Background:
On the 27th March 2024, amendment bills to the Income Tax Act, Value Added Tax Act, Tax Procedures Code Act, Excise Duty Act and Stamp Duty Act were
gazetted. This is the first step before the bills are presented for debate in parliament, passed and signed (by the President) into law,
The bills contain proposed amendments to the above mentioned tax laws which are likely to have a significant impact on the economy, as well as tax compliance requirements for entities operating in Uganda orproviding goods and services to customers in Uganda.
This alert therefore explores the draft bills, highlights the proposed changes sought to be introduced by them and provides insight on what this could mean for you or your business or organization.

Executive Summary:
The amendment Acts above enact the following changes in Uganda’s tax laws:
a. Taxation of gains derived from the disposal of non business assets as a final tax:
The amendment to the Act intends to introduce the requirement to compute, account for and pay income tax on the gains derived from the sale of non business assets. Such assets are meant to include shares in private companies, land and buildings situated in towns and municipalities and property from which rental income is generated. The tax is to be paid with-in 15 days of disposing of the asset and is a final tax, not to be included in the gross income declared in the income tax return for the year when computing liability for the year.
While this measure is meant to bring into the tax base the income derived from investments in such assets (those not for use or held ready for use in normal business activities, and not belonging to a company or partnership) it is likely to impact investment decisions into the same by reducing the full benefit such investments may render and adding more compliance requirements associated with such transactions.

b. Exemption of income and stamp duty derived from investments into private equity and venture capital funds regulated by the Capital Markets Authority and Government
issued securities on the secondary market As part of measures aimed at encouraging participation in collective investment schemes, the amendments seek to exempt from income tax profits derived from such investments, as well as stamp duty on legal instruments associated with the same. The proposal also intends to make investment in government securities (e.g. treasury bills and sovereign bonds)
more attractive by making profits derived by re-selling the same after first issue (i.e. on the secondary market) exempt from income tax.

c. Exemption of benefits received from a retirement fund upon termination of employment Lump sum payments made by a resident retirement fund (e.g. NSSF) to a member who has made contributions, or their dependents, are exempt from income tax, this is primarily because the contributions are made from income that ordinarily has already
been taxed at the time it was earned. Following developments in the NSSF Act allowing for members to receive benefits upon termination of employment, before reaching retirement, there was a need to address the treatment of the receipt of such payments with regard to whether or not they are subject to income tax. By amending the Income Tax Act to include the payment of termination benefits among the activities of a retirement fund, the payment of benefits to a member on termination of employment would include such amounts as those exempt from tax.

d. Exemption of income, excise duty and stamp duty derived from investments in specialised
hospital facilities As part of measures aimed at improving access to quality or specialised medical care, the amendment seeks to incentivise investments in such facilities.
The income of a specialised hospital would be exempt from tax, in addition, should such facilities be established with an investment capital of at least USD 5 million, the same would be exempt from excise duty on locally produced furniture, fittings and raw materials while legal instruments related to such an investment would also be exempt from Stamp Duty.
This is in addition to existing exemptions of Value Added Tax on services and locally produced goods supplied towards the establishments of such facilities.

• Incentivise demand for electrical vehicles and associated charging equipment as well as manufacture of the same.

Recent developments in the interest consumers have with how their market choices impact the environ- ment in the form of climate change caused by carbon emissions have seen a rise in demand for more envi- ronmentally friendly options, electrical vehicles be- ing one prime example. The potential benefits from this increased interest and demand has prompted the proposal to exempt the income, sale and investment in electrical vehicles and the associated charging equipment from Income Tax, Value Added Tax, Ex- cise Duty and Stamp Duty.

• Overhaul of the taxation of the income of non- residents and multinationals

Proposed changes to the Income Tax Act are meant to broaden the net with which the income of non-res- idents sourced in Uganda are taxed. This is to be achieved by redefining the arrangement made by non-residents to conduct business in Uganda as per- manent establishments rather than branches. The definition of what amounts to a permanent estab- lishment and how such entities are taxed is meant to update the current legislation to include the progress made in identifying and ensuring that such entities are taxed within the jurisdiction where the economic activity that yielded the income took place. The ap- proach taken resembles that of many international tax treaties, Double taxation Avoidance Agreements (DTAAs) and the OECD guidelines addressing Base Erosion and Profit Shifting (BEPS) practises that some multinationals engage in in order to evade tax.

