On 26 November 2020, the Uganda Revenue Authority Published a series of amendment acts that were signed into law (assented) on 24 November 2020. The amendment acts provide for the measures announced earlier in the year for the 2020-21 Budget and certain other changes for COVID-19. The measures, which are largely in line with earlier announcements, are summarized as follows:
Tax Procedures Code (Amendment) Act 2020
The Tax Procedures Code (Amendment) Act 2020 is effective retroactively from 1 April 2020 and provides for a deferral of the liability to pay tax until 31 December 2020 for certain taxpayers that were liable to pay tax on or after 1 April 2020 and before 30 June 2020. The deferral applies for registered taxpayers in the business of education, tourism, manufacturing, horticulture, or floriculture. A deferral to 31 December 2020 is also provided for taxpayers liable to withhold tax (PAYE) on employment income paid to employees during the same period. Note, it was originally announced that the deferral would be provided until September 2020 subject to the condition that turnover is less than UGX 500 million per annum, which is not included in the final Act.
Further to the deferral, it is provided that any interest and penalty outstanding as at 30 June 2020 is waived.
Value Added Tax (Amendment) (No. 2) Act 2020
The Value Added Tax (Amendment) (No. 2) Act 2020 provides for an exemption from VAT on supplies of specified medical goods used in the prevention of the spread and the treatment of the COVID-19 pandemic, as well as raw materials and inputs used for the manufacture of the specified medical goods. The Act is effective retroactively from 1 April 2020.
Income Tax (Amendment) Act 2020
The Income Tax (Amendment) Act provides for various changes effective retroactively from 1 July 2020.
One of the main changes includes amendments providing for the consolidation and adjustment of the conditions for the investment incentive providing a tax exemption on the income of operators of an industrial park or free zone, or the income of any other person carrying on a business outside of an industrial park or free zone. With the amendments, the main conditions for the exemption incentive include:
- A minimum capital investment requirement of USD 10 million for foreign investors and USD 300,000 for citizen investors (USD 150,000 for upcountry investments), over a period of at least ten years from the date of commencement of business (same minimums for additional investment by existing business);
- A minimum of at least 70% locally sourced raw materials, subject to availability; and
- A minimum of at least 70% employment of citizens earning at least 70% of total payroll.
Further, the scope of industry activities qualifying for the investment incentives to include:
- Processing of agricultural goods;
- Manufacture or assembly of medical appliances, medical sundries, pharmaceuticals, building materials, automobiles, and household appliances;
- Manufacture of furniture, pulp, paper, and printing and publishing of instructional materials;
- Establishment or operation of vocational or technical institutions;
- Carrying on business in logistics and warehousing, information and communications technology, or commercial farming; and
- Manufacture of tires, footwear, mattresses, or toothpaste.
In addition to the above, operators or other persons that seek to benefit from the income tax exemption are subject to a new requirement to declare qualifying income and related expenses in their annual return.
Qualifying income is determined according to the formula I x A/B, where:
- I is the sum of gross income and exempt income of the person for the year of income, before accounting for the qualifying income;
- A is the total amount of investment made by an investor from the beginning of the year of income in which the investment becomes a qualifying investment; and
- B is the sum of the amount of qualifying investments and the total investment made before the commencement of the current year of income.
Expenses related to the qualifying income is determined according to the formula E x F/G, where:
- E is the total allowable deductions for the year of income as provided for under the Income Tax Act;
- F is the qualifying income calculated as above; and
- G is the sum of gross income and exempt income of the person for the year of income, before accounting for the qualifying income.
Additional rules are also provided regarding the date of commencement of business and the amount of qualifying investment where construction or assembly is ongoing.
Other measures of the Income Tax (Amendment) Act 2020 include:
- The disallowance of a deduction for expenses of a person who purchases goods or services from a supplier who is designated to use the e-invoicing system unless the expenses are supported by e-invoices or e-receipts (see below);
- New withholding tax requirements, including that tax at the rate of 10% must be withheld on the gross amount of the following payments:
- commission payments by an insurance service provider to an insurance agent; and
- commission payments by a person to an advertising agent;
- A change in the provision for a 15% withholding tax rate on winnings from sports betting and pool betting, with the replacement of "sports betting and pool betting" with "betting or gaming";
- The introduction of a new return requirement for certain withholding agents, which requires that a withholding agent who makes a payment subject to withholding tax under specified sections of the Act must furnish a return of withholding tax for every month in the form specified by the Commissioner not later than 15 days after the end every month to which withholding tax relates, which includes the following:
- Section 83. Tax on international payments;
- Section 84. Tax on payments to non-resident public entertainers or sportspersons;
- Section 85. Tax on payments to non-resident contractors or professionals;
- Section 86. Taxation of non-residents providing shipping, air transport, or telecommunications services in Uganda;
- Section 117. Payment of interest to resident persons;
- Section 118. Payment of dividends to resident shareholders;
- Section 118A. Withholding tax from professional fees;
- Section 118B. Withholding of tax by the purchaser of an asset;
- Section 118C. Withholding of tax on payments for winnings of betting or gaming;
- Section 118D. Withholding tax on payments of re-insurance premiums;
- Section 118F. Withholding tax on commission paid by telecom service providers on airtime distribution and mobile money;
- Section 118G. Withholding of tax on commission paid to an insurance agent;
- Section 118H. Withholding of tax on commission paid to an advertising agent; and
- Section 119. Payment for goods and services by the government and by importers of goods, with certain exceptions;
- The list of institutions in the first schedule of the Act, which are exempt from tax, is expanded to include the Islamic Development Bank; and
- New presumptive tax rates are introduced for qualifying small business taxpayers (turnover not exceeding UGX 150 million), with different rates depending on whether proper records are kept:
- gross turnover does not exceed UGX 10 million per annum: Nil (0%)
- gross turnover exceeds UGX 10 million but does not exceed UGX 30 million per annum:
- tax rate without records - UGX 80,000
- tax rate with records - 0.4% over 10 million
- gross turnover exceeds UGC 30 million but does not exceed UGX 50 million per annum:
- tax rate without records - UGX 200,000
- tax rate with records - UGX 8,000 plus 0.5% over 30 million
- gross turnover exceeds UGX 50 million but does not exceed UGX 80 million per annum:
- tax rate without records - UGX 400,000
- tax rate with records - UGX 180,000 plus 0.6% over 50 million
- gross turnover exceeds UGX 80 million but does not exceed UGX 150 million per annum:
- tax rate without records - UGX 900,000
- tax rate with records - UGX 360,000 plus 0.7% over 80 million
With the new rates, small taxpayers are allowed to claim a credit for withholding tax paid and provisional tax paid.
Excise Duty (Amendment) Act 2020
The Excise Duty (Amendment) Act 2020 includes various excise tax changes effective from the date of publication.
Public Notice on E-Invoices and E-Receipts
In addition to the amendment acts, the Uganda Revenue Authority has also published a public notice including that the effective date for the mandatory use of the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) for the issuance of e-invoices and e-receipts by all Value Added Tax (VAT) registered taxpayers has been extended from 1 October 2020 to 1 January 2021. From this date, the EFRIS system must be used by every VAT-registered taxpayer to issue e-invoices or e-receipts for every supply made, whether exempt or taxable, and any claim for an input credit or refund must be supported by an e-invoice or e-receipt.