraft engines, spare engines, spare parts for aircraft, and aircraft maintenance equipment and repair services.
Besides the exempted and zero-rated supplies, there is a deemed VAT regime that applies to the upstream and midstream operations in the oil and gas sector, mining operations, as well as aid-funded projects. The tax payable on a taxable supply made by a supplier to a contractor executing an aid-funded project and by a contractor to a licensee to undertake mining or petroleum operations is deemed to have been paid by the supplier (in the case of the aid-funded projected) or the contractor (in the case of mining and petroleum operations) provided the supply is for use by the contractor solely and exclusively for the aid-funded project or the petroleum/mining operations.
The annual threshold for VAT registration is UGX 150 million. Persons who make supplies that are VATable and whose turnover exceeds UGX 150 million are required to register for VAT with the URA. VAT-registered persons are required to:
- Charge VAT whenever they make supplies that are VATable.
- File monthly returns before the 15th day of the month following the reporting month.
- To only claim a tax credit on expenses supported by e-invoices or e-receipts.
- Apply for input tax credits within six months from the date of the invoice.
- To only claim for input VAT against the related business generating a taxable supply
Also, taxable persons supplying remote services, such as electronic services, to non-taxable persons in Uganda are required to register for VAT and file quarterly VAT returns. The tax due under such a return may be paid in United States Dollars.
Credit for input tax
A person making exempt, zero-rated, and standard supplies can recover all the input VAT if the exempt supplies are less than 5% of the total supplies. However, if the exempt supplies are more than 5% but less than 95%, the person is required to recover only a portion of the VAT input tax corresponding to the percentage of the taxable supplies. If the exempt supplies exceed 95%, the person cannot recover any input VAT.
Below are a few restrictions on input tax claims as follows:
- A taxable person can only utilise their input tax credit within six months from the date of the invoice.
- Non residents providing services which are deemed to take place in Uganda such as electronic services, are not entitled to claim input VAT credits
- Input VAT claim on membership in a club, association or society is not allowed
- Claims for input VAT can only be made against the “related business generating a taxable supply”.
The VAT Act defines a supply of service to mean any supply that is not a supply of goods or money, including the performance of services for another person.
There is no definition of imported services in the local legislation. However, the tax authorities generally consider an imported service to be one provided by a person normally resident outside Uganda who is not required to register for VAT in Uganda. According to Regulation 14 of the VAT Regulations 1996, any person who imports a service into the country must account for VAT on such a service. The Regulations require the person importing the service to account for the VAT at the time when performance of the service is completed, when payment for the service is made, or when the invoice is received from the foreign supplier, whichever is earliest.
The tax on imported services is computed at the rate of 18% of the cost of the service. VAT-registered companies are no longer required to prepare self-billed tax invoices, thus they are unable to claim the VAT paid as input tax; however, a contractor or licensee in the petroleum and mining industry is able to claim an input tax credit for the reverse-charge VAT paid on imported services. Also, persons providing business process outsourcing (BPO) services are allowed to claim credit for input tax for VAT paid on imported services. Further, if the importer of the services is not registered for VAT, the importer is required to calculate and pay the VAT to the URA.
Failure to pay VAT on non-exempt imported services is tantamount to lack of compliance with the law, and a penalty of 2% per month, compounded, may apply.
Interest payable on late payment of VAT is capped to a maximum of the aggregate of the principal tax and penal tax.
VAT representative for non-resident persons
The Tax Procedure Code Act now provides for a role of tax representative for a non-resident person being the individual controlling the person's affairs in Uganda, including a manager of a business of that person or any representative appointed in Uganda.
A tax representative under the Tax Procedure Code Act is responsible for performing any duty obligation imposed by a tax law on the taxpayer, including submission of tax returns and payment of tax.
