Amendments for the Financial Year 2020/21
Effective 1 July 2020, the following changes were made to the tax laws:
The Income Tax (Amendment) Act 2020 provides for the following changes:
- Exemption of income of the Deposit Protection Fund
- Amendment to the 2018 investment incentives for new investors in specific sectors
- Introduction of withholding tax of 10% on commissions paid to insurance and advertising agents
- Deduction of expenses falling under the new EFRIS regime will only be allowed if supported by an e-invoice or e-receipt (effective from 1 January 2021)
- Tax clearance certificate requirement for transporters prior to renewal of operational licenses
- Introduction of a specific monthly return filing requirement for withholding tax agents
- Amendment of the presumptive tax rates for small businesses (turnover up to UGX 150 million)
- Inclusion of the Islamic Development Bank as an exempt listed institution
Value-added tax (VAT)
The VAT (Amendment) Act and (Amendment) (No.2) Act 2020 introduced the following changes:
- The period within which manufacturers can claim input VAT incurred prior to VAT registration is increased from the current six months to twelve months.
- A taxpayer purchasing goods and services from a designated e-invoice supplier can only claim an input tax credit where the expense is supported by an e-invoice or e-receipt. This amendment relates to the introduction of the Electronic Fiscal Invoicing and Receipting System (EFRIS) which was operationalised with effect from 1 January 2021.
The list of exempt supplies in the Second Schedule of the VAT Act is expanded to include the following:
- a range of agricultural machinery (e.g. trailers, combine harvesters, tractor mounted implements, crop sprayers, hay and straw balers, irrigation equipment)
- cotton seed cake
- accommodation in tourist hotels and lodges located up-country
- liquefied gas
- processed milk
- locally developed computer software, maintenance and licensing
The following imported services are exempted:
- software and equipment installation services to manufacturers;
- services incidental to tele-medical services;
- royalties paid in respect of agricultural technologies.
The Excise Duty (Amendment) Act 2020 provides for the following changes:
- Schedule 2 to the Excise Duty Act 2014 has been amended to vary excise duty rates in respect of a number of goods
- Amendment of investment incentives for specific sectors
The Stamp Duty (Amendment) Act 2020 provides for the following changes:
The stamp duty rate on the following instruments is reduced to nil:
- Equitable mortgages
- Further charges on mortgaged property
- Loan instruments
Introduction of stamp duty of UGX 100,000 on a professional licence or certificate.
The Tax Procedures Code (Amendment) Act 2020 provides for the following changes:
- Deferment until 31 December 2020 (without penalty) for payment of any tax due between 1 April and 30 June 2020, for taxpayers involved in the business of education, tourism, manufacturing, horticulture or floriculture
- Deferment until 31 December 2020 (without penalty) for payment of PAYE liable to be withheld between 1 April and 30 June 2020, for all taxpayers
- Waiver of any interest and penalty outstanding as at 30 June 2020
Amendments for the Financial Year 2019/20
Effective 1 July 2019, the following changes were made to the tax laws:
The 2018 exemptions linked to industrial parks and free zones have been amended or extended as follows:
- Ten year exemption for income of a developer from letting or leasing facilities in an industrial park or free zone with an investment of 50 million United States dollars (USD) or more.
- Ten year exemption for income of an operator within an industrial park or free zone, or other person carrying on business outside the industrial park or free zone, whose investment capital is at least USD 10 million for a foreigner or USD 2 million for citizens.
- Introduction of an exemption for income of an operator within an industrial park or free zone, or an operator who owns a single factory or other business outside the industrial park of free zone, whose investment capital is at least USD 10 million for a foreigner or USD 2 million for a citizen. This exemption is limited to specific activities.
- Linked to the tax incentives above, there is a new definition of the term 'citizen' to mean:
- A natural person who is a citizen of a partner state of the East African Community (EAC).
- A company or body incorporated under the laws of a partner state of the EAC in which at least 51% of the shares are held by a person who is a citizen.
- Every local authority, government institution, or regulatory body will now require to see a Tax Identification Number (TIN) before issuing a licence or any form of authorisation to any person for purposes of conducting a business in Uganda.
- A 'beneficial owner' is defined to mean a natural person (i.e. an individual). As a consequence of this change, an amendment has been effected in respect to a beneficial owner in terms of section 88(5) of the Income Tax Act (ITA).
- Government securities with a maturity period of at least ten years are now subject to withholding tax (WHT) at a rate of 10% as opposed to 20%. This incentive applies to both local and foreign investors.
