UgandaTax Obligations Detailed

In Uganda, employers have various tax obligations related to payroll, social security, and other deductions.

Pay As You Earn (PAYE)

PAYE is a tax deducted from employees' salaries based on their earnings. The employer is responsible for calculating, withholding, and remitting this tax to the Uganda Revenue Authority (URA).

• Tax Rates: PAYE uses a progressive tax system with rates ranging from 0% to 30% for regular employment. Part-time employment is taxed at either 30% or 40% depending on income thresholds. Income below UGX 235,000 is tax-exempt. Specific rates apply to different income bands.
• Deadlines: PAYE must be remitted to the URA by the 15th of the month following the payment of salaries.

National Social Security Fund (NSSF)

Employers are required to contribute to the NSSF for their eligible employees.

• Employer Contribution: 10% of the employee's gross salary (excluding non-cash benefits).
• Employee Contribution: 5% of the employee's gross salary (excluding non-cash benefits).
• Deadlines: NSSF contributions are typically made monthly, alongside PAYE remittances. Note that some sources state employer contributions as 5% and employee contributions as 10%, this information requires further verification.

Local Service Tax (LST)

Employees are subject to LST based on their income and residence. Employers are responsible for deducting and remitting this tax to the relevant local municipal council.

• Tax Rates: LST ranges from UGX 5,000 to UGX 100,000 annually, depending on income brackets.
• Deadlines: Typically due by November 15th each year.

Withholding Tax

Employers must withhold tax on certain payments, such as dividends, interest, and professional fees. The rate is generally 15%, but it can vary depending on the nature of the payment. This tax is remitted to URA.

Other Employer Obligations

• Record Keeping: Employers must maintain accurate records of employee earnings, tax deductions, and remittances for inspection by the URA.
• Tax Returns: Employers must file regular tax returns, including PAYE returns. Annual tax returns are due by December 31st, while provisional returns have different due dates.
• Compliance: Employers must ensure compliance with all tax regulations and seek guidance from the URA or tax professionals when needed.

Note: This information is current as of February 5, 2025, and might be subject to change. Consult the URA or a tax advisor for the latest regulations.

In Uganda, employee tax deductions encompass several areas, including Pay As You Earn (PAYE) income tax, National Social Security Fund (NSSF) contributions, and Local Service Tax (LST).

PAYE (Pay As You Earn)

PAYE is calculated based on progressive tax bands. The tax-free threshold is UGX 2,820,000 annually. Tax rates vary from 10% to 30% based on income levels, with an additional 10% for income above UGX 120,000,000.

Example: An employee earning UGX 10,000,000 monthly falls into the highest tax bracket. The applicable calculation would involve deducting the lower thresholds and applying the relevant percentages for each band. An additional 10% is applied for the income exceeding UGX 10,000,000 annually.

NSSF (National Social Security Fund)

NSSF contributions total 15% of an employee's gross monthly salary. Typically, 5% is deducted from the employee's salary, while the employer contributes the remaining 10%.

Example: For a monthly salary of UGX 1,000,000, the employee contributes UGX 50,000, and the employer contributes UGX 100,000.

LST (Local Service Tax)

LST is paid to the local government where the employee resides. It is deducted by the employer in four equal installments between July and October. The rates are dependent on income brackets.

Other Deductions

Other potential deductions include:

• Medical expenses reimbursements to employees.
• Employee share acquisition scheme benefits.
• Passage costs reimbursements.

Employer Responsibilities

Employers are responsible for deducting and remitting PAYE, LST, and their portion of NSSF contributions. They must also maintain accurate employee records and file necessary tax returns. PAYE and NSSF contributions are due by the 15th of the following month. LST is payable in four installments between July and October.

It's important to note that tax laws and regulations are subject to change. This information is current as of February 5, 2025. It's always advisable to consult official government resources or a tax professional for the most up-to-date information.

In Uganda, the Value Added Tax (VAT) is levied on most goods and services at a standard rate of 18%.

VAT Rates

• Standard Rate: 18% applies to most goods and services.
• Zero Rate: 0% applies to specific goods and services, primarily exports, certain essential goods like sanitary towels, and specific agricultural inputs.
• Exempt: Certain goods and services are entirely exempt from VAT, including certain medical services, financial services, and unimproved land.

VAT Registration

• Threshold: Businesses with an annual turnover exceeding UGX 150 million are required to register for VAT. A three-month threshold of UGX 37.5 million also applies.
• Non-Resident Businesses: Non-resident businesses supplying electronic services in Uganda are also required to register, regardless of turnover. There's generally no threshold for foreign companies with a permanent establishment in Uganda.
• Voluntary Registration: Businesses below the mandatory threshold can register voluntarily.