Many goods imported into Uganda are subject to customs duties. However, exemptions are available to various classes of plant and machinery imported into Uganda. The rates of duty are provided by the EAC common external tariff code. Certain products imported from the East African Community and the Common Market for Eastern and Southern Africa (COMESA) region enjoy special custom duty rates. Imported items are classified according to the nomenclature established under the international convention on the harmonised commodity description and coding system. Duties range from 0% to 60%, depending on the item imported.
Excise duties are imposed on goods considered luxuriant. Examples include locally manufactured soft drinks, cigarettes, alcoholic drinks, and spirits. A schedule of some of the rates is provided below:
|Soft cap cigarettes:|
|Locally manufactured||UGX 55,000 per 1,000 sticks|
|Imported||UGX 75,000 per 1,000 sticks|
|Hinge lid cigarettes:|
|Locally manufactured||UGX 80,000 per 1,000 sticks|
|Imported||UGX 100,000 per 1,000 sticks|
|Cigars, cheroots, and cigarillos containing tobacco||200%|
|Smoking tobacco whether or not containing tobacco substitutes in any proportion||200%|
|Homogenised or reconstituted tobacco or other tobacco||200%|
|Beer made from malt||60% or UGX 2,050 per litre, whichever is higher|
|Opaque beer||12% or UGX 150 per litre, whichever is higher|
|Beer produced from barley grown and malted in Uganda||30% or UGX 950 per litre, whichever is higher|
|Any other alcoholic beverage locally produced||20% or UGX 230 per litre, whichever is higher|
|Un-denatured spirits of alcoholic strength by volume of 80% or more made from locally produced raw materials||60% or UGX 1,500 per litre, whichever is higher|
|Un-denatured spirits of alcoholic strength by volume of 80% or more made from imported raw materials||100% or UGX 2,500 per litre, whichever is higher|
|Locally produced spirits of alcoholic strength by volume of less than 80%||80% or UGX 1,700 per litre, whichever is higher|
|Spirits that are imported of alcoholic strength by volume of less than 80%||100% or UGX 2,500 per litre, whichever is higher|
|Un-denatured spirits made from locally produced raw materials that are used in the production of disinfectants and sanitisers for the prevention of the spread of COVID-19 of alcoholic content by volume not less than 70%||Nil|
|Non-alcoholic beverages (excluding fruit or vegetable juices)||12% or UGX 250 per litre, whichever is higher|
|Fruit and vegetable juice (except juice made from at least 30% of pulp or at least 30% juice by weight or volume of the total composition of the drink from fruits and vegetables locally grown)||12% or UGX 250 per litre, whichever is higher|
|Any other non-alcoholic beverage locally produced other than the beverage referred to in item 5(a) made out of fermented sugary tea solution with a combination of yeast and bacteria||12% or UGX 250 per litre, whichever is higher|
|Any other fermented beverages made from imported cider, perry, mead, spears, or near beer||60% or UGX 950 per litre, whichever is higher|
|Any other fermented beverages made from locally grown cider, perry, mead, spears, or near beer||30% or UGX 550 per litre, whichever is higher|
|Powder for reconstitution to make juice or dilute-to-taste drinks, excluding pulp||15% of the value|
|Wine produced from local raw materials||20% or UGX 2,000 per litre, whichever is higher|
|Other wine||80% or UGX 8,000 per litre, whichever is higher|
|Fuel and oils||Between UGX 200 and UGX 1,450 per litre, depending on the type of fuel/oil. Nil for gas oil and thermal power generation to the national grid and aviation fuel imported by registered airlines or companies.|
|Motor spirit (gasoline)||UGX 1,450 per litre|
|Gas oil (automotive, light, amber for high speed engine)||UGX 1,130 per litre|
|Motor vehicle lubricants, except aircraft lubricant||15%|
|Plastic product and plastic granules||2.5% or USD 70 per ton, whichever is higher|
|Sacks and bags of polymers of ethylene and other plastics under HS codes 3923.21.00 and 3923.29.00, except vacuum packaging bags for food, juices, tea, and coffee sacks and bags for direct use in the manufacture of sanitary pads||40% or UGX 4,000 per kilogram, whichever is higher|
|Chewing gum, sweets, and chocolates||Nil|
|Cooking oil||UGX 200 per litre|
|Specialised hospital furniture||Nil|
|Construction materials of a manufacturer, other than one referred to in item 21, whose investment capital is at least USD 35 million in case of a foreigner or USD 5 million in case of a citizen||Nil|
