Executive summary

The President of the Republic of Uganda on 15 July 2024 assented 19 Bills into law. The Bills include: Income Tax (Amendment) Bill, 2024, Value Added Tax (Amendment) Bill, 2024, Excise Duty (Amendment) Bill, 2024, Tax Procedure Code (Amendment) Bill, 2024 and The Stamp Duty (Amendment) Bill, 2024.

The Bills had been passed by the Parliament of Uganda on 16 May 2024. The commencement dates for the laws are 1 July 2024.

This Alert highlights the key amendments with respect to each of the new laws.

Tax Procedures Code (Amendment) Act, 2024: Key reforms

Notice to Commissioner on intended destruction of goods before claiming a deduction or credit

The amendment provides that a taxpayer who intends to claim a deduction or credit for goods destroyed due to damage of trading stock, expiry of trading stock, damage of manufactured stock, expiry of manufactured stock or obsolete stock should, before destroying the goods, inform the Commissioner in writing, using a form determined by the Commissioner and made accessible to the public.

A taxpayer who fails to inform the Commissioner of the goods destroyed will be prohibited from claiming a deduction of or credit for the destroyed goods.

Waiver of interest and penalty on payment of principal tax

The amendment provides that any interest and penalty outstanding as of 30 June 2023 shall be waived if the taxpayer pays the principal tax by 31 December 2024.

If the taxpayer pays, by 31 December 2024, part of the principal tax outstanding as of 30 June 2023, the payment of interest and penalty shall be waived on a pro-rata basis.

Stamp Duty (Amendment) Act, 2024: Key reforms

Schedule 2 of the Stamp Duty Act, which provides for instruments chargeable to stamp duty, has been amended as follows.

Item 18 paragraph (a) is amended to provide that the stamp duty of 0.5% on the total value of nominal share capital or any increase of the nominal share capital of any company incorporated in Uganda with limited liability excludes shares acquired by investors in a private equity or venture capital fund regulated under the Capital Markets Authority Act, Cap. 84.

The amendment adds paragraph (e) to item 18 with the following item description:

These amendments expand the stamp duty exemption regime by excluding a stamp duty exemption on nominal share capital or any increase in shares relating to acquisitions by investors in venture capital or private equity.

Further, the amendment clarifies the conditions for exemptions applicable to strategic investment projects and expands the list of strategic investment projects in item 60A:

• By substituting for the words "capacity to use at least fifty percent of the locally produced raw materials, subject to availability" the words "capacity to use at least eighty percent of the locally produced raw materials, subject to availability," wherever they appear
• By substituting for the words "capacity to employ a minimum of one hundred citizens" with the words "employs at least eighty percent of its employees being citizens earning an aggregate wage of at least eighty percent of the total wage bill," wherever they appear
• By repealing the words "at the level of a national referral hospital" in Paragraph (d)
• By inserting the following text immediately after paragraph (f):

The amendment exempts from stamp duty the transfer of shares or other securities, to or by an investor in a private equity or venture capital fund regulated under the Capital Markets Authority Act, by inserting paragraph (f) under item 62, stating as follows:

The Income Tax (Amendment) Act, 2024: Key Reforms

Expansion of the definition of retirement fund

The amendment expands the definition of retirement fund to include the provision of benefits for members of the fund in the event of termination of service or upon the occurrence of an event specified in the written law, agreement or arrangement. The current definition recognizes retirement funds set up for the provision of benefits to members of the fund in the event of retirement or for the provision of benefits for defendants of members in the event of the death of a member.

Expansion of the general exemption regime

The amendment includes the following in the list of items exempt from income tax:

1. Income derived from or by private equity or venture capital fund regulated under the Capital Markets Authority Act, Cap. 84
2. Income derived from the disposal of government securities on the secondary market

The amendment expands the list of exempt income from qualifying investments by an operator in an industrial park, free zone or any other person carrying on business outside an industrial park or free zone, who meets the stipulated investment capital thresholds and conditions by adding the following investment activities:

1. Income of a manufacturer of an electric vehicle, electric battery or electric vehicle charging equipment or fabricates the frame and body of an electric vehicle
2. Income of an operator of a specialized hospital facility

Streamlining the capital gains tax exemption regime in relation to venture capital funds

The Amendment Act repeals the provisions regarding no gain or loss on chargeable income in relation to capital gains arising from the sale of investment interest of a registered venture capital fund where at least 50% of the sales proceed were reinvested within a year of income and the proportionate entitlement for nonrecognition of a gain or loss where only a percentage of the sales was reinvested. This amendment is intended to align the capital gains tax treatment of venture capital funds with the current amendment that wholly exempts a disposal of investment interest of a registered venture capital fund or private equity from capital gains tax.

Repealing the definition of a branch

The definition of a branch in the Income Tax Act is repealed. The amendment is intended to adopt the term "permanent establishment." The amendments align the Income Tax Act with international principles in double taxation treaties pertaining to definitions and concepts of taxation of permanent establishments.

