Uganda

Amendments for the Financial Year 2023/24

Income Tax

We set out the tax changes that are contained in the 2023 Income Tax Amendment Act:

• Amendment to exempt the employment income of a Public Prosecutor in the Office of the Directorate of Public Prosecution ("ODPP") from Income Tax. This change is meant to align the taxation of officers in the ODPP with other employees in the criminal justice system where tax exemption is already provided for officers in the police and prisons.
• Amendment to exclude interest capping on debts owed by micro-deposit taking institutions and tier 4 micro-finance institutions. This amendment equalises the treatment of interest in the financial services sector.
• Amendment to repeal the 50% and 20% initial allowances granted to new eligible business assets and industrial buildings respectively. The amendment is intended to increase revenue collection.
• Amendment to restrict full carry forward of tax losses to only seven years with a 50% cap to available losses carried forward after seven years
• Amendment to introduce a 5% income tax on every non resident person deriving income from digital services in Uganda
• Incorporate a provision to extend a one year corporate income tax waiver for Bujagali Hydro Power Project i.e up to 30 June 2024.

Value Added Tax

The following changes were made through the VAT (Amendment) Act, 2023, effective 1 July 2023:

• Amendment to include a supply of auctioned goods by an auctioneer as a vatable supply. However VAT on the auctioning services supplied by the auctioneer will be accounted for separately.
• Amendment to the place of supply rules applicable to non resident suppliers of services to the effect that a supply is made in Uganda if the recipient of the supply is a) not a taxable person, b) is not a person who makes supplies exceeding the annual VAT registration threshold of UGX 150 million or c) a government entity that is not registered for VAT.
• Amendment to expand the definition of electronic services to include advertising, streaming platforms and subscriptions, cab hailing services, cloud storage and data ware housing, access to databases etc. 
• Amendment to restrict input tax claims on the following supplies:

• • A non-resident who provides services which are deemed to take place in Uganda such as electronic services will not be allowed an input VAT credit on purchases made in making such taxable supplies.
  • Payment for membership in a club, association or society of a sporting, social or recreational nature
  • Restriction on claiming input VAT only on related business generating a taxable supply.
• Amendment to allow for the option for non resident suppliers to file returns and pay tax in United States dollars.
• The list of Public International Organisations (entitled to certain VAT reliefs) was expanded to add ZEP-RE(PTA Reinsurance Company).
• The list of exempt supplies in the Second Schedule of the VAT Act was modified to remove the following items. These now attract VAT at 18%:
  • The supply of diapers
  • The supply of cotton seed cake
  • The supply of all production inputs necessary for processing of hides and skins into finished leather products in Uganda and the supply of leather products wholly made in Uganda
  • The supply of all production inputs into iron ore smelting into billets.
• Also the list of exempt supplies in the Second Schedule of the VAT Act was modified to add the following items: 
  • The supply of animal feeds and mixed components such as eggshells, feed additives, Wheat and maize bran, premixes, concentrates and seed cake
  • The supply of billets for further value addition in Uganda

Excise duty

We set out the tax changes that are contained in the Excise Duty (Amendment) Act, 2023:

• The Bill was amended to mainly provide for equivalent tax treatment of  Islamic financial business to conventional financial instruments such as ledger, ATM fees etc
• Introduction of a definition for "fruit juice" to mean unfermented liquid extracted from the edible part of a fresh fruit, whether the extracted liquid is diluted or not.
• Introduction of a definition of "undenatured spirits" to mean spirits that are not mixed with any substance so as to render the spirit unfit for human consumption or capable of being rendered unfit for human consumption and includes neutral spirits or alcoholic beverages made from neutral spirits that are fit for human consumption.
• Introduction of a definition of "vegetable juice" to mean unfermented liquid extracted from the edible part of a vegetable, whether the extracted liquid is diluted or not.
• Schedule 2 to the Excise Duty Act 2014 has been amended to vary excise duty rates in respect of a number of goods and services such as opaque beer, un-denatured spirits, fruit and vegetable juice, certain construction materials and certain categories of non alcoholic beverages. 