The amendment seeks to identify locations and ac- tivities that non-residents use to conduct business (economic) activities in Uganda, whether directly or through an agent habitually assigned for that pur-

pose (management, a branch, office, factory, work- shop, warehouse to provide storage facilities for others, a location for the exploration, extraction or exploration of mineral of natural resources like min- ing, oil and gas, farms and plantations, sales outlets, building sites and installation projects that exceed 90 days and services related to the same that exceed 183 days) while excluding locations merely meant to store, display or maintain stock.

The amendment also seeks to restrict permanent es- tablishments from claiming a deduction for expens- es that amounts to property items and service items from their head office (interest, royalties, licences, commissions, management fees).

Associated entities (e.g. subsidiaries and holding companies, companies with common underlying ownership, partners and entities in Joint Venture arrangements), where one of the associates is a non resident, that conduct business that are connected to each other or conduct businesses concurrently in Uganda will be considered to have a permanent es- tablishment in Uganda.

To ensure more robust disclosures, the amendment requires associates entities transacting with each oth- er to submit transfer pricing information alongside their income tax return. Such submissions may be compared to information the URA has received under multilateral Automatic Exchange of Information ar- rangements to ensure completeness and correctness. It is now more important than ever for multination- als and related parties transacting with one another to have a transfer pricing policy in place. However, more clarity may be needed as to what amounts to a full disclosure of transfer pricing information as the Income Tax Act only has subsidiary legislation covering transfer pricing and would have to be aug- mented if it is to be relied upon for reference.

The amendment also proposes the inclusion of annu- ities paid and insurance premiums received for the coverage of risk in Uganda by nonresidents through their permanent establishments in Uganda as income of non-residents subject to withholding tax at 15%.

The proposed amendment removes the exemption withholding tax of interest paid on publicly issued debentures and loans from financial institutions of public character and imposes a withholding tax of 2%.

The proposed amendment also removes the require- ment to withhold tax on payments for services per- formed by a non-resident if they have a permanent establishment in Uganda. This is because the per- manent establishment will account for any income it has generated for the non-resident on its own behalf.

• Taxation of payment service providers (bank- ing and mobile money agents)

The proposed amendments seek to bring into the tax base the payment service providers of cash with- drawal services by requiring persons paying com- missions to such service providers to withhold 10% of the commission payable. These may include bank- ing and mobile money agents. The proposed amend- ment also seeks to impose an indirect tax in the form of Excise Duty (0.5% of the value of the transaction) on the consumers of their services.

• Value Added Tax on benefits and giŁs to em- ployees

The proposed amendments seek to charge VAT on benefits and gifts given by employers to employees in exchange of which no payment was charged. This proposed amendment will need further clarification, lest it complicates many employment relationships by requiring the employer to pay VAT to the URA for goods or services it provides its employees as part of the employment relationship. End-of-year gift ham- pers, meals and accommodation provided while on duty, travel arrangements for the same, motor vehicle benefits and many other benefits would be includ- ed as a taxable supply to an employee in respect of which VAT is payable by the employer, should the current proposed amendment be adopted in its cur- rent state.

• Raising of threshold of Input Tax Credit for Value Added Tax refunds from UGX 5 million to UGX 10 million

Currently VAT registered persons, in a month where their input credit exceeds their output tax by UGX

5 million or more may ask for the excess VAT input credit to be refunded to them. The proposed amend- ment seeks to raise the threshold for applying for a refund of VAT to UGX 10 million. This would likely reduce the number of businesses eligible for a VAT refund while also reducing the number of refund claims the URA has to process, which they often do alongside compliance checks as a prerequisite for receiving the refund.