Introduction of the definition of permanent establishment

The definition of a permanent establishment is introduced in the law to mean a fixed place of business through which the business of the enterprise is wholly or partly carried on and includes:

1. A place of management
2. A branch
3. An office
4. A factory
5. A workshop
6. A warehouse, in relation to a person providing storage facilities to others
7. A mine, oil or gas well, quarry or any other place of exploration for or extraction or exploitation of natural resources
8. A farm, plantation or other place where agricultural, forestry plantation or related activities are carried on
9. A sales outlet
10. A building site or a construction, installation or assembly project, or supervisory activities in connection with the site, project or activity that lasts for at least 90 days in any 12-month period
11. The furnishing of services, including consultancy services, by a person through employees or other personnel engaged by the person for such purposes provided that such activities continue in Uganda for a period of, or periods amounting in aggregate to, 183 days or more in any 12-month period that commences or ends during the year of income
12. Substantial equipment or machinery that is operated, or is available for operation, in Uganda for a period of, or periods amounting in aggregate to, 90 days or more in any 12-month period that commences or ends during the year of income

Permanent establishment considerations for associates

The amendment provides that the duration of activities referred to under subsections (1) (j), (k) and (l) above shall be determined by aggregating the period during which activities are carried on in Uganda by associates, provided that the activities of such associate in Uganda are connected.

The amendment also provides that where there are two or more associates carrying on concurrent activities, the period referred to under subsection (1) (j), (k) and (l) shall be counted only once for the purpose of determining the duration of activities.

Non-qualifying activities for permanent establishment

The amendment excludes the following from the definition of Permanent Establishment provided that such activity, or in the case of subparagraph (f), the overall activity of the fixed place of business, is of a preparatory or auxiliary character:

1. The use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the person
2. The maintenance of a stock of goods or merchandise belonging to the person solely for the purpose of storage or display
3. The maintenance of a stock of goods or merchandise belonging to the person solely for the purpose of processing by another person
4. The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or for collecting information for the person
5. The maintenance of a fixed place of business solely for the purpose of carrying on, for the person, any other activity
6. The maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e)

The amendment includes in the definition of a permanent establishment a fixed place of business that is used or maintained by a person if the same person or associate carries on business activities at the same place or at another place in Uganda, provided that the business activities carried on by the two persons at the same place, or by the same person or associates at the two places, constitute complementary functions that are part of a cohesive business operation and one of the following applies:

1. That place or other place constitutes a permanent establishment for the person or the associate under this section.
2. The overall activity resulting from the combination of the activities carried on by the two persons at the same place, or by the same person or associate at the two places, is not of a preparatory or auxiliary character.

Permanent establishment by way of principal agent relationship

The amendment provides that a permanent establishment is considered to have been established by a principal where a person is acting in Uganda on behalf of the principal, that principal shall be deemed to have a permanent establishment in Uganda in respect of any activities which the agent undertakes on behalf of the principal, if such agent:

1. Habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the principal, and these contracts are:
   
   1. In the name of the principal
   2. For the transfer of the ownership of, or for the granting of the right to use, property owned by the principal or that the principal has the right to use
   3. For the provision of services by the principal
   unless the activities of the agent are limited to non-qualifying activities for permanent establishment which, if exercised through a fixed place of business other than a fixed place of business to which subsection (5) would apply, would not make this fixed place of business a permanent establishment under subsection (5)
2. Does not habitually conclude contracts or play the principal role leading to the conclusion of such contracts, but habitually maintains in Uganda a stock of goods or merchandise from which the agent regularly delivers goods or merchandise on behalf of the principal
3. Does not habitually conclude contracts or play the principal role leading to the conclusion of such contracts, but habitually manufactures or processes in Uganda for the principal, goods or merchandise belonging to the principal
4. Does not habitually conclude contracts or play the principal role leading to the conclusion of such contracts, but habitually secures orders in Uganda wholly or almost wholly for the principal or associates

It is important to note that a deemed permanent establishment is not created where the agent acting in Uganda on behalf of the principal carries on business in Uganda as an independent agent and acts for the principal in the ordinary course of that business.

The amendment defines an "independent agent" to mean, an agent who acts exclusively or almost exclusively on behalf of one or more principals to which the agent is associated.

Calculation of chargeable income of permanent establishment

The amendment provides that the income of a nonresident person attributable to activities of a permanent establishment shall be taxed in Uganda, including:

1. Income derived from the sales of goods or merchandise in Uganda of same or similar kind as those sold through the permanent establishment
2. Income of other business activities carried on in Uganda that are of the same or similar kind as those carried out through the permanent establishment

Additionally, a permanent establishment shall not be allowed a deduction in respect of amounts, paid by the permanent establishment to the head office of the non- resident person or any of its other offices by way of:

1. Royalties, fees or other similar payments in return for the use of patents or other rights
2. Commission, for specific services performed or for management
3. Interest on money lent to the permanent establishment, except, in case of financial institution

It provides that in determining the chargeable income of a permanent establishment, expenses incurred for the purposes of the permanent establishment's business may be claimed as deductions. A permanent establishment shall be a distinct and separate entity from the nonresident person and transactions between the permanent establishment and nonresident person should be at arm's length.

