Taxes are a significant cost for anyone in business and employment. Understanding the tax regime of your country of operation can make a big difference in your bottom line. In Uganda taxes are governed by the Income Tax Act. Every year the Minister of Finance proposes amendments to raise more taxes to finance government operations. Tax administration in Uganda is handled by the Uganda Revenue Authority (URA).
The taxes one pays generally depend on the legal form of the business, source and nature of income, and resident status of the tax payer. For instance a person in employment is charged PAYE (Pay As You Earn) of 30% to 40% on the gross salary whereas a business owner of a registered company is charged 30% on taxable profits.
The tax code is way more complicated than this but the following is a very high level overview of some of the most common taxes in Uganda:
Registered companies in Uganda pay 30% on taxable profits. Taxable profits are derived by deducting allowable expenses from gross income. The Income tax act defines what allowable expenses are. Allowable expenses are of a revenue nature, relate to the specific year of income and were generally incurred in the derivation of gross income. This means personal expenditure like entertainment is not acceptable as an allowable expense. The business owner should file appropriate returns to URA and maintain proper records to avoid fines and penalties.
Small businesses with a turnover of less than ugx 150 million per annum are generally charged a presumptive tax based on gross turnover. Businesses earning earning less than ugx 50 million each year pay specific rates based on nature, location and turnover of the business. For example a garage in Kampala earning ugx 45 million per year is expected to pay ugx 550,000 in taxes. Small businesses with a turnover above ugx 50 million pay a progressive tax based on turnover. For example if your earn between ugx 125 to 150 million per year you will pay ugx 2,062,500 or 1.5% of the gross turnover, whichever is lower.
Employees are charge PAYE (Pay as you earn) on their gross salaries. Gross salary includes non-cash benefits like accommodation and vehicles, etc. The employer deducts this money and remits it to URA on a monthly basis. The tax charged depends on your monthly salary and it increases as you earn more. People earning below ugx 235,000 per month are exempt from PAYE. People earning below ugx 10m per month generally pay about 30%. Anyone earning above ugx 10m per month is taxed at about 40% of gross salary.
Partnerships are not required to pay taxes. However the partnership profits are distributed among the partners according to the partnership deed. The respective partners are then taxed PAYE as if they were employees earning partnership profits and any other emoluments.
The tax rate applicable to an individual for the purposes of rental income is 20% of the chargeable income in excess of UGX 2,820,000. In determining the chargeable income of an individual, the individual is allowed expenses of 20% of their rental income.
Business earning rental income are taxed at 30% of gross rental income less allowable deductions.
Value Added Tax (VAT)
VAT is a consumption tax which is paid ultimately by the general population. Any business with a gross turnover of above ugx 150 million is required to register for VAT. The standard VAT rate is 18%. Registered businesses are required to file monthly VAT returns and pay the respective taxes thereof. The payable/claimable VAT is determined by deducting the VAT on purchases (input VAT) from the VAT on sales (Output VAT).
Various customs duties are charged on imports and exports. For examples imports of cars are charged import duties of 25% of customs value, 18% VAT, environmental levies of 35% to 50% for cars above 5 years old, infrastructure levy of 1.5%, and Withholding tax of 6%. The customs value is the cost, insurance and freight up to the place of importation. There is a comprehensive list of all possible commodities and the applicable duties upon importation. URA requires that assessments for import duties are handled by certified clearing agents appointed by URA.
Withholding Tax (WHT)
Nominated withholding agents are required to deduct a withholding tax of 6% for payments for local supplies and 15% on international payments. The withheld amounts are remitted to URA on a monthly basis. WHT is a kind of advance income tax and is allowed as a tax credit when a tax payer files their annual tax returns with URA.
Capital gains tax
Capital gains tax is generally charged at 30% of the proceeds less the cost of a business asset upon disposal of the asset.
Some types of income and organizations are exempt from income tax. For instance charities, government agencies, religious institutions, agro processing businesses, etc. don’t pay income taxes. Interest earned from investments in unit trusts is also exempt from taxes.
Tax payers are generally expected to file appropriate tax returns and pay the applicable taxes to URA. Failure to do so may lead to hefty fines and penalties. Where a tax payer fails to submit a return URA may be prompted to make their own assessment. The tax payer may object to the Commissioner General or the Tax Appeals Tribunal for recourse.
Like I mentioned earlier this is a very simplistic overview but it gives you an indication of the tax landscape in Uganda. Understanding this can really accelerate your journey to creating wealth.