• Other changes made

The proposed amendment also seeks to:

• Require any person that wishes to write off a loss of stock or assets due to damages, expiry or ob- soletion to inform the URA of their intention to do so prior to the same in order for an expense of such a nature to be considered allowable
• Remove commercial farmers from the list of busi- nesses that are required to register for Value Add- ed Tax
• Make hoes, pesticides, and fertilisers exempt from Value Added Tax (previously these were taxable at 0%), meaning businesses dealing ex- clusively in such products may no longer be eligi- ble for VAT registration and those that are already registered may consider de-registration.
• Make the supply of locally assembled stoves that use ethanol exempt from VAT
• Increase Excise Duty on fuel (UGX 200 per litre) and paraffin by (UGX 300 per litre)
• Impose Excise Duty on cement and grout of UGX 500 per 50 kgs
• Reduce Excise Duty on some types of locally pro- duced alcohol and increase tax certain types of imported alcohol
• Imposing a minimum tax of UGX 75 per litre of mineral water (or 10% of the excisable value if it is higher)
• Exempt incoming phone calls from Burundi and Tanzania from excise duty.

A detailed digest of the amendments to Uganda’s tax laws, along with our comments on these modifica- tions are presented below.

AMENDMENTS TO THE INCOME TAX ACT

ITEM

An Act to amend the Income Tax Act, Cap. 340; to expand the definition of the retirement fund;

CURRENT LAW

Section 2 Interpretation (lll)

“retirement fund” means a pension or provident fund established as a permanent fund main- tained solely for either or both of the following purposes –

• the provision of benefits for members of the fund in the event of retirement; or

• the provision of benefits for dependents of members in the event of the death of the member.

AMENDMENT

The Income Tax Act, Cap. 340, in this Act referred to as the principal Act, is amended in section 2 by inserting immediately after paragraph (lll) (ii) the following—

“(iii) the provision of benefits for members of the fund in the event of termination of service or upon the occurrence of an event specified in the written law, agreement or arrangement;”

SIGNIFICANCE

The proposed amendment of section 2 expands the definition of a Retirement fund to one that provides benefits to members upon termination of employment or any other event that ends the employer-employee relationship.

This is an attempt to align the Income tax Act with the NSSF Act that gave leeway for people to access their funds from NSSF upon termination of employment.

The amendment seeks to include the receipt of lump sum payments from a retirement fund upon the termination of employment among the income that is exempt from tax.

For context, the NSSF act was amended in 2022 to allow Midterm Access to benefits by contributing members as per section 20A of the NSSF Act (i.e. before the age of retirement).

ITEM

An Act to amend Section 5 of the Income Tax Act, Cap 340 “Rental tax imposed” by inserting Section 5A to principal Act.

CURRENT LAW

Section 5. Rental tax imposed

1. Subject to and in accordance with this Act, a tax shall be charged for each year of income and is imposed on every individual who has rental income for the year of income.
2. The tax payable by an individual under this section for a year of income is calculated by ap- plying the relevant rates of tax determined under section 6(2) to the rental income derived by the individual for the year.
3. The tax imposed under this section on an individual is separate from the tax imposed under section 4 and—
   1. the rental income of the individual shall not be included in the gross income of the individual for any year of income;
   2. expenditures and losses incurred by the individual in the production of the rental income shall be allowed as a deduction under this Act for any year of income; and
   3. the tax payable by a resident individual under this section shall not be reduced by any tax cred- its allowed to the individual under this Act.
4. In this section, “year of income” means the period of twelve months ending on 30th June.

AMENDMENT

The principal Act is amended by inserting immediately after section 5 the following— “5A. Tax imposed on disposal of non-business assets

1. A tax shall be charged on the gains from the disposal of non-business assets at a rate of five per- cent on the gain computed under subsection (4).
2. The tax payable by a person under subsection (1), shall arise from the gains from the disposal of-
   1. shares of a private company; (b)land in cities or municipalities except the principal place of resi- dence; and

(c) rental property that is subject to rental tax under section 5 of this Act.