The amendment also provides that the gross income of a permanent establishment, shall not include charges by the permanent establishment to the head office of the nonresident person or any of its other offices, by way of:

1. Royalties, fees or other similar payments in return for the use of patents or other rights
2. Commission for specific services performed or for management
3. Interest on money lent to the head office of the permanent establishment or any of its other offices except, in case of a financial institution

Expansion of sourcing rules

The amendment expands the sourcing rules by including the following:

1. A pension or annuity where the annuity is paid by a nonresident person as expenditure of a business carried on by the nonresident person through a permanent establishment in Uganda
2. Income derived from the payment of insurance premium, if the premium relates to the insurance or reinsurance of a risk in Uganda

Amendment to tax on payments to nonresident contractors or professionals

The Act has been amended by excluding an amount attributable to the activities of a permanent establishment of the nonresident in Uganda from withholding tax where such amount is subject to the operation of section 17 of the Act, which stipulates that the gross income of a nonresident person includes only income derived from sources in Uganda.

Replacing the word "branch" with "permanent establishment"

The Act is amended in Part IX of the Income Tax Act on International Taxation by substituting for the word "branch" the words "permanent establishment" wherever it appears. For instance, this would mean that Section 82 on Taxation of branch profits will be construed as "Taxation of permanent establishment profits."

Taxation of commission paid to payment service providers

The Act is amended to require a person who pays a commission to a payment service provider to withhold tax from the commission payment. Withholding tax at a rate of 10% will apply on the commissions paid to payment service providers, including banking agents and any other agent offering financial services.

Expanding the list of listed institutions

The Act is amended to expand the list of listed institutions under the first schedule to the Income Tax Act to include:

1. African Reinsurance Corporation (Africa Re)
2. International Regulatory Board of the East African Power Pool
3. Islamic Cooperation for the Development of the Private Sector

Excise Duty Amendment) Act, 2024: Key reforms

New definitions

The Amendment introduces the following definitions:

• "Fruit juice" is defined to mean unfermented liquid extracted from the edible part of a fresh fruit, whether or not the extracted liquid is diluted.
• "Powder for reconstitution into beer" means a powder, crystal or other dry substance that, after being mixed with water or other nonalcoholic beverage, ferments to become or otherwise becomes, an alcoholic beverage.
• "Un-denatured spirits" are defined to mean spirits that are not mixed with any substance to render the spirit unfit for human consumption or capable of being rendered unfit for human consumption and includes neutral spirits or alcoholic beverages made from neutral spirits that are fit for human consumption.
• "Vegetable juice" is defined to mean unfermented liquid extracted from the edible part of vegetables, whether or not the extracted liquid is diluted.

Amendment to duty rates

The amendment introduces new duty rates, amending Schedule 2 to the Excise Duty Act as follows:

*Note: Shs is the abbreviation for Ugandan shillings.

The Value Added Tax (Amendment) Act, 2024: Key reforms.

Streamlining previously introduced VAT on supply of goods through auction

The amendment provides that the person liable to pay VAT in the case of supply of goods through auction is the recipient of the proceeds of the auction.

Further amends section 10(4) of the Act to treat a supply of goods by an auctioneer in the course of auctioning goods as a supply of goods by the recipient of the proceeds of the auction. Previously, the supply of goods through auction was treated as a supply made by the auctioneer who was in turn liable for the resultant VAT.

Introduction of taxable supply arising from transactions between an employer to an employee

The amendment provides that the supply of goods or services by an employer who is a taxable person to an employee, for no consideration shall be regarded as the supply of goods or services for consideration as part of the person's business activities. This broadens what constitutes a taxable supply by including circumstances in which an employer supplies goods services to its employees for no consideration.

Increase in refund claim threshold for overpaid tax

Section 42(2) of the Act is amended by substituting the word "five" for the word "ten" wherever it appears. The effect of this amendment is that taxpayers will only be able to apply for VAT refunds where overpaid tax exceeds Shs10m, otherwise, VAT refund claims that do not exceed Shs 10m shall be utilized by URA to offset future liability. Previously, the Vat refund and offset threshold was Shs 5m.

Expansion of the list of public international organizations

The amendment expands the First Schedule by inserting the following in its appropriate alphabetical order:

1. African Reinsurance Corporation (Africa Re)
2. International Regulatory Board of the East African Power Pool
3. Islamic Cooperation for the Development of the Private Sector

Exempt supplies

Amendments of Second Schedule to the VAT Act