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Foreword

This guide has been prepared for the use of members of the Indian Asociation Of Uganda. The guide is intended to provide general information about Uganda and its regulatory system to those contemplating doing business in Uganda. It does not give comprehensive and detailed information on which investment decisions can be based.

Because Ugandan laws and regulations are complex and constantly changing, it is of paramount importance that in specific cases all matters of details are reviewed and, where appropriate, professional advice is sought. The Indian Association cannot be held responsible for any action undertaken on the basis of information in this booklet.

Indian Association Of Uganda

October 2004

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General Information

Size, location and climate

Uganda is roughly the size of United Kingdom, with a total area of 236,580sq km, of which 197,000sq km is land. The rest of the area is water with lakes, rivers and marshland.

Uganda lies astride the equator at latitudes 4 degrees east and 35 degrees west. It shares borders with Sudan in the north, the Democratic Republic of Congo to the west, Rwanda and Tanzania to the south and Kenya to the east.

While most of the country is flat, with mountains only in the extreme east (Mt. Elgon), extreme west (Rwenzoris) and near the border with Rwanda, Uganda has diverse climatic conditions ranging from the pleasant sunshine of the lowland areas and the lake shores to the chilly climate of the Rwenzori mountain range. Much of the country is at an elevation of about 1,000 metres with temperatures that average 26 degrees centigrade during the day and 16 degrees centigrade at night. The hottest months are December to February, when average temperatures reach 29 degrees centigrade.

Constitution and Population

Uganda is a Sovereign State and a Republic. All power belongs to the people who shall exercise their sovereignty in accordance with the constitution. The people express their will and consent on who shall govern them and how they should be governed through regular, free and fair elections of their representatives or through referenda.

The population of Uganda is estimated at 26 million. Uganda is predominantly rural. 10% of the population lives in urban areas.

Currency and Languages

The Ugandan currency is the shilling with both coin and note denominations. One US dollar currently exchanges for shillings 1,875. In addition to the United States dollar, other internationally convertible currencies are freely changed by banks and foreign exchange bureaux.

English is the official and most generally used written language. The most widely spoken African languages are Luganda and Kiswahili. There are 30 other languages/dialects also in use.

Legal System

Uganda inherited its legal system from the British which is a common law system. This foundation has been supplemented by a combination of case laws developed by the courts, customary and statutory law. The judiciary is independent and functions without interference.

Economy and Economic arrangements

The economic reforms implemented by the present government in Uganda since 1987, coupled with political stability, have contributed to economic growth rates averaging 6.5% per annum in the last decade. This has made Uganda one of the fastest growing countries in Africa. Inflation is under control and has been maintained below 10% per annum for the last six years.

As well as pure growth, Uganda is seeing a shift from the firmly agricultural based economy towards diversification into other sectors like construction, manufacturing and regional trade and distribution.

Uganda is a member of many International and regional Institutions. Regionally it has joined the Common Market for Eastern and Southern African States (COMESA) with a market of over 300 million people in 20 countries. Uganda is also a member of the East African Co-operation bringing together Kenya, Tanzania and Uganda.

Uganda has signed bilateral trade and investment promotion agreements with the United Kingdom, Italy, Kenya, Tanzania, South Africa, Egypt, India, China, Germany, Netherlands and many other countries.

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Investment Factors

Special Features

Few countries in Africa provide the sort of strategic location that Uganda offers to the investors. The country is located at the heart of East and Central Africa, a region that includes some of Africa’s most economically endowed nations. This location at the heart of sub Saharan African gives Uganda commanding importance as a base for regional trade and investment.

The government actively encourages investment by permitting the importation of capital equipment free of VAT and duty. The incentive regime on offer provides substantial benefits to the private sector. At the same time, the government is committed to full liberalisation of the economy in order to allow the private sector to flourish. There are no barriers whatsoever to the nature of business activity nor to ownership of private enterprises. 100% foreign ownership of projects is allowed. The private sector enjoys a healthy dialogue with government over policy through various lobby groups such as the Private Sector Foundation, the Chamber of Commerce and Uganda Manufacturers Association. Above all, government has set up the Uganda Investment Authority to be a ‘one-stop facilitator’ for foreign and local investment and is responsible for: -

· Receiving all applications for investment licences for investors intending to set up business enterprises in Uganda

· Issuing investment licences

· Securing all licences, authorisations, approvals and permits necessary to give full effect to the approved investment licence

· Recommending to the Government of Uganda national policies and programmes designed to provide investment in Uganda

· Providing information on matters relating to investment in Uganda

· Assisting potential investors in identifying and establishing investment projects in Uganda

· Locating land for industrial use

Government Incentives

Along with its excellent macro-economic record, Uganda provides the following incentives for private investors: -

· Uniform Corporation Tax rate of 30%.