1. This section shall not apply to gains from the disposal of non-business assets—
   1. by involuntary disposal of non-business assets through auction, court order, mortgages, divorce settlement or spousal separation agreement;
   2. the transmission of non-business assets of the deceased to a trustee or beneficiary; or
   3. arising from the disposal of investment interest of a registered venture capital fund or private equity.
2. Sections 50 (1) and (2), 51, 52 and 53 shall apply with modifications in computation of the gain under this section.
3. The tax imposed under this section on a person is a final tax and separate from any other tax imposed by any provision of this Act.
4. The tax imposed under this section shall be paid within fifteen days after the disposal or trans- fer of a non-business asset.
5. A person who fails to pay the tax imposed under this section within the time specified in subsec- tion (6), shall be liable to pay interest in accordance with section 136 of the Act.
6. Where a person disposes of a non-business asset he or she shall notify the Commissioner Gener- al in writing of the details of the disposal within fifteen days from the date of disposal.
7. For purposes of this section “non-business assets” means assets specified in subsection (2) and does not include business assets.

SIGNIFICANCE

Furthermore, the implication of the current legislation is such that if an individual holds shares in a private company, land or rental property for non-business uses and sold the same, the gain on the sale would not be taxable.

The disposal of an asset occurs when the same has been sold, exchanged, redeemed, distributed, transferred by way of gift; destroyed or lost (Section 51.)

A gain is derived when the payment received for the disposal of an asset exceeds the cost of the same at the time of the disposal (Sec 50).

There is currently a legislative provision that allows the cost base of an asset to be adjusted for inflation using the changes in the consumer price index from the time of acquisition to the time of disposal.

The proposed tax on the gain derived from the disposal of a non-business asset is a final tax and is not to be included in a taxpayer’s gross income when computing the income tax liability for a year of income.

Overall, while the amendment could provide a source of revenue for the government and contribute to tax fairness, the taxing of such gains may introduce additional points of consideration for prop- erty owners, investors in real estate or private corporations.

ITEM

An Act to amend the Income Tax Act, Cap 340 by inserting immediately aŁer Section 21 (a) paragraph (t), paragraph (ta), and (tb).

CURRENT LAW

Section 21 Exempt Income

The following amounts are exempt from tax –

• (t) income of a collective investment scheme to the extent of which the income is distributed to participants in the collective investment scheme.

AMENDMENT

Section 21 of the principal Act is amended in subsection (1)— (a) by inserting immediately after paragraph (t) the following—

“(ta) income derived from or by private equity or venture capital fund regulated under the Capital Markets Authority Act, Cap. 84;

“(tb) income derived from the disposal of government securities on the secondary market;”; and

SIGNIFICANCE

The proposed amendment to this section is meant to incentivise investment in private equity and venture capital funds by including the gains derived from such investments in exempt income (Sec- tion 21).

This proposed amendment on one hand encourages local investment in such collective investment schemes.

However, the provision that the private equity or venture capital fund must be regulated under the Capital Markets Authority, which excludes the non-resident funds not supervised by the Capital Markets Authority, limits the intended benefit the exemption attempts to achieve by excluding gains from investment made by resident investors in non-resident funds.

CURRENT LAW

Section 21 Exempt Income

The following amounts are exempt from tax –

(af) (vii) manufactures chemicals for agricultural use, industrial use, textiles, glassware, leather products, industrial machinery, electrical equipment, sanitary pads, and for diapers.

AMENDMENT

1. by inserting immediately after paragraph (af) (vii) the following—

“(viii) manufactures an electric vehicle, electric battery or electric vehicle charging equipment or fabricates the frame and body of an electric vehicle;

SIGNIFICANCE

This proposed amendment also intends to incentivise investment in the manufacture of electric vehicles and associated equipment.

Recent developments have also seen a sharp rise in demand for vehicles as consumers become more aware of the impact their market choices have on the environment as it relates to carbon emis- sions and climate change, so the proposed amendment seeks to encourage investment in electric vehicles.

AMENDMENT

1. operates a specialised hospital facility.”

SIGNIFICANCE

The proposed inclusion of the exemption of income of a person who operates a specialised hospital facility would also lead to an improvement of access to healthcare by the public.

ITEM

An Act to amend the Income Tax Act, Cap 340; by repealing Section 54 subsection (1) (e) and (1a).