Stamp duty

We set out the tax changes that are contained in the Stamp Duty (Amendment) Act, 2023:

• The Act was amended to mainly provide for equivalent stamp duty treatment of instruments under Islamic financial business to conventional instruments under financial services such nil duty on nominal share capital or increase of it of a special purpose vehicle incorporated for an Islamic bond.

Tax administration

We set out the tax changes that are contained in the Tax Procedures Code (Amendment) Act, 2023:

• Introduction of a TIN requirement to register an instrument required to pay stamp duty under the Stamp Duty Act, 2014.
• Clarification of order of payment rule to the effect that any payment against a tax liability will be applied first to the outstanding principal tax until it is fully paid up.
• Introduction of a requirement for the Minister of Finance to obtain Parliament's approval to remit unpaid tax by a person of hardship, impossibility etc.
• Introduction of a waiver of outstanding interest and penalties as at 30 June 2023 if relevant principal tax is paid by 31 December 2023.
• Introduction of a limitation on presentation of additional information by taxpayers at objection of a tax decision or during alternative dispute resolution procedure proceedings.
• Introduction of new offences related to unauthorised interference with digital tax stamps and fixing tax stamps on wrong goods and brands.

The Convention on Mutual Administrative Assistance in Tax Matters (Implementation) Act, 2023

This implementation Act gives force of law in Uganda to :

a) the Convention on Mutual Administrative Assistance in Tax Matters;

b) the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information;

c) the Standard for Automatic Exchange of Financial Account Information in tax and related matters.

Amendments for the Financial Year 2022/23

Income tax

Effective 1 July 2022, the following changes were made through the Income Tax (Amendment) Act 2022:

• Amendment of the definition of a 'beneficial owner' (after changes in 2019 and 2021) to include a natural person who ultimately owns or controls a customer and further defines who a beneficial owner is in relation to a legal person.
• Amendment of the definition of an 'exempt organisation' to include a non-profit research institution.
• Extension of the income tax exemption period for Bujagali Hydro Power Project by one year to 30 June 2023.
• The list of listed institutions exempt from income tax was expanded to add the International Development Law Organisation and replace the former name of Department for International Development (DFID) with Foreign Commonwealth and Development Office (FCDO).
• Revocation of the 2021 Amendment that allowed a standard deduction of 75% of the gross rental income derived by both individuals and entities. The new applicable rules and rates for individuals, non-individuals, and partnerships are as follows:

• • The deduction of expenses is capped at 50% of gross rent for companies and non-individuals, excluding partnerships. Any excess expenditures and losses are not eligible to be carried forward.
  • For individuals, the prior deduction for mortgage interest has been repealed, and no expenses can be deducted.
  • In addition, for individuals, the annual rental income in excess of 2.82 million Ugandan shillings (UGX) is subject to a flat tax rate of 12%. No tax is applicable to rental income less than UGX 2.82 million.
  • For partnerships, the rental income and expenditures derived are allocated to each partner based on their respective partnership share.
• Amendment for clarification to a provision for applicable penalties for failure to file a return or provide information by a licensee.
• Amendment to remove the 15% withholding tax (WHT) on payments for inbound transport services by non-resident service providers.

Value-added tax (VAT)

The following changes were made through the VAT (Amendment) Act, 2022, effective 1 July 2022:

• Amendment to repeal the provision enacted in 2021 that exempted imported services used in the provision of exempt supplies.
• The list of Public International Organisations (entitled to certain VAT reliefs) was expanded to add the International Development Law Organisation and replace the former name of Department for International Development (DFID) with Foreign Commonwealth and Development Office (FCDO).
• Amendment to extend the ability to account for VAT on a cash basis to suppliers providing goods or services to the government.
• The list of exempt supplies in the Second Schedule of the VAT Act was expanded/modified as follows: 

• • To include the supply of oxygen for medical use (under the category of dental, medical, and veterinary goods).
  • Under the exempt category, the existing exemption for the construction of a new hospital facility has been relaxed slightly by removing the requirement for the facility to be at a level of a national referral hospital.
  • To remove the supply of menstrual cups from the exemption list (now zero-rated).
• The list of zero-rated supplies in the Third Schedule of the VAT Act is expanded/modified as follows:
  • To expand the category of educational materials to include education materials manufactured in a partner state of the East African Community (EAC).
  • To include the supply of menstrual cups (under the existing category for the supply of sanitary towels and tampons).

