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Uganda Tax Bills for 2023 Include New Rules for Taxation of Non-Resident Digital Service Providers, New Loss Restrictions, and Other Measures — Orbitax Tax News & Alerts

The Parliament of Uganda has published the tax bills for 2023, including the Income Tax (Amendment) Bill 2023. One of the main measures is the introduction of a new Section 86A on the taxation of non-residents providing digital services. The new section provides that tax will be imposed on every non-resident person deriving income from providing digital services in Uganda to a customer in Uganda at the prescribed rate of 5%. For this purpose, income is derived from providing a digital service in Uganda to a customer in Uganda, if the digital service is delivered over the internet, electronic network, or an online platform. Digital Services include:

  • Online advertising services;
  • Data services;
  • Services delivered through an online marketplace or intermediation platform, including an accommodation online marketplace, a vehicle hire online marketplace, and any other transport online marketplace;
  • Digital content services, including accessing and downloading of digital content;
  • Online gaming services;
  • Cloud computing services;
  • Data warehousing;
  • Services, other than the above, delivered through a social media platform or an internet search engine; and
  • Any other digital services as the Minister may prescribe by statutory instrument.

Another important measure concerns the carry forward of losses. Under current rules, Uganda generally allows losses to be carried forward indefinitely. A new provision would limit the carry forward of losses, providing that a taxpayer carrying forward losses after a period of five income years will only be allowed a deduction of 50% of the losses carried forward at the beginning of the following year of income in determining the taxpayer's chargeable income in the subsequent years of income.

An important measure is also included concerning withholding tax on the purchase of assets. Under current rules, when a resident person purchases an asset from a non-resident person, they must withhold tax at a rate of 10%, and when a resident person purchases a business or business asset, they must withhold tax at a rate of 6%. These rules would be replaced, providing that tax must be withheld at a rate of 5% when a person purchases an asset situated in Uganda in general, with some exceptions. There is no distinction regarding the residency of the purchaser or seller.

Source of income rules are also changed in relation to industrial property or intellectual property. Under current rules, income from the disposal of industrial or intellectual property used in Uganda is considered royalty income derived from sources in Uganda. This is changed such that income from the disposal of industrial property or intellectual property used in Uganda is separately considered income from Uganda, and not considered royalty income. Several measures are also included in relation to the taxation of capital gains and collective investment vehicles.

Other tax bills include:

Subject to approval, the differed tax bills are generally to enter into force on 1 July 2023.