CURRENT LAW

Section 54 (1)(e) capital gains arising from the sale of investment interest of a registered venture capital fund if at least fifty percent of the proceeds on sale is reinvested within the year of income;

Section 54 (1a) a transfer of an asset between spouses;

AMENDMENT

Section 54 of the principal Act is amended by repealing subsection (1) (e) and (1a).

SIGNIFICANCE

Having proposed exempted income derived from private equity and venture capital investment schemes, this proposed amendment removes the inclusion of the same from taxable income.

ITEM

An Act to amend the Income Tax Act, Cap 340; by repealing Section 78 paragraph (a).

CURRENT LAW

Section 78

In this Part-“branch” means a place where a person carries on business, and includes-

a place where a person is carrying on business through an agent, other than a general agent of independent status acting in the ordinary course of business as such;

a place where a person has, is using or is installing substantial equipment or substantial machin- ery.

a place where a person is engaged in a construction, assembly or installation project for ninety days or more, including a place where a person is conducting supervisory activities in relation to such a project.

AMENDMENT

Section 78 of the principal Act is amended by repealing paragraph (a);

The principal Act is amended by inserting immediately after section 78 the following—

“78A. Permanent establishment (1) For purposes of this Part, “permanent establishment” means a fixed place of business through which the business of the enterprise is wholly or partly carried on and includes—

1. a place of management;
2. a branch;
3. an office;
4. a factory;
5. a workshop;
6. a warehouse, in relation to a person providing storage facilities to others;
7. a mine, an oil or gas well, a quarry or any other place of exploration for or extraction or ex- ploitation of natural resources;
8. a farm, plantation or other place where agricultural, forestry plantation or related activities are carried on;
9. a sales outlet;
10. a building site or a construction, installation or assembly project, or supervisory activities in connection with the site, project or activity that lasts for at least ninety days in any twelve months period;
11. the furnishing of services, including consultancy services, by a person through employees or other personnel engaged by the person for such purposes provided that such activities continue in Uganda for a period of, or periods amounting in aggregate to, one hundred and eighty three days or more in any twelve month period that commences or ends during the year of income; or
12. substantial equipment or machinery that is operated, or is available for operation, in Uganda for a period of, or periods amounting in aggregate to, ninety days or more in any twelve month period that commences or ends during the year of income.

1. The duration of activities referred to under subsection (1) (j), (k) and (l) shall be determined by aggregating the period during which activities are carried on in Uganda by associates, provided that the activities of such associate in Uganda are connected.
2. Where there are two or more associates carrying on concurrent activities, the period referred to under subsection (1) (j), (k) and (l), shall be counted only once for the purpose of determining the duration of activities.
3. Notwithstanding the provisions of subsection (1), (2) and (3), permanent establishment shall not include—
   1. the use of facilities solely for the purpose of storage or display of goods or merchandise belong- ing to the person;
   2. the maintenance of a stock of goods or merchandise belonging to the person solely for the pur- pose of storage or display;
   3. the maintenance of a stock of goods or merchandise belonging to the person solely for the pur- pose of processing by another person;
   4. the maintenance of a fixed place of business solely for the purpose of purchasing goods or mer- chandise or for collecting information for the person;
   5. the maintenance of a fixed place of business solely for the purpose of carrying on, for the person, any other activity; or
   6. the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e), provided that such activity, or in the case of subparagraph (f), the over- all activity of the fixed place of business, is of a preparatory or auxiliary character.

provided that such activity, or in the case of subparagraph (f), the overall activity of the fixed place of business, is of a preparatory or auxiliary character.

