The Uganda Revenue Authority (URA), in a public notice dated Thursday 1st April 2025, invited persons and entities who wish to be considered for exemption from withholding on payments made to them to submit their exemption applications for the period 1st July 2025 to 31st June 2026.

The URA will start receiving applications from the 1st of April 2025 to the 31st of May 2025. Applications are strictly made online. 

WHAT IS WITHHOLDING TAX? 

Withholding tax is a mechanism used by the Uganda Revenue Authority to ensure that a taxpayer discloses the income they receive from payments made for their supplies by a designated withholding agent. It applies to payments made by designated withholding agents to suppliers of goods and services, as well as payments made to suppliers registered for Value Added Tax (VAT). 

The Income Tax Act requires any person designated in a notice issued by the Minister (designated Withholding Agent), who pays an amount exceeding UGX 1,000,000/- to any person in Uganda; for a supply of goods or materials of any kind; or for a supply of any services, to withhold 6% on the gross amount of the payment and deposit it with the Uganda Revenue Authority (URA) within 15 days after the end of the month in which the payment was made.

The Value Added Tax Act requires that any person designated in a notice in Gazette by the Minister (designated VAT Withholding Agent) to withhold 6% of the value of a payment made for taxable supplies to a supplier and remit it to the URA within 15 days after the end of the month in which the payment was made.

HOW DOES THE EXEMPTION FROM WITHHOLDING TAX AND WITHHOLDING VALUE ADDED TAX WORK?

The Uganda Revenue Authority (URA), in a public notice, invites persons and entities who wish to be considered for an exemption from:

1. Withholding tax on payments for the supply of goods, materials, or any kind of service for amounts of over UGX 1,000,000/- in aggregate made to them by:-  

1. The Government of Uganda, its institutions, the companies it owns, or a local government/authority,
2. any person designated in a notice issued by the Minister of Finance Planning and Economic Development (i.e. Designated Withholding Tax Agents),

1. Withholding on payment for professional services, such as management fees and training fees;

1. Withholding on payments for taxable supplies, made by a person who is designated, by the Minister of Finance Planning and Economic Development by notice in the Gazette, to withhold a percentage of the taxable value of the supply (i.e. a person in Uganda receiving payment from a Designated VAT Withholding Agent for a taxable supply).

CRITERIA FOR CONSIDERATION

The taxpayer will have to demonstrate, to the satisfaction of the Commissioner General, that they are a person or entity who has and will regularly comply with the obligations imposed by the Income Tax Act and the Value Added Tax Act, i.e. the extent to which an applicant is tax complaint is pivotal to the success of an application.

To this end, the URA has provided a checklist as a guide for applicants to assess their eligibility for the exemption and as an indication of the compliance requirements considered when granting or rejecting an application.

PERIOD OF EXEMPTION

A successful applicant will be exempt from the withholding of tax (income and VAT) for 12 months from 1st July 2025 to 30th June 2026.

The applicant will be expected to maintain full tax compliance during the period of exemption, failure to do so is grounds for the revocation of the same.

VERIFICATION OF EXEMPTION

Successful Applicants will be published by the URA on their Web Portal (website). Persons making payments to exempt persons and entities may verify the exempt status by checking the published list for the Tax Identification Number (TIN) of the exempt person.

POSITIVE IMPLICATIONS OF EXEMPT STATUS

A person or organisation exempt from Withholding tax on their Income Tax and VAT liability will be better able to utilise their cash flow in the interim period between when the payment for the goods or services is received and when the payment of the tax arising from the same is due.

This will free up working capital to enable you to meet other obligations or take advantage of other opportunities that need cash.

The liquidity required to meet the tax and customs obligations on the importation of goods would be assuaged by the removal of the requirement to pay withholding tax related to the same.

In addition, the exemption status is a positive indicator to your customers, clients, and donors that your organisation is compliant and a contributing member to the public revenue-raising effort.