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Income Tax in Uganda



Personal Income Tax:

Tax Return:

The taxable persons are required file their return upto 31st December and the tax year ends on 30th June.

Tax Rate:

For Residents

Annual Income
Tax
From
To
0
2,820,000
Nil
2,820,001
4,020,000
10%
4,020,001
4,920,000
120,000 + 20% of amount exceeding 4020001
Above 4920000
300,000 + 30% of the amount exceeding 4920000

Where the chargeable income of an individual exceeds 120,000,000 an additional 10% on the amount exceeding Ushs 120,000,000 per annum.

For Non Residents

Annual Income
Tax
From
To
0
4,020,000
10%
4,020,001
4,920,000
4,020,000 + 20% of amount exceeding 4,020,001
4,920,001
120,000,000
582,000 + 30% of amount exceeding 4,920,001


Where the chargeable income of an individual exceeds 120,000,000 an additional 10% on the amount exceeding Ushs 120,000,000 per annum.

Residency Rule:

The rate of tax applicable to an individual depends on their residency status. The Ugandan Income Tax Act, Cap 340 states that for an individual to be considered a resident person, they should;

1.      have a permanent home in Uganda; or
2.      be present in Uganda –

i)                   for a period of, or periods amounting in aggregate to, 183 days or more in any twelve-month period that commences or ends during the year of income; or
ii)                during the year of income and in each of the two preceding years of income for periods averaging more than 122 days in each such year of income.

Taxable Income:

The gross income of an individual for a year of income is the total amount of one’s employment income, business income, and property income.

Employment income:

An individual's employment income is any income derived from employment and includes wages, salaries, leave pay, payment in lieu of leave, overtime pay, fees, commission, gratuity, and bonus or any other allowance received. It also includes the value of any benefit granted during employment and any payments on the termination of employment.

Business income:

An individual’s business income is any income derived by a person in carrying out a business and includes the following amounts:

· Proceeds derived from business operations, such as disposal of business stock and similar amounts from trading.

· Capital gains on the disposal of business assets or cancellation of business debts.

· Rental income from a business of letting properties.

· Interest from any business of money lending.

· Gifts derived by a person in the course of past, present, or prospective business relationships.

Property income:

Income from properties includes any interest, annuity, dividends, rents, natural resource payments, and similar amounts received by the individual. Tax is charged separately for rental income.

Exempt Income:

· Any benefit that is provided to an employee with a value not exceeding Ushs. 10,000 (currently equivalent to USD 3.3)

· 10% monthly NSSF contribution for resident employees as defined by NSSF Act

· Medical and life insurance provided to an employee. Please note that Life insurance exemption only applies where the employer is a tax paying entity.

·  Cost of passage to and from Uganda in respect to the particular employment to be exercised in Uganda

Deductions from Income:

Personal deductions:

No deduction is allowed for any expenses that are private or domestic in nature. Such expenses include costs of maintaining the individual's family and residence, costs of commuting to work, and costs of clothing worn to work.

Charitable contributions:

Individuals are allowed deductions for donations made to amateur sporting associations, religious institutions, charitable institutions, or educational institutions of a public character. However, the allowed amount cannot exceed 5% of the chargeable income.

Interest expenses:

Interest incurred on a debt by an individual is only allowed to the extent that the debt obligation was incurred in the production of income included in gross income.

Personal allowances:

The first UGX 2,820,000 of a resident individual's annual income falls in the nil tax bands and does not suffer tax. This is the amount allowed to an individual tax free.

Business deductions:

In determining the income chargeable to tax, an individual is allowed by the law to make the following deductions from one’s gross income:

· All the expenditures and losses that were incurred by a person during the year of income to the extent to which the expenditures and losses were incurred in the production of the income that is included in gross income.

· Any loss incurred by the individual on the disposal of a business asset during the year of income.

· In cases where the individual receives rental income, an amount equal to 20% of the rental income is allowed as expenditure and losses incurred in the production of that income. The balance is then taxed at 20%.

· Local service tax paid by an individual.

Any expenditure or loss that is business in nature but which is recoverable under any form of insurance or contract is not allowable for deduction.




Corporate Tax:

A resident company is taxed on its income from all geographical sources. A non-resident company is only subject to Uganda income tax on income derived from sources in Uganda.

The income tax rate applicable to the chargeable income of companies is 30%, with the exception of resident companies whose turnover does not exceed UGX 150 million, to whom presumptive tax applies.

Chargeable income is gross income for the year less the total deductions allowed under the ITA.

Resident companies with turnover of less than UGX 150 million:

A rate of 1.5% of turnover is used to determine income tax payable by a resident company whose turnover is between UGX 50 million and UGX 150 million, subject to certain thresholds.

However, on application to the Commissioner, a resident company with a turnover of less than UGX 150 million may be taxed at 30%.

This category excludes professionals, public entertainment services, public utility services, or construction services.




Taxable Income:

In arriving at chargeable income (taxable income), one has to go through the process of adjusting profits by taking into account deductions allowed and deductions not allowed.

Inventory valuation:

A taxpayer is allowed a deduction for the cost of trading stock disposed of during the year, which is determined by adding to the opening value of the trading stock the cost of trading stock acquired during the year and subtracting the closing value of stock. The opening value of the stock is the closing value for the previous year or, where the taxpayer commenced business during the year, the market value at the time of commencement of the business of the trading stock acquired prior to commencement. The closing stock valuation method is the lower of cost or market value. Trading stock is allowed to be valued using either the absorption costing or prime cost method. The stock valuation method chosen may not be changed, except with written permission of the Commissioner.




Capital gains:

Capital gains are included in and taxed together with the business income at a rate of 30%. There is no separate capital gains tax. Capital gains arise on disposal of non-depreciable business assets as well as sale of shares.

Dividend income:

The general rule is that dividend income is taxable as part of business income at a rate of 30%. Dividend income is also subject to WHT at the rate of 15%. The WHT paid in respect of the dividend income is creditable where the income is subject to the corporation tax rate of 30%. The WHT rate for dividend payments to resident persons is 15%. For dividends paid out by companies listed on the stock exchange to individuals, the rate is 10%.

Dividend income is exempt from tax if the recipient company directly or indirectly controls the paying company through ownership of 25% or more of the voting power of the paying company.

Interest income:

The general rule is that interest income is taxable as part of business income at a rate of 30%. Interest income is also subject to WHT at the rate of 15%. The WHT paid in respect of the interest income is creditable where the income is subject to the corporation tax rate of 30%. Also, interest income earned with respect to government securities is subject to tax at 20% as a final tax.

Royalty income:

The general rule is that royalty income is taxable as part of business income at a rate of 30%. Royalty income is also subject to WHT at the rate of 15%. The WHT paid in respect of the royalty income is creditable where the income is subject to the corporation tax rate of 30%.

Rental income:

Companies are required to disclose their rental income separately from other business income. Taxable rental income is the net income after allowing for any expenditures and losses in respect of the rental income derived. The rate of tax applicable is 30%.

Foreign income:

Foreign income is taxable on resident recipients, and tax suffered in the country where it is sourced (if any) is creditable, subject to the provisions of any double taxation agreements (DTAs). This credit is limited to the amount of Ugandan tax payable on that income.

There are no provisions for deferring tax on income earned abroad by tax residents.




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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.



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This blog is Created by CA Anil Kumar Jain.