1. Subsection (4), shall not apply to a fixed place of business that is used or maintained by a person if the same person or associate carries on business activities at the same place or at another place in Uganda and—
   1. that place or other place constitutes a permanent establishment for the person or the associate under this section; or
   2. the overall activity resulting from the combination of the activities carried on by the two persons at the same place, or by the same person or associate at the two places, is not of a preparatory or auxiliary character, provided that the business activities carried on by the two persons at the same place, or by the same person or associates at the two places, constitute complementary functions that are part of a cohesive business operation.
2. Notwithstanding the provisions of subsection (1), but subject to the provisions of subsection
3. , where a person is acting in Uganda on behalf of another person, that principal shall be deemed to have a permanent establishment in Uganda in respect of any activities which the agent under- takes on behalf of the principal, if such agent—
   1. habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the principal, and these contracts are—

(i) in the name of the principal; (ii) for the transfer of the ownership of, or for the granting of the right to use, property owned by

the principal or that the principal has the right to use; or

1. for the provision of services by the principal, unless the activities of the agent are limited to those mentioned in subsection

1. which, if exercised through a fixed place of business other than a fixed place of business to which subsection
2. would apply, would not make this fixed place of business a permanent establishment under subsection (5); or

1. does not habitually conclude contracts nor plays the principal role leading to the conclusion of such contracts, but habitually maintains in Uganda a stock of goods or merchandise from which the agent regularly delivers goods or merchandise on behalf of the principal;
2. does not habitually conclude contracts nor plays the principal role leading to the conclusion of such contracts, but habitually manufactures or processes in Uganda for the principal, goods or mer- chandise belonging to the principal; or
3. does not habitually conclude contracts nor plays the principal role leading to the conclusion of such contracts, but habitually secures orders in Uganda wholly or almost wholly for the principal or associates.

1. Subsection (6) shall not apply where the agent acting in Uganda on behalf of the principal carries on business in Uganda as an independent agent and acts for the principal in the ordinary course of that business.
2. For purposes of subsection (7) “independent agent”is where an agent acts exclusively or almost exclusively on behalf of one or more principals to which the agent is associated.

78B. Calculation of chargeable income of permanent establishment

1. The income of a non-resident person attributable to activities of a permanent establishment shall be taxed in Uganda including—
   1. the income derived from the sales of goods or merchandise in Uganda of same or similar kind as those sold through the permanent establishment; or
   2. the income of other business activities carried on in Uganda that are of the same or similar kind as those carried out through the permanent establishment.
2. A permanent establishment shall not be allowed a deduction in respect of amounts, paid by the permanent establishment to the head office of the non- resident person or any of its other offices by way of—
   1. royalties, fees or other similar payments in return for the use of patents or other rights;
   2. commission, for specific services performed or for management; or
   3. interest on moneys lent to the permanent establishment, except, in case of a financial institution.
3. Subject to subsection (2), in determining the chargeable income of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment.
4. Subject to subsection (3), a permanent establishment shall be a distinct and separate entity from the non-resident person of which it is a permanent establishment and the transactions between the permanent establishment and non-resident person are subject to section 90 and 89I of this Act.
5. The gross income of a permanent establishment, shall not include charges by the permanent establishment to the head office of the non- resident person or any of its other offices, by way of—
   1. royalties, fees or other similar payments in return for the use of patents or other rights;
   2. commission for specific services performed or for management; or
   3. interest on monies lent to the head office of the permanent establishment or any of its other offic- es except, in case of a financial institution.

SIGNIFICANCE

The purpose of the proposed amendment is to align and bring into conformity the language and terminology of international tax treaties, bilateral Double Taxation Avoidance Agreements (DTAAs) and the guidelines issued by the OECD (Organization for Economic Cooperation and Development) meant to address Base Erosion and Profit Shifting (BEPS) practices by some multinationals.

Currently, the act addressed the above issues by requiring non-residents conducting business in Uganda through a branch by requiring the branch to pay tax on income generated by the non-resi- dent and also withhold and remit tax on any profits remitted to the non-resident.

The main purpose of the proposed new measures is to prevent multi nationals from evading tax by ensuring that taxation happens where the economic activity from which income was derived takes place. It also closes loopholes used by multinationales to evade taxes arising from cross-border income.

The definition of permanent establishment included in tax treaties is therefore crucial in determin- ing whether a non-resident enterprise must pay income tax in another jurisdiction.

This also takes into consideration the OECD guidelines regarding these concerns (BEPS Action 7) which had a purpose to provide changes to the definition of permanent establishment of multina- tionals utilising strategies to avoid having a taxable presence in a jurisdiction under tax treaties.