- Financial institutions and insurance companies are excluded from the interest deduction limitation in section 25 (whereby interest deductibility is limited to 30% of tax EBITDA).
- A resident person who purchases a business or business asset will be required to withhold tax at a rate of 6% on the gross payment.
- The 1% WHT on agricultural supplies introduced in 2018 was repealed. As such, the supplies are now also specifically exempted from the general 6% WHT on goods and services.
Value-added tax (VAT)
The VAT (Amendment) Act 2019 introduced the following changes:
- Following the suspension of last year's VAT withholding provisions, the requirement has been re-introduced but this time at a lower rate of 6% of the taxable value (previously the full 18% was required to be withheld). The new provision also now allows compliant taxpayers to be exempted.
- Similar to last year, the proposed amendment requiring the Minister to make regulations for the VAT treatment of supplies made in the course of Islamic financial transactions was rescinded.
- The supply of drugs and medicines manufactured in Uganda are zero-rated while the supply of imported drugs and medicines are now exempt.
- The list of exempt supplies in the Second Schedule has been expanded to include the following:
- Aircraft insurance services.
- Rice mills.
- Agricultural sprayers.
- Drugs and medicines not manufactured in Uganda.
- Imported mathematical sets and geometry sets used for technical and vocational education.
- Woodworking machines.
- Welding machines and sewing machines.
- Imported crayons, coloured pencils, lead pencils, rulers, erasers, serials, technical drawing sets, educational computer tablets, educational computer applications or lab chemicals for teaching science subjects used in educational services.
- The Act introduced a new tax incentive that exempts services for feasibility studies, design and construction, locally produced materials for construction of premises or infrastructure and furniture or fittings for technical or vocational institute operators whose investment capital is at least USD 10 million in case of foreigners or USD 2 million in case of citizens.
- In addition, the thresholds for the existing VAT exemption introduced in 2018 have been reduced from USD 15 million to USD 10 million (for foreigners) and from USD 5 million to USD 2 million (for citizens) to match the thresholds for income tax and other incentives.
- The United Nations Entity for Gender Equality and the Empowerment of Women (UN Women) has been added to the list of Public International Organisations that are exempt under the First Schedule of the VAT Act.
The Excise Duty (Amendment) Act 2019 provides for the following changes:
- The proposal for the Minister to make Regulations prescribing the equivalent excise duty treatment of supplies made in the course of Islamic financial transactions was rescinded.
- The current licensing requirements under the Excise Duty Act have been replaced with a new process for annual registration of the premises of manufacturers, importers, and providers of excisable goods and services.
- The Act introduces a uniform interest penalty of 2% per month, compounded, on late payment of all excise duty.
- There is a new exemption for materials used in the construction of premises and other infrastructure, machinery and equipment, or furnishings and fittings for technical or vocational institute operators whose investment capital is at least USD 10 million (foreigners) or USD 1 million (citizens).
- There are also amendments to align the capital investment thresholds for the existing duty exemptions on construction materials for developers of industrial parks and free zones (reduced from USD 100 million to USD 50 million) and for investors in certain sectors (reduced to USD 10 million and USD 1 million for foreigners and citizens respectively).
The Tax Procedures Code (Amendment) Act 2019 introduced the following changes:
- The definition of 'tax return' was amended to mean a return or other document listed under Schedule 4.
- The new Schedule 4 lists tax returns to be filed with the Commissioner to include VAT, income tax, WHT, excise duty, lotteries and gaming tax, and stamp duty returns. The stamp duty return has been added despite the Stamp Duty Act not being a tax law to which the Tax Procedures Code Act applies.
- Payments to tax informers who provide information to the Uganda Revenue Authority (URA) that results in a recovery of tax or duty was reduced from 10% to 5% of the amount recovered.
- A new section 40A imposes a specific requirement for the Minister to pay any tax arising from a commitment made by the government to pay tax on behalf of a person or owed from the government for aid-funded projects. Furthermore, all outstanding taxes not paid by the government as of 30 June 2019 were written off.
- The new section 66(1a) allows compounding of an offence with waiver of interest or fines when a taxpayer voluntarily discloses the offence to the URA prior to commencement of court proceedings and makes full payment of the outstanding tax.