· Import duty exemption/concessions for plant & machinery

· Duty draw back facility for exporters

· Special investment allowance in form of accelerated depreciation of 50-75% on plant and machinery

· 100% initial allowance for training, scientific research and mineral exploration expenditures

· VAT deferral facilities

Sources of Finance

In addition to local and international commercial banks, three development banks operate in Uganda and provide development loans to finance commercial, industrial and agricultural development projects.

Foreign Exchange Controls

The foreign exchange market is now wholly liberalised following a move by government, effective July 1997 to liberalise capital account transactions. Thus investors are free to bring in and take out capital without restriction.

Limitation on Foreign Investment

The investment code allows foreign investors to invest in all fields except those, which compromise national security and ownership of land. Regarding land, foreign investors may, however, lease land for up to 99 years. Foreign investors can also participate in joint ventures involving the outright purchase of agricultural land. For such cases, Ugandans must hold majority stake.

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Employment Regulations

Labour legislation

Statutory benefits and protection applicable to workers are currently provided principally by nine legislative acts. The Employment Decree of 1975 and Employment Regulations of 1977 cover contract of service, termination of contract, termination notices, protection of wages, hours of work, rest and holidays, employment of young persons and care of employees. This covers all manual employees.

Working Hours

The normal weekly hours of any employee must not exceed 48 hours. Any overtime worked must be paid at one and a half times the normal rate of pay.

Protection of Wages

Wages are paid in local currency and no unauthorised deductions can be made from the employee’s wages except:

· Contribution to the National Social Security Fund

· Graduated tax instalments

· Income tax

Employment of Women/Young Persons

Employment of women except those holding positions of management and are not performing manual work, is prohibited.

An employer is required to grant maternity leave to a pregnant female employee of 45 days for civil servants while for private employment as agreed through collective bargaining.

Contract of services cannot be made with the persons below 18 years of age. People under 16 years are not allowed to work unless on apprenticeship training. They are not allowed to work during the night in any industrial undertaking. A separate register for young persons is required, stating their age and condition and nature of their employment.

Social Security Fund

The Social Security Fund is a workers’ saving scheme sponsored by the government for the benefit of members. All establishments in the country having at least five employees are required to pay Social Security contributions to the fund, including the employee’s share of standard contribution based on wages earned. Employers contribute 10% of the wages/salaries and employees pay 5%.

Trade Disputes (Arbitration and Settlement)

Legal action deriving from the labour law falls within the jurisdiction of the labour courts. Questions on labour laws may be directed to the labour commissioner and advice can always be sought from the labour office of the area. Before any matter is brought to the labour court, generally there must be an attempt at conciliation heard by arbitration tribunals, Boards of Enquiry and conciliation.

Foreigners

Employers intending to bring in highly specialised workers are asked to advertise those vacancies in the local press, radio and television. Only when persons with the required expertise are not locally available should applications for work permits for foreign workers be sought from the Immigrant Control Board for a specific period of time. If an investment licence has been obtained, then the application should be made through the Uganda Investment Authority who recommends to the Immigrant Control Board whether or not the work permit should be issued.

Entry Requirements

All visitors are required to have passports valid three months after period of intended stay. Visas are required for visitors except some nationalities from commonwealth countries. The investors, workers and technocrats employed are required to pay a bond equivalent to a one-way ticket which remains their money. Work permits are given for a minimum period of one year and a maximum of three years but are renewable for a longer period.

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Types of Business Organisations

Principal Forms of Business

The following alternative business entities are available to investors who want to conduct business in the country:

Sole Proprietorship

A Sole proprietor is an individual engaged in a business or profession on his own account. Any individual is free to establish a business in Uganda. The proprietor is responsible for the business and is personally liable for the business debts.

To register a business name, a statement in writing in the prescribed form containing the following particulars must be furnished to the Registrar:

· The business name

· The general nature of the business

· The name, surname, nationality and usual place of residence.

The cost of registering the name is very minimal (US$ 100). The usual balance sheet date is 30^th June to coincide with the fiscal year. However, a person can opt for any other accounting date, the most common being 31^st December.

Partnership

This form of business is mainly used for professional, small and family-owned firms.

All partners are jointly and severally liable for the obligations of the partnership. A partnership is governed by the Partnership Act (Cap.86).

The procedure, cost of forming a partnership and the usual balance sheet date is the same as that of Sole Proprietorship.