Excise duty

The Excise Duty (Amendment) Bill 2022 proposes the following changes to the Excise Duty Act. To date, this Bill is yet to be assented to by the President:

• Introduction of the definition for 'fruit juice' to mean unfermented liquid extracted from the edible parts a fresh fruit whether the extracted liquid is diluted or not.
• Introduction of the definition for 'un-denatured spirits' to mean spirits that are not mixed with any substance to render the spirit unfit for human consumption, including neutral spirits or alcoholic beverages made from neutral spirits that are fit for human consumption.
• Schedule 2 to the Excise Duty Act 2014 has been amended to vary excise duty rates in respect of a number of goods and services.

Stamp duty

The following changes/modifications were made through the Stamp Duty (Amendment) Act, 2022, effective 1 July 2022:

• Introduction of nil duty rate on the following instruments: 
  • Agreement relating to deposit of title-deeds, pawn pledge.
  • Agricultural Insurance Policy.
  • 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.
• The description of a trust under item 63 has been extended to include transfers from a holder of letters of administration or probate to a beneficiary.
• The minimum investment capital for new and existing manufacturers to qualify for the duty exemption for strategic investment projects in item 60A(f) has been reduced from 50 million to 35 million United States dollars (USD).

Tax administration

The Tax Procedures Code (Amendment) Act 2022 provides for the following changes:

• Alignment of tax agent registration to calendar year (from registration until 31 December).
• Introduction for a new requirement for persons in the extractive industry to disclose the names of the persons contracted in the course of performance of their business. Failure to comply attracts a penalty of UGX 20 million.
• Introduction of new offences (e.g. failure to activate or affix a tax stamp, forgery of a tax stamp, failure to use electronic receipting or invoicing, forgery of electronic receipts or invoice, failure to file information related to automatic exchange of information).
• Introduction of new penalties and enforcement measures for various offences (e.g. fines related to tax stamps, automatic exchange of information).

Amendments for the Financial Year 2021/22

Income tax

Effective 1 July 2021, the following changes were made to the Income Tax (Amendment) Act 2021:

• Amendment of the definition of a 'beneficial owner' is expanded in relation to legal persons, trusts, and other legal persons similar to trusts.
• Introduction of the definition of a 'consideration' to include "the total amount in money or of payment in kind, paid or payable for the supply of goods or services or sale of land by a person including any duties, levies, or fees reduced by any discounts or rebates allowed".
• Amendment of the definition of an 'exempt organisation' to include, among others, a religious, charitable, or educational institution whose object is not for profit.
• The exemption of income from tax related to a new investment in agro-processing was repealed.
• The list of activities that are eligible for exemption from income tax was expanded to include the manufacture of chemicals for agricultural use, industrial use, textiles, glassware, leather products, etc.
• The list of listed institutions exempt from income tax was expanded to include the African Export-Import Bank and International Union for Conservation of Nature.
• Amendment of the deduction allowed in respect of rental income has now been standardised to 75% of the gross rental income derived by both individuals and entities.
• Amendment of the asset classes for capital allowances purposes to three (instead of four) classes, applying the rates of 40%, 30%, and 20%. The prior class two, with a depreciation rate of 35%, was repealed.
• Introduction of the deferral of capital allowances on new assets, which also qualify for initial allowances to the next year of income.
• Introduction of indexation of an asset cost base when calculating capital gains on disposal for an asset that is sold 12 months or more after purchase.
• Introduction of non-recognition of gain or loss for income tax purposes of capital gains arising from sale of an interest of a registered venture capital fund where at least 50% of the proceeds are reinvested within the same year of income.
• Introduction of a requirement for the tax authority to facilitate automatic exchange of information where such is provided for under an international agreement.
• Amendment to the provisions related to income tax refunds for purposes of determining the start date when the Commissioner is required to pay interest on refunds.

