Cross-Border M&A and Ugandan Tax Exposure: Key Lessons from the Kuku Foods Decision

Introduction

The globalisation of commerce has made cross-border mergers and acquisitions (M&A) a routine approach for corporate restructuring and investment. Such transactions increasingly involve Ugandan entities either directly or through multinational group structures. Amendments to the Income Tax Act in 2018 significantly expanded Uganda's ability to tax certain ownership changes involving Ugandan entities.

Key Takeaway

A change in ownership of 50% or more in a Ugandan company, whether directly or indirectly, can trigger capital gains tax in Uganda. Significantly, the tax liability may be imposed on the Ugandan company itself, even where it did not sell any assets, receive any sale proceeds, or participate in the transaction.

This position was recently affirmed by the Tax Appeals Tribunal in Kuku Foods Uganda Limited v Uganda Revenue Authority (TAT Application No. 54 of 2025), highlighting the importance of assessing Ugandan tax exposure at the earliest stages of any cross-border acquisition, restructuring or investment transaction.

The Law

Section 78(h) of the Income Tax Act provides that income is deemed to be sourced in Uganda where it is derived from a direct or indirect change of ownership of fifty percent or more of an entity. The provision covers both direct transfers (where shares in the Ugandan company itself are sold) and indirect transfers (where shares in a foreign holding company are sold, resulting in a change in the ultimate ownership of a Ugandan subsidiary).

Section 74(2) provides that where ownership of an entity changes by fifty percent or more within a period of three years, the entity is deemed to have realised all of its assets and liabilities at market value immediately before the ownership change and then re-acquired them at that same value. Any increase in value between the original tax cost and the market value of the assets may give rise to a taxable gain.

Implications

Ugandan entity liable for CGT. In Kuku Foods, the Tribunal ruled that the liability for capital gains tax arising from the deemed realisation is chargeable on the Ugandan company itself by virtue of Sections 74(2) and 78(h), even though it received no sale proceeds and was not a party to the sale transaction.

Expanded tax base. The deemed realisation mechanism broadens the CGT base in the M&A context — all assets of the company are treated as having been disposed of whenever the 50% threshold is crossed.

Three-year assessment window. URA assesses across a rolling three-year period, so incremental acquisitions that individually fall below 50% but cumulatively exceed it within three years will trigger the deemed-realisation provisions.

Valuation risk. Because the computation under section 74(2) depends on market value, taxpayers should maintain contemporaneous valuation evidence supporting the values attributed to material assets and liabilities.

Structuring and Planning Considerations

• Indemnities and price adjustments. Purchasers of equity directly or indirectly affecting Ugandan companies should negotiate appropriate indemnities or price adjustment provisions with the non-resident seller to compensate for the tax cost borne by the Ugandan company.
• Staged acquisitions and threshold monitoring. Non-resident acquirers should monitor the three-year cumulative ownership threshold and, where commercially practicable, structure tranches so the 50% threshold is not crossed within any rolling three-year period.
• Independent valuations. A valuation prepared by a qualified valuer strengthens the taxpayer's position in a URA audit by demonstrating that values were determined using recognised methodologies.

Note that Uganda's double taxation agreements may offer limited protection here, because the tax under Section 74(2) is assessed on the Ugandan company, not on the non-resident seller.

Conclusion

The Kuku Foods decision confirms that ownership changes involving Ugandan companies can trigger significant tax liabilities even where the transaction takes place outside Uganda and the Ugandan company receives none of the sale proceeds. Investors, private equity funds, lenders, corporate groups and transaction advisers should evaluate these consequences at the earliest stages of any transaction involving a 50% or greater change in ownership, and ensure that appropriate contractual protections, valuation evidence, and tax compliance measures are in place before and after closing the deal.

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Prepared by TASLAF Advocates — Tax Practice.