Private Limited Liability Company

This form of business is the most common for foreign investors. Companies that incorporate under the Companies Act (Cap.85) enjoy legal entities separate and apart from those individuals who comprise the officers, members and shareholders of the company. This means that a company enjoys a legal personality fully distinguished from the people who run it.

To form the company, the following documents must be submitted to the Registrar of Companies:

· Memorandum of Association

· Articles of Association

· A statutory declaration by a legal practitioner engaged in the formation of the company or by a person named in the Articles as a director or secretary of compliance with the registration requirement of the Act.

· A statement of nominal capital – (There is no minimum capital requirement).

A private company must have at least two members and at least two directors and can commence business immediately upon incorporation.

The formation cost is US$ 1000 plus 1% stamp duty on nominal share capital and the usual balance sheet is 30^th June. However, a company can opt for another accounting date.

Public Limited Liability Company

To incorporate a public company, there must be at least seven members owning shares with no maximum limit. In addition, it must have a certificate to commence business before operating.

All the other formalities are the same as forming a private company except the following additional documents are required.

· A statement with the names and particulars of all the directors and secretary signifying their consent to be such.

· A prospectus (or statement in lieu of prospectus).

Foreign Branch

Business may be carried out in Uganda through a company incorporated outside Uganda. Such a company must however register a branch in Uganda by submitting to the Registrar of Companies the following documents:

· A certified copy of the charter, statutes or memorandum and articles of association of the company in English.

· A list of directors and secretary, their names, usual postal address, nationality and business occupation.

· The full address of the registered or principal office of the company.

· A statement of all subsisting charges created by the company

· The names and addresses of residents authorised to accept service of process and notice.

The cost of forming a foreign branch is approximately US$ 1000.

Legal, Accounting and Audit Requirements

For both private and public limited companies, a company secretary is required to file the necessary returns with the Registrar of Companies and an annual audit is required by law. Once a year an annual return is required to be filed with the Registrar of Companies within 42 days of the Annual General Meeting. For public companies, a copy of the audited financial statements is required to be filed together with the annual return and is available for public inspection.

For a foreign branch, audits are not required by law (and the scope of any audit can be negotiated). However, for tax purposes the financial statements are required to be certified by Certified Public Accountants. The filing requirements for the Registrar of Companies are minor (but the company financial statements as a whole may have to be filed). Once registered the company will be subject to the provision of the Companies Act (Cap.85) and shall be expected to make appropriate returns to the Registrar of Companies.

For both sole proprietors and partnerships, the tax law requires their financial statements to be certified by Certified Public Accountants.

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TAXATION

Fiscal year

The fiscal year is from 1^st July to 30^th June each year. The year of income is the fiscal year preceding the assessment year, but if the assessee opts for his or her own accounting period ending within a fiscal year, the year of income shall be the period of 12 months ending on that date. These measures also apply to sole traders and partnership.

General Structure

The Ugandan tax system includes both direct taxes and indirect taxes. These taxes are a major source of government revenue and mainly comprise of Income Tax, Customs and Excise Duties, Value Added Tax (VAT) and other miscellaneous taxes.

The collection and administration of the above taxes falls under the responsibility of the Uganda Revenue Authority (URA). The strengthening of the administration at the URA is being done on a continuing basis.

The major pieces of tax legislation are the Income Tax Act 1997 replacing the Income Tax Decree 1974, the Customs Tariff 1970 and the Excise Tariff Act 1970 and VAT Statute, 1996. The Income Tax Act 1997, which got its assent on the 23^rd December 1997 applies to years of income commencing on or after 1^st July 1997. Its main objectives are: -

· To consolidate the existing income tax legislation.

· To reform and modernise the income tax provisions.

· To simplify the income tax code to ease administration for the Uganda Revenue Authority and the taxpayers.

Case Law

Tax disputes are normally resolved outside the court system. There is little case law in Uganda. Therefore interpretation of tax laws and ordinances plays a more important role in tax administration than does case law. The administrative instructions and the interpretation of the laws are the responsibility of the Commissioner General.

A new tax appeal tribunal has been recently set up. This has provided taxpayers with a mechanism to deal with disputed assessments.

Forms Vs Substance

Ugandan tax statutes are like those of UK. The tax authorities have the power to interpret the statutes and can require the recalculation of taxable income based upon substance.

Calculation of taxable income

Adjustments are made to book income to calculate taxable income to conform to the tax regulations.

Income Tax Law

Income Tax is charged upon all income of a person who has chargeable income for the year of income whether resident or non-resident, which accrued in or was derived from Uganda. Residents have to pay tax on income derived from all geographical locations. An individual is resident for tax purposes if he has a permanent home in Uganda for any period in particular year of income under consideration or if he has no permanent home in Uganda but was present in Uganda for a period or periods amounting in the aggregate to 183 days or more in that year of income or was present in Uganda in that year of income and in each of the two preceding years of income for periods averaging more than 122 days in each year of income.