This proposed amendment also ensures that non-resident entities that are associates of resident entities are taxed on the income they derive by conducting business (sourced) in Uganda through such associations.

The proposed amendment also clarifies which elements of income of a non-resident is taxed under the permanent establishment and which is to be allocated to the non-resident and taxed as through already existing withholding tax provisions.

A permanent establishment will now include a place of management, a branch, office, factory, workshop, warehouse to provide storage facilities for others, a location for the exploration, ex- traction or exploration of mineral of natural resources (mining, oil and gas), farms and plantations, sales outlets, building sites and installation projects that exceed 90 days and services related to the same that exceed 183 days.

Locations meant to merely store or display or purchase goods (for themselves or others) that are not used to transact business would not be considered permanent establishments.

An arrangement that results in a non-resident engaging a resident entity to habitually conclude contracts or secure orders on its behalf would also be considered a permanent establishment of the non-resident.

The permanent establishment would not be allowed to expense payments for interest, royalties, licences, commissions, management fees or or interest charged to it by the head office.

Similarly, such payments paid to it from the head office would not form part of its gross income.

Associated entities, conducting business in Uganda concurrently would be taxed under the perma- nent establishment for the period such activities take place in Uganda. This would include subsid- iaries, companies with common underlying ownership and those in partnership or joint venture agreements.

ITEM

Amendment of section 79 of principal Act

CURRENT LAW

Section 79 income is derived from sources in Uganda to the extent to which it is –

• (ii) The pension or annuity is paid in respect of an employment exercised or services rendered in Uganda;

AMENDMENT

Section 79 of principal Act is amended—

1. in paragraph (m), by inserting immediately after subparagraph (ii), the following—

“(iii) the annuity is paid by a non-resident person as expenditure of a business carried on by the nonresident person through a permanent establishment in Uganda;”

SIGNIFICANCE

This proposed amendment intends to include as an income sourced in Uganda, annuities paid by foreign based financial institutions through their permanent establishments in Uganda. Such an- nuity payments will be considered as sourced and taxed in Uganda under this provision.

WHT on annuities to non-residents: Annuities paid by a resident person to a nonresident would be subject to 15% WHT. The tax would be a final tax, meaning, once accounted for on the disposal of the asset, the gain would not be included in a person’s gross income when computing the income tax liability for the year of income.

CURRENT LAW

Section 79 (q) a management charge paid by a resident person;

AMENDMENT

1. by inserting immediately after paragraph (q), the following—

“(qa) derived from the payment of insurance premium, if the premium relates to the insurance or reinsurance of a risk in Uganda;

SIGNIFICANCE

Additionally, the proposed amendment seeks to ensure that non-residents insurance companies that receive insurance premiums by issuing policies covering risk attributed to potential events that may occur in Uganda will have income derived from such premiums considered as sourced, and therefore taxed, in Uganda.

ITEM

Amendment of section 83 of principal Act

CURRENT LAW

Section 83 (1) Subject to this Act, a tax is imposed on every non-resident person who derives any dividend, interest, royalty, rent, natural resource payment, or management charge from sources in Uganda.

AMENDMENT

Section 83 of the principal Act is amended—

1. in subsection (1), by inserting immediately after the words “natural resource payment” the word “annuity”;

SIGNIFICANCE

This proposed amendment seeks to add the existing provisions for the taxation of property income of non-residents sourced in Uganda to include annuities (Section 83(1))

The implication of this proposed amendment is such that non-residents sourcing income from Uganda, in the form of an annuity, who previously did not have income of such nature subject to withholding tax, will now be subject to the same when receiving the payment for the annuity at 15%.

CURRENT LAW

Subsection 5 Interest paid by a resident company in respect of debentures is exempt from tax un- der this Act where the following conditions are satisfied.

1. the debentures were widely issued by the company to a non-resident person outside Uganda for the purpose of raising a loan outside Uganda;
2. the debentures were issued for the purpose of raising funds for use by the company in a busi- ness carried on in Uganda or the interest is paid to a bank or a financial institution of a public character;
3. the interest is paid outside Uganda.