Amendments for the Financial Year 2018/19
Effective 1 July 2018, the following changes were made to the tax laws:
The Income Tax (Amendment) Act 2018 introduced the following changes:
- A new income tax exemption was introduced for the following:
- Income of developers or operators of industrial parks or free zones. The minimum capital is USD 100 million for a period of five years from the date of construction.
- Income of an operator in an industrial park or free zone or other business outside the industrial park or free zone whose investment capital is at least USD 15 million in the case of a foreigner or USD 5 million in the case of a Ugandan citizen for five years from the date of commencement of the business.
- Allowed individuals a deduction in respect of interest incurred on mortgages obtained from financial institutions to acquire or construct premises that generate rental income.
- Limited the amount of deductible interest in respect of all debts owed by a taxpayer who is a member of a group to 30% of the tax earnings before interest, tax, depreciation, and amortisation (EBITDA). A taxpayer whose interest exceeds 30% of the tax EBITDA may carry forward the excess interest for not more than three years. This amendment replaces the thin capitalisation rules.
- Introduced an amendment to treat a change in ownership by 50% or more in an entity within a period of three years as triggering a deemed realisation of all assets and liabilities equal to market value. Under a related change to Section 79, the related gain on the deemed disposal is treated as income sourced in Uganda.
- Broadened the definition of immovable property to include any intangible asset that is a business asset or any part of the business.
- Widened the meaning of an 'international agreement' to include the Inter-Government Agreement on the East African Crude Oil Pipeline.
- Substitution of the definition of 'mining exploration right' to mean a prospecting exploration or retention licence granted under the Mining Act.
- Introduction of 10% WHT of the gross amount of the payment of commissions paid by telecom service providers on airtime distribution and mobile money services.
- Introduced the African Trade Insurance Agency to the list of listed institutions, which is the list of organisations exempt from tax.
- Introduced a 1% WHT to apply on payments for agricultural supplies.
Value-added tax (VAT)
The VAT (Amendment) Act 2018 introduced the following changes:
- The definition of mining operations was broadened to include mineral exploration and development operations undertaken pursuant to a mining lease or mineral agreement entered into under the Mining Act, 2003.
- Widened the definition of electronic services so that it is no longer restricted to services provided on or through a telecom network.
- Excluded VAT payable on passenger automobiles, repairs and maintenance of such automobiles, and entertainment from eligibility of deemed for mining and petroleum licensees.
- Capped the interest due and payable on over payments and late refunds to a maximum of the principal tax.
The Excise Duty (Amendment) Act 2018 provides for the following changes:
- Introduced time of supply rules for excise duty on services to include the earlier of the date on which the performance of the service is completed, the date on which payment for a service is made, or the date on which an invoice is issued.
- Imposition of excise duty of 200 Ugandan shillings (UGX) per user per day was introduced on over-the-top services supplied by telecom service providers.
- Introduction of excise duty of 30% or UGX 650 per litre, whichever is higher, on opaque beer.
- A specific rate of excise duty of UGX 1,500 or 80% on ready-to-drink spirits, whichever is higher.
- A specific rate of excise duty of UGX 2,000 or 60% on undenatured spirits made from locally produced law materials, whichever is higher.
- A specific rate of excise duty of UGX 2,000 or 20% on wine made from locally produced law materials, whichever is higher.
- An increase on the excise duty rate applicable to other wines from 60% or UGX 6,000 per litre, to 80% or UGX 8,000 per litre, whichever is higher.
- Increase of the rate applicable to motor spirit (gasoline) from UGX 1,100 per litre to UGX 1,200 per litre and gas oil (automotive, light, and amber for high speed engines) to UGX 780 per litre to UGX 880 per litre, respectively.
- A decrease of the excise duty on non-alcoholic beverages, not including fruit or vegetable juices, from 13% or UGX 240 per litre, to 12% or UGX 200 per litre, whichever is higher.
- Introduction of 1% excise duty rate on mobile money transactions received, paid, and withdrawn.
- Increase of ledger fees, ATM fees, withdrawal fees, and periodic charges and other transaction and non-transaction charges, excluding loan-related charges periodically charged by financial institutions, from 10% to 15% of the fees charged.
- Introduction of excise duty of 15% of the value on powder for reconstitution to make juice or dilute-to-taste drinks, excluding pulp.
The Tax Procedures Code (Amendment) Act 2018 introduced the following changes:
- Introduced an electronic receipting and invoicing system where a taxpayer may issue an e-invoice or e-receipt, or employ an electronic fiscal device that shall be linked to a centralised invoicing and receipting system or a device authenticated by the URA.