|Other goods and services||Excise duty|
|Airtime applicable to mobile cellular, landline, and public pay phones||12% of the fee charged|
|Internet data, except data for the provision of medical and education services||12% of the fee charged|
|Valued added services||12% of the fee charged|
|Banking fees, such as ledger fees, ATM fees, and withdrawal fees, periodic charges and other transaction and non transaction charges, excluding loans or the equivalent under Islamic banking related charges periodically charged by a financial institution or micro finance deposit taking institution||15% of the fees charged|
|Money transfers (other than transfers by banks)||15% of the fees charged|
|Mobile money transactions of withdrawal of cash||0.5% of the value of the transaction|
|Incoming international calls (other than calls from the Republic of Kenya, the Republic of Rwanda, the Republic of South Sudan, and Tanzania)||USD 0.09 per minute|
|Cosmetics and perfumes (except creams used by persons with albinism in the treatment of their skin, which attract no excise duty)||10%|
|Cement||UGX 500 per 50 kg|
|Cane or beet sugar and chemically pure sucrose in solid form||UGX 100 per kg|
|Mineral water, bottled water, and other water purposely for drinking||10%|
Property taxes are administered by the local authorities annually. They are based on the value of the property as assessed by the local authorities.
Stamp duty is charged on a number of transactions including Islamic financial business at varying rates. Stamp duty is charged at 1% of the total value for a number of instruments, including hire purchase agreements, composition deeds, leases, conveyance, transfers, share warrants, gifts, and agreements relating to deposit of title deeds.
Stamp duty of 0.5% is incurred on formation of a company and capital-raising activities (e.g. increase of share capital).
Stamp duty of 1.5% applies on all transfers, including transfer of shares and property.
Stamp duty of 2% applies on exchange of property.
No stamp duty is charged on the increase of share capital where it is in fulfilment of a condition precedent for acquiring loan funds for a development project or where it is made on becoming public through the stock exchange.
Stamp duty of UGX 15,000 is also charged on a number of various other instruments (e.g. letters of credit, memorandum of association of a company).
No stamp duty applies on debentures, equitable mortgages, or further charges on mortgaged property and loan instruments.
No stamp duty applies on construction materials for development of industrial parks or free zones by a developer whose investment capital is at least USD 50 million.
No stamp duty applies on agreements related to deposit of title-deeds, pawn pledge.
No stamp duty applies on Agricultural Insurance Policy.
No stamp duty applies on security bond or mortgage deed executed by way of security for the due execution of an office, or to account for money or other property received by virtue of security bond or mortgage deed executed by a surety.
Environmental levies are charged on every person who imports motor vehicles that are eight years old or older. Levies are also imposed on the importation of used household appliances. The levy on motor vehicles is 20% of the value of the vehicle as determined for customs duty purposes. Levies on electrical appliances range from UGX 20,000 to UGX 50,000 per item, depending on the nature of the item.
An employer is required to withhold tax on employment income from their employees and pay it to the tax authorities. The tax is normally borne by the employee. Where the employer fails to withhold tax as required, the employer becomes liable for the taxes but may recover the same from the employees.
Local service tax ranging between UGX 5,000 and UGX 100,000 per annum, subject to an individual’s employment income bracket, is payable to the local municipal councils of the individual’s area of residence. The tax is withheld and paid by the employer.
Social security contributions
An employer is required to make contributions to the National Social Security Fund for each employee, amounting to 10% of their gross pay. The employee contribution is 5%. However, the National Social Security Fund (Amendment) Act, 2021 allows for voluntary contributions to the fund over and above the standard contributions. It also allows a person who is self-employed to apply for membership and make voluntary contributions to the fund.