Foreign source income derived by a short – term resident of Uganda is exempt form tax. “A short term resident” means a resident individual, other than a citizen of Uganda, present in Uganda for a period or periods not exceeding two years.

A body of persons is resident for tax purposes if the body is a company incorporated under the laws of Uganda or the management and control was exercised in Uganda at any time during the year of income or it undertakes the majority of its operations in Uganda during the year of income.

Personal Taxation

The tax rates are as follows: -

Residents Tax Rate

Annual Taxable Income Shs. %

First shs 1,560,000 0

Next shs 1,260,000 10

Next shs 2,100,000 20

Over shs 4,920,000 30

Tax on the first shs 4,920,000 is Shs 546,000 (11.1%).

Non Residents Tax Rate

Annual Taxable Income Shs. %

First shs 2,820,000 10

Next shs 2,100,000 20

Over shs 4,920,000 30

Tax on first shs 4,920,000 is Shs 702,000 (14.3%).

Small Businesses

Resident taxpayers whose gross revenue is less than shs 50m have an option to either pay tax as determined under the normal provisions of the Act or to pay on the gross revenue as stipulated in the Act. This provision does not apply to professionals or resident taxpayers providing services.

Taxable Benefits

· Motor Vehicles

The taxable benefit is 20% of the market value of the motor vehicle when it was first provided to the employee. For the purposes of determining the market value of the vehicle when first provided to the employee, the full purchase price shall be depreciated at 35% per annum on a reducing balance method.

· Housing

The value of the benefit is the lesser of:

(a) The market value; or

(b) 15% of the employment income, including the amount referred to in paragraph (a).

· Utilities and domestic assistance

The value of benefit is the total cost to the employer.

All other benefits provided by an employer to an employee are the market value of the benefit.

All allowances including housing, travelling etc. are taxable.

Non Taxable – Benefits

· Cost of passage in respect of employees recruited outside Uganda.

· Reimbursement or discharge of an employee and his dependant’s medical expenses.

· Provision for any meal or refreshment as long as the same is provided to all employees on equal terms.

· Interest on loan if it is less than Shs 1m.

· Life insurance premium contribution on the life of the employee or his dependants.

· Contributions to a retirement fund.

· Pensions.

A Director is only entitled to the above mentioned non – taxable benefits if he devotes substantially the whole of his or her time to the service of the company in a managerial or technical capacity and does not have an interest of more than five percent in the underlying ownership of the company.

Corporate Taxation

The corporation tax rate applicable to companies other than mining companies is

30%.

In respect of mining companies, the rate is calculated according to the following formula: -

70 – 1500/x.

Where x is the percentage points of chargeable income to the gross revenue of the company. If the rate exceeds 45% than the rate of tax shall be 45%. If the rate is less than 45%, then the rate of tax shall be 25%.

In respect of non-resident company carrying on business in Uganda through a branch which has repatriated income, then an additional tax of 15% is imposed on the repatriated income in addition to the corporation tax rate of 30%. Repatriated income is calculated as follows:

Total net assets at beginning of year less total net assets at end of year plus net profit after tax.

Capital Allowances

· Wear & Tear Allowance

Calculated on cost, net of any initial allowance, on a reducing balance basis as follows:

Class Rate

1 Computers and data handling equipment 40%

2 Vehicles (if not commercial, limited to shs 30m) with

seating capacity of less than 30 passengers and vehicle

with load capacity of less than 7 tonnes, construction

and earth moving equipment 35%

3 Vehicles with seating capacity of more than 7 tonnes,

trucks, tractors, trailers and trailer mounted containers,

plant and machinery used in farming, manufacturing

or mining operations. 30%

4 Rail road cars, locomotives and equipment; vessels,

barges, tugs, and similar water transportation equipment;

and machinery; office furniture, fixtures and equipment;

any other assets not included in another class 20%

· Initial Allowance

Allowed on cost of plant and machinery used in the production of income at a rate of 75% if the asset is placed in service outside certain prescribed areas or 50% otherwise.

For industrial buildings whose construction commenced on or after 1^st July 2000, the rate of deduction is 20%.

· Industrial Building Allowance

Allowed at a rate of 5% on a straight line basis, on the cost of construction or if building purchased, the construction cost incurred by the vendor, to the following operations or businesses:

· Manufacturing

· Mining

· Approved Hotels and Tourist Lodges

· Approved Hospitals

· Approved Commercial Buildings

· Farming

Expenditure incurred in acquiring farm works is included in class 4 above. Capital expenditure incurred on acquisition or establishment of a horticultural plant, construction of green house and draining or clearing land shall be allowed a deduction at a rate of 20% per year on a straight-line basis.

