Uganda Standard Incentives for Investors
The tax incentives / exemptions available to investors in Uganda are comprehensively provided in ‘’A Guide on Tax Incentives / Exemptions available to the Ugandan Investors, 2019’’ published by Uganda Revenue Authority.
Investment IncentivesA foreign investor in Uganda is required to obtain an investment licence from the UIA. A foreign investor qualifies for incentives under the ICA where the investor makes a capital investment or an equivalent in capital goods worth at least US$ 500,000 by way of capital invested. The Second Schedule to the ICA contains the priority investment areas for which additional benefits may be granted.The benefits that can be negotiated by or granted to the holder of an investment certificate are as follows:
- concessional rates of import duty for an investor who is importing any plant, machinery, equipment, vehicles or construction materials for an investment project;
- exemption from payment of import duty on one motor vehicle for personal use, personal and household effects which the person owned and used outside the East African Partner State for at least twelve months. Such person must show that he is changing residence from a place outside the East African Partner State to a place within the East African Partner State;
- incentives available generally for start-up businesses under custom laws, the Income Tax Act (Cap 340) (ITA) and the Value-Added Tax Act (Cap 349); and
- drawback of duties payable on imported inputs used in producing goods for export as provided in the laws imposing such duties and taxes.
Income TaxResident companies and businesses are taxed on worldwide income. Non-residents are taxed only on Uganda- source income. A company or similar corporate entity is resident in Uganda if it is incorporated or formed under Ugandan law; management and control of its affairs are exercised in Uganda; or the majority of its operations are carried out in Uganda during the year of income. An individual is a tax resident if domiciled in Uganda, spends at least 183 days in any 12-month period, or is present for an average of at least 122 days during 3 consecutive tax years, or if that individual is an employee or official of the Government of Uganda posted abroad during that year of income.Uganda’s corporate tax rate is 30% for resident companies and branches of foreign companies. The rate for mining companies ranges. It is either 25% or 45% depending on the chargeable income.
Withholding TaxWithholding tax of 15% is imposed on every non-resident person who derives any dividends, rent, natural resource payment, interest, royalties and management fees from sources in Uganda. Withholding tax of 15% is imposed on a resident person deriving dividends and interest in Uganda. Withholding tax on interest payable to resident persons does not apply to:
- interest paid by a natural person;
- interest paid by a company to an associated company;
- interest paid which is exempt from tax in the hands of the recipient; and
- interest other than interest from governmental securities paid to a financial institution.
Capital Gains TaxResidents and non-residents in respect of a Ugandan branch are liable to income tax on gains arising from disposal of their non-depreciable asset (including a sale of shares in a private company). Those gains are included in gross income and treated as normal business income subject to income tax at the rate of 30%.
Other TaxValue-added Tax (VAT) is chargeable on taxable supplies of goods and services in Uganda and the import of certain goods. The standard rate of VAT is 18%. However, a zero rate applies to supplies including agricultural produce in an unprocessed state, financial services and insurance services limited to health insurance services, micro-insurance services, re-insurance services and life insurance services.
Transfer Pricing and Thin CapitalisationThe Income Tax (Transfer Pricing) Regulations, 2011, applies to a controlled transaction if a person who is a party to the transaction is located in and is subject to tax in Uganda and the other person who is part to the transaction is located in or outside Uganda. “Controlled Transaction” means a transaction between associates. The Regulations require that transactions between associated persons be conducted in accordance with the arm’s length principle. The Income Tax Act, (Cap 340) contains provisions on thin capitalisation of foreign controlled resident companies. Thin capitalization arises where a company, incorporated in Uganda is controlled by a non- resident person i.e. the foreign controller and has a foreign debt to foreign equity ratio in excess of 1:1 at any time during a year of income. In this case, a deduction is disallowed for the interest paid by the company during that year on that part of the debt which exceeds the 1:1 ratio (financial institutions are exempt from this legislation).
Stamp Duty on a TransferStamp duty on any transfer is charged at a rate of 1% of the total value of the transfer. It is charged at nominal rates on a variety of financial instruments and transactions, for example, guarantees, loan agreements, deeds of assignment and novation deeds.
Double Tax Treaty with MauritiusUganda has a double tax agreement (DTA) with Mauritius. Under the DTA, dividends, interest and royalties paid to a person resident in Uganda by a Mauritian company are taxed at a rate of 10%.
Fiscal Incentives under Uganda Free Zones SchemeExemption from taxes and duties on all Export Processing Zone imported inputs that are for the exclusive use in the development and production output of the business enterprise (raw materials, plant and machinery, spare parts and intermediate goods).
- Exemption from all taxes, levies and rates on exports from the Free Zones.
- 10-year tax holiday for a Developer of Free Zone whose investment capital is at least US$ 50 million.
- 10-year tax holiday for an Operator in a Free Zone whose investment capital is at least US$ 10 million (foreigners) or US$ 2 Million (EAC).
- Exemption from tax on plant and machinery used in the Free Zones for 5 years and 1 day upon disposal.
- Nil Excise duty on construction materials for development of free zones by a developer US$ 50 million (Foreigners) and US$ 10 million (EAC). Operators -US$ 10 million (foreigners) and US$ 1 million (EAC).
- Stamp duty exemption on lease of land, increase of share capital, transfer of land: Developers US$ 50 million (Foreigners) and US$ 10 million (Ugandan). Operators -US$ 10 million (foreigners) and US$ 1 million (EAC).
- VAT Exception on feasibility studies, design construction services, construction materials and earth moving equipment and machinery for entire duration of the development. The investment must be at least US$ 50 million.
- Exemption from Tax on income from Agro-processing.
- Unrestricted remittance of Profit after tax
Non-Fiscal Incentives under Uganda Free Zones Scheme
- Dedicated Business facilitation and aftercare services.
- Economies of scale resulting from a centralized business structure with access to many clients;
- Enhanced Technology uptake;
- Centralized Customs inspection of buildings, premises, vehicles, vessels entering and leaving the Free Zone.