VAT Filing and Payment

• Returns: Registered businesses must file monthly VAT returns.
• Deadline: Returns are due by the 15th day of the month following the reporting period.
• Electronic Filing: Returns must be filed electronically.
• Payment: VAT payments are typically due with the filing of the return.
• Withholding VAT: Certain designated entities are required to withhold 6% of the VAT on payments to VAT-registered suppliers. This also applies to payments exceeding UGX 150 million annually or UGX 37.5 million quarterly made to non-registered suppliers.

Exempt Goods and Services (Examples)

• Medical and health services (certain specific supplies and medications may be zero-rated or exempt)
• Educational services
• Financial services
• Unimproved land
• Certain residential properties (leases and sales)
• Social welfare services
• Certain agricultural inputs (some may be zero-rated instead of exempt)

Zero-Rated Goods and Services (Examples)

• Exported goods and services
• Certain educational materials
• Sanitary towels, menstrual cups, and tampons
• Certain locally manufactured drugs and medicines

Recent Updates

• As of July 1, 2024, the VAT Act includes goods or services provided by an employer to an employee at no consideration as taxable supplies. The employer must pay 18% VAT on such supplies. Cash refunds are limited to claims exceeding UGX 10,000,000.
• A tax amnesty program is available with a deadline of December 31, 2024, allowing taxpayers to settle outstanding principal taxes and have associated interest and penalties waived.

Note: This information is current as of February 5, 2025, and is subject to change. Consulting with a tax professional is recommended for specific situations.

Uganda offers various tax incentives to stimulate investment and economic growth. These incentives target key sectors like agriculture, manufacturing, and technology, aiming to boost production, exports, and job creation.

Income Tax Incentives

• Export-Oriented Businesses: Companies exporting at least 80% of their production are exempt from income tax on profits from those exports.
• Agricultural Activities: Income from agricultural activities, particularly value addition and agro-processing, may be exempt or subject to reduced tax rates. New agro-processing ventures qualify for a one-year tax holiday, potentially extendable.
• Special Economic Zones (SEZs) and Industrial Parks: Businesses in designated SEZs and industrial parks enjoy a 10-year income tax exemption, subject to investment thresholds (USD 50 million for developers, USD 10 million for foreign operators, and USD 2 million for operators who are citizens of the East African Community). Existing operators can also qualify. Furthermore, investments in specified business activities within these zones, meeting certain criteria, can also qualify for income tax exemptions.
• Free Zones: Similar to SEZs, Free Zones offer 10-year income tax holidays for developers (minimum investment of USD 50 million) and operators (USD 10 million for foreigners, USD 2 million for Ugandan citizens). Free Zone enterprises also benefit from exemptions from taxes and duties on imported inputs used solely for development and production.

Tax Credits

• Foreign Tax Credit: Businesses can claim a credit for foreign taxes paid on income earned abroad, offsetting their Ugandan tax liability up to the standard corporate tax rate.

Depreciation and Allowances

• Accelerated Depreciation: Businesses making new investments outside the Kampala capital area can benefit from accelerated depreciation.
• Industrial Building Allowance: A 20% initial allowance is available in the first year, followed by annual deductions for industrial building investments.
• Wear and Tear Allowance: Businesses can deduct depreciation expenses for assets like machinery, vehicles, and equipment, with rates typically between 20% and 40% based on the asset type.

Value Added Tax (VAT) Incentives

• VAT Exemptions: Agricultural equipment, health services, educational materials, and certain capital goods used in key sectors (like manufacturing, agriculture, and health) may be exempt from VAT. VAT is also exempt on supplies in free zones, such as animal feeds, crop extension services, and irrigation equipment.
• VAT Refunds: Businesses involved in export production can apply for VAT refunds on inputs used in their processes.
• VAT Deferral: VAT on imported plant and machinery can be deferred and potentially waived with relevant authority approval.

Customs Duty Exemptions

• Capital Goods and Raw Materials: Certain capital goods and raw materials used in export-oriented production can be imported duty-free. In Free Zones, all imports for development and production are duty-free.

Other Incentives

• Mining Sector: Accelerated depreciation on mining equipment and tax holidays are available for this sector.
• Renewable Energy: Tax exemptions or reduced rates may apply to investments in renewable energy projects.
• Hotels and Tourism: Investments in hotels, hospitals, and certain other facilities in specific regions might qualify for tax holidays of up to 10 years.

Application Procedures

While the specifics of application procedures aren't available at this moment, generally, it's advisable to contact the Uganda Investment Authority (UIA) or the Uganda Revenue Authority (URA) for guidance on the respective processes and required documentation for each incentive.

This information is current as of today, February 5, 2025, and might be subject to change with future updates to Uganda's tax laws and regulations. It is strongly recommended to consult the official sources mentioned earlier, particularly the UIA and URA, for the latest and most precise details on available tax incentives and application procedures.