Other Taxes

Withholding Tax Rates

· Any dividend or interest paid to a resident individual or companies is subject to a withholding tax of 15% which is calculated on the gross amount of the payment. The withholding tax is a final tax for resident individuals. For resident companies, such tax on interest is offset against the final tax liability and on dividend it is the final tax.

· Payments for goods and services by government institutions or any person designated in a notice issued by the Minister amounting to shs 1m or more is subject to a withholding tax deduction of 4%. All imports, apart from importation of raw materials, are also subject to a withholding tax of 4%. Such tax is credited to the taxpayer as income tax paid.

· Any management of professional fee, royalty, dividend, interest, natural resource payments, contract payments and payments to sportsmen and entertainers paid to non- residents is subject to a withholding tax of 15% which is calculated on the gross amount of the payment.

Income Tax on Partnerships

A partner is taxed at the individual rates of tax on the sum of the remuneration from the partnership, interest on capital and a share of profits from the partnership.

Capital gains on business assets

Any gain derived by a person on disposal of a business asset other than trading stock or depreciated asset shall be included in the gross income. Correspondingly any loss incurred on such disposal is allowed as a deduction.

Stamp Duty

Payable on specific transactions i.e. formation of companies, transfers of property, registration of properties etc, at varying rates of value of subject matter.

Value Added Tax

Value Added Tax is levied at a standard rate of 17% and 0% on various goods and services as contained in VAT Statute. The threshold for registration is shs 50m. VAT should be remitted to the tax authorities within 15 days after the end of the month.

Airport and Port Taxes

Levied at varying rates contained in the relevant Act. Currently, the airport fee is US $ 40.

Local Tax

Graduated personal tax is imposed on every person 18 years or over residing in a local authority and having income from farming, business or employment. Assessments are issued by urban and rural local authorities based on annual salaries or wages or other income, and the tax is payable to the assessing local authority. The standard rate is shs 12,000 and rises to a maximum if shs 80,000. The tax is an allowable deduction for purposes of individual income tax. Apart from graduated tax there are no state or provincial income taxes.

Tax on payroll (Social Security)

Social security contributions are levied on employees at the standard rate of 15% of the total monthly salary and wages. The employee and employer contribute 5% and 10% respectively. Basically, this scheme only provides a refund of total contributions to the individual on retirement.

Rental Income

Rental income of individuals is taxed separately from other sources of income. A flat rate of 20% on 80% of the gross rental income in excess of shs 1,560,000 per annum applies.

Land and Property

The local administrators levy rates on property, which vary according to valuations.

Foreign Tax Relief

Uganda has double taxation agreements with UK and South Africa. The treaties with Kenya and Tanzania are in the final stages of approval. A protocol with India, Mauritius and Italy are in the final stages of agreement. A resident taxpayer is entitled to credit for any foreign income tax paid by a taxpayer in respect of foreign – source income included in the gross income of the taxpayer. The amount of the foreign tax credit shall not exceed the Uganda income tax payable on the taxpayer’s foreign – source income.

Customs and Excise Duty

The Customs Tarrifs Act of 1970 levies at varying rates customs duty on goods and services which are defined in the Act.

Gifts and Inheritance Taxes

There is no estate duty in Uganda, but income from any estate is taxable at the corporation rate. There is no taxation of any type on gifts made or received.

PAYMENT OF TAXES

Companies

Companies are required to pay 50% of their estimated tax six months after the commencement of their financial year. The other half is due at the end of the financial year. The company estimate is made in a provisional return which is submitted within the first six months of the company’s financial year. The final tax is due and payable before a final return is filed with the tax authorities. The final return is due for filing four months after the accounting year-end. The withholding tax deducted should be remitted to the tax authorities within 15 days after the end of the month in which the deduction was made.

Individuals

Individuals, having income other than employment income, are required to pay their estimated tax in four equal instalments beginning in their fourth month after the commencement of their financial year and thereafter by sixth, ninth months and at the end of the financial year. They file returns in the same way as companies. Employers deducting PAYE are required to remit these deductions to the tax authorities before the 15^th day of the month following the month in which the deduction was made.

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A Guide To Doing Business In Uganda

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C o n t e n t s

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Foreword

Indian Association Of Uganda

October 2004

General Information

Size, location and climate

Constitution and Population

Currency and Languages

Legal System

Economy and Economic arrangements

Special Features

Capital Allowances