In December 2021, the Parliament of Uganda passed the Income Tax (Amendment) (No.2), 2021, which provides for windfall tax and limitations of deductions on petroleum operations. The Bill is promoting to cap the deduction allowed for petroleum operations of a licensee in the year of income to the cost recovery limit stipulated in the Petroleum Sharing Agreement (PSA) for contract areas 1, 2A, and 3. This is yet to be assented by the President.

Value-added tax (VAT)

Effective 1 July 2021, the VAT (Amendment) Act 2021 introduced the following changes:

• Amendment of the provision related to the exemption of imported services to provide that an imported service will be exempt if it would be used in the provision of an exempt supply.
• Introduction of a new requirement for taxpayers to utilise input tax credit within six months from the date of the invoice.
• Introduction of a new provision requiring a taxable person supplying specific types of services in Uganda to a non-taxable person to file quarterly VAT returns within 15 days. Such services include services in connection with immovable property in Uganda, electronic services delivered to a person in Uganda, radio or television broadcasting services received in Uganda, etc.
• Introduction of a new incentive to encourage non-taxable persons who purchase goods or services above UGX 5 million per month and supported by an electronic receipt or invoice within 30 days to claim a refund of 5% of the tax paid.
• The list of Public International Organisations in the First Schedule of the VAT Act was expanded to include the African Export-Import Bank and International Union for Conservation of Nature.
• 200% penalty applies to any error made in the VAT return, having repealed the requirement for such error to have been made 'knowingly or recklessly' in order for the penalty to apply.
• The list of exempt supplies in the Second Schedule of the VAT Act was expanded to include the following:

• • The supply of liquefied gas.
  • The supply of denatured fuel ethanol from Cassava.
  • The supply of feasibility, design, and construction services to a manufacturer newly investing at least USD 30 million (or USD 5 million for a local investor), subject to using at least 70% locally sourced raw materials and with the capacity to employ at least 70% citizens (by total wage bill).
• The list of zero rate supplies in the Third Schedule of the VAT Act is expanded to include the supply of leased aircraft, aircraft engines, spare parts, maintenance equipment, and repair services for aircraft.

Excise duty

Effective 1 July 2021, the Excise Duty (Amendment) Act 2021 introduced the following changes:

• Introduction of a new provision for remission of duty on plastic packaging if used for exported goods, packaging medicaments, and manufactured from recycled plastics.
• Removal of provisions related to the requirement to apply for annual renewal of the excise duty registration certificate.
• Schedule 2 to the Excise Duty Act 2014 has been amended to vary excise duty rates in respect of a number of goods and services.

Stamp duty

Effective 1 July 2021, the Stamp Duty (Amendment) Act 2021 introduced a nil duty rate for new manufacturers whose investment capital is at least USD 50 million or an existing manufacturer who makes an additional investment equal to USD 50 million, subject to using at least 70% local raw materials and employing at least 70% citizens (by total wage bill).

Tax administration

The Tax Procedures Code (Amendment) Act 2021 provides for the following changes:

• Amendment of the definition of a 'tax decision' to exclude the following:

• • A decision made in respect to a tax assessment.
  • A decision or omission that affects a tax officer or employee or agent of the authority.
  • The compoundment of an offence under any tax law.
  • A decision to refuse, issue, or revoke a private ruling or omission to issue or revoke a private ruling.
• Introduction of a specific prohibition for a local authority or government institution to issue any form of authorisation or licence to any person to conduct business in Uganda without a Tax Identification Number.
• Extension of the period in which a taxpayer can amend a self-assessment return on discovery of an error from 12 months to three years.
• Introduction of alternative dispute resolution procedures for disputed decisions.
• Introduction of new offences with stringent penalties for misuse of tax stamps.
• The penalties for offences, such as failure to file tax returns and non-compliance with tax obligations, were increased.
• The ordering rule for recognising tax payments was amended to remove the requirement that where a taxpayer has more than one tax liability then any payment is first applied to the oldest liability (whether it be principal tax, penal tax, or interest).