Opinion: Understanding Residence Rules for taxation purposes in Uganda

By Joshua Kato

Taxation in Uganda is governed by the Income Tax Act, which outlines various rules and regulations that individuals and businesses must adhere to. Understanding the concept of residence rules helps in determining who is subject to taxation in a specific jurisdiction.

Uganda’s taxes residents on their worldwide incomes, and source-based for non-residents. Any non-resident who carries on business in Uganda, is employed in Uganda, or sells certain types of properties is subject to taxation provided that income is derived from sources in Uganda.

Tax on incomes of imposes corporations, partnerships, trusts and individuals residing or carrying on business within the country is imposed by the Ugandan Income Tax Act Cap 340 (ITA).

Individuals who derive income from Uganda are liable to different types of taxes as per the charging section in the ITA. These among others include; –

1. Withholding tax (WHT) on individuals and corporations – This is withheld at source at the time of payment. WHT is made on payments such as employment income (PAYE), dividends and interests, professional fees and others. Non-residents that derive interest, dividends and royalties from sources in Uganda. The rate of withholding tax on most payments in Uganda is 15%. However, in respect of goods and services, a withholding tax of 6% is levied.

• There are also consumption taxes on goods and services, save for those that are zero-rated or tax-exempt. These include value-added tax (VAT), Import duty, Export duty and Excise duty. Standard VAT rate is currently at 18%.

• Resident and non-resident companies suffer a standard 30% corporation tax on their chargeable income tax.

For purposes of taxation, who is a resident?

Who is a resident individual?

The Ugandan Income Tax Act, Cap 340 considers an individual to be a resident person, if;

• Has a permanent home in Uganda; or be present in Uganda –

• For a period of, or periods amounting in aggregate to, 183 days or more in any 12-month period that commences or ends during the year of income; or

• During the year of income and in each of the 2 preceding years of income for periods averaging more than 122 days in each such year of income.

What is a resident company?

A company is resident in Uganda if; –

• It is incorporated or formed under Ugandan law,
• It has management and control of its affairs exercised in Uganda or
• It has majority of its operations are carried out in the country during the taxation year.

Non-resident corporations, in addition to payment of the standard 30% corporate tax, a withholding tax rate of 15% is levied on a branch of a foreign company on the profit repatriated to the head office.

The ITA also designates as exempt from tax, income earned by specific types of organizations. The ITA expanded the definition of exempt organizations to include a non-profit research institution. The intention of this is to promote investment in not-for-profit research.

Residence can be terminated by notifying the tax authorities and immigration. When leaving Uganda, an individual exiting Uganda is required to de-register for taxes and notify the URA and immigration. It is prudent to obtain a tax credit certificate as it may be needed in the home country as evidence that income was taxed while in Uganda.

In scenarios where the exiting individual has been contributing to the National Social Security Fund, you are required to make an application for the social security claim if they have been with the fund at-least three years. Please note that social security registration is mandatory only if the expatriate intends to stay in Uganda for more than 3 years and the employer has at least 5 employees.

Currently, Uganda has double-taxation treaties (DTTs) with nine (09) countries. The main purpose of these DTTs is to eliminate double taxation and facilitate the allocation of taxing rights. Countries where Uganda has DTTs include; – Denmark, India, Italy, Mauritius, the Netherlands, Norway, South Africa, the UK and Zambia. Tax treaties pose different legal provisions from those envisaged under the ITA.

Please note, where there is a conflict between the provisions of ITA and the terms of a particular DTT, the treaty takes precedence to respect international law and treaty obligations.

The writer is a Chartered Accountant and Tax advisor