AMENDMENT

1. by substituting for subsection (5), the following—

“(5) Interest paid by a resident person in respect of debentures is subject to tax at rate prescribed in Part IV of the Third Schedule where the following conditions are satisfied—

1. the interest is paid by a resident person to a financial institution;
2. the financial institution referred to in paragraph (a) is unrelated to, and dealing wholly inde- pendently with, the resident person that is the borrower; and
3. the interest is not paid as part of an arrangement involving a back-to-back loan or other arrange- ment that is economically equivalent and intended to have a similar effect to a back-to- back loan.”

(c) by inserting immediately after subsection (5), the following—

“(5a). Notwithstanding the provisions of subsection (5), interest paid by the Government to a non-resident person in respect to debentures is exempt from tax.”

SIGNIFICANCE

This proposed amendment also seeks to subject payments of interests made to financial institutions with respect to debentures, subject to withholding tax.

Previously publicly issued debentures and those issued by financial institutions of public character (e.g World Bank, IDB, ADB, FMO) were exempt from withholding tax.

However, the Government of Uganda would be exempt from withholding tax on the payment of interest on debentures.

Withholding tax (“WHT”) on interest paid on debentures paid by a resident person to an unrelated foreign financial institution, in respect of debentures, will be subject to 2% WHT. The tax will be a final tax. The WHT will not apply on back-to-back loans or similar arrangements.

ITEM

Amendment of section 85 of principal Act

CURRENT LAW

Section 85 Subject to this Act, a tax is imposed on every non-resident person deriving income un- der a Uganda-source services contract.

AMENDMENT

Section 85 of the principal Act is amended by inserting immediately after subsection (5) the follow- ing—

“(6) Subsection (1) does not apply to an amount attributable to the activities of a permanent estab- lishment of the non-resident in Uganda and such amount is subject to the operation of section 17.”

SIGNIFICANCE

This proposed amendment seeks to address the taxation of income of a non-resident person with a permanent establishment in Uganda derived from a service contract by removing the requirement to withhold on payments for the same since the permanent establishment already accounts for tax on the income it generates for the non-resident in its own right.

ITEM

Amendment of Part IX of principal Act

CURRENT LAW

Part IX International Taxation

AMENDMENT

Part IX of the principal Act is amended by substituting for the word “branch” the words “permanent establishment” wherever it appears.

SIGNIFICANCE

This amendment simply replaces the word “branch” with “permanent establishment” In other terms where previously the term “branch” was used, it should simply be replaced by “permanent establishment”

ITEM

Amendment of section 90 of principal Act

CURRENT LAW

Section 90 Transactions between Associates

(3) In making any adjustment under subsections (1) or (2), the Commissioner may

determine the source of income and the nature of any payment or loss as revenue, capital, or other- wise.

AMENDMENT

Section 90 of the principal Act is amended by inserting immediately after subsection (3), the fol- lowing—

“(4) A person to whom this section applies shall at the time of filing returns, submit transfer pricing information to the Commissioner, in the format prescribed by the Commissioner.”

SIGNIFICANCE

This proposed amendment seeks to make it a requirement for associates transacting with one an- other, to submit transfer pricing information to the URA alongside their income tax returns. It is not clear in this proposed amendment exactly what would amount to a full disclosure of transfer pric- ing information, but it is safe to assume that at a bare minimum, details of controlled transactions (between associated entities) would be included in this submission.

It is therefore highly advisable, in light of the proposed additional compliance requirements for related parties that transact with one another, to have a transfer pricing policy in place prior to sub- mitting the information required by this proposed amendment.

ITEM

Insertion of section 118I of principal Act

CURRENT LAW

Section 118 provides for withholding tax on payments made to resident persons.

AMENDMENT

The principal Act is amended by inserting immediately after Section 118H the following—

118I. Withholding tax on commission paid to payment service provider

(1) A person who pays a commission to a payment service provider shall withhold tax on the com- mission paid to the payment service provider at the rate prescribed in Part XVI of Third Schedule.

(2) For avoidance of doubt, this section shall apply to commission paid to banking agents or any